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SCHEDULE 14A
(EXCHANGE ACT RULE 14A-101)
INFORMATION REQUIRED IN A 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
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
R.H. DONNELLEY CORPORATION
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[RH Donnelley Logo]
R.H. DONNELLEY CORPORATION
ONE MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
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March 16, 2001
To Our Stockholders:
You are cordially invited to attend the 2001 Annual Meeting of Stockholders
of R.H. Donnelley Corporation to be held on Tuesday, May 1, 2001, at 9:00 a.m.
local time, at The Crowne Plaza White Plains Hotel, 66 Hale Avenue, White
Plains, New York 10601.
The Notice of Annual Meeting and Proxy Statement dated March 16, 2001
accompanying this letter describe the business to be acted upon at the meeting.
The Annual Report for the year ended December 31, 2000 and a form of proxy are
also enclosed. These materials are being mailed to stockholders on or about
March 19, 2001.
Sincerely,
/s/ Frank R. Noonan
Frank R. Noonan
Chairman of the Board and
Chief Executive Officer
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[RH Donnelley Logo]
R.H. DONNELLEY CORPORATION
ONE MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 1, 2001
To the Stockholders of
R.H. Donnelley Corporation:
Notice is hereby given that the 2001 Annual Meeting of Stockholders (the
"Meeting") of R.H. Donnelley Corporation (the "Company") will be held on
Tuesday, May 1, 2001, at 9:00 a.m. local time, at The Crowne Plaza White Plains
Hotel, 66 Hale Avenue, White Plains, New York 10601.
At the Meeting, you will be asked to vote upon the following matters:
1. Election of three Class II members of the Board of Directors, each for
a term of three years;
2. Approval of the 2001 Stock Award and Incentive Plan;
3. Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for 2001; and
4. Any other matter that may properly come before the Meeting or any
postponements or adjournments thereof.
The Board of Directors has fixed the close of business on March 2, 2001 as
the record date for the purpose of determining stockholders entitled to notice
of, and to vote at, the Meeting or any postponements or adjournments thereof. A
list of such stockholders will be available at the Meeting and, during the ten
days prior to the Meeting, at the place of the Meeting as well as the Company's
executive offices located at One Manhattanville Road, Purchase, New York 10577.
By Order of the Board of Directors,
/s/ Robert J. Bush
Robert J. Bush
Vice President, General Counsel
and Corporate Secretary
Purchase, New York
March 16, 2001
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, IT IS VERY IMPORTANT THAT YOU
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE PREPAID
ENVELOPE PROVIDED AS SOON AS POSSIBLE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE
YOUR PROXY AT THAT TIME AND VOTE YOUR SHARES IN PERSON AT THE MEETING.
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[RH Donnelley Logo]
R.H. DONNELLEY CORPORATION
ONE MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
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PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of R.H. Donnelley Corporation (the "Company") of proxies
for use at the Company's 2001 Annual Meeting of Stockholders (the "Meeting") or
at any adjournments or postponements thereof.
TABLE OF CONTENTS
Questions and Answers....................................... 2
Proposals to be Voted Upon.................................. 5
Election of Directors..................................... 5
Approval of 2001 Stock Award and Incentive Plan........... 5
Ratification of Appointment of Independent Accountants.... 12
Board of Directors.......................................... 13
Nominees.................................................. 13
Directors Continuing in Office............................ 14
Committees of the Board of Directors...................... 15
Attendance at Board Meetings.............................. 15
Report of the Audit and Finance Committee................. 16
Director and Executive Compensation......................... 17
Directors' Compensation................................... 17
Executive Compensation.................................... 17
Employment Agreements..................................... 22
Performance Measurement Comparison........................ 24
Report of the Compensation and Benefits Committee......... 25
Security Ownership of Certain Beneficial Owners And
Management................................................ 29
Other Information........................................... 31
How to Nominate Members of the Board of Directors......... 31
Compliance with Section 16(a) of the Securities Exchange
Act.................................................... 31
Delivery of Annual Report on Form 10-K.................... 31
Return of Proxy........................................... 32
ANNEXES:
R.H. Donnelley Corporation 2001 Stock Award and Incentive
Annex A Plan........................................................ A-i
Annex B Audit and Finance Committee Charter......................... B-1
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QUESTIONS AND ANSWERS
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Q: WHAT AM I VOTING ON AT THE MEETING?
A: 1. Election of three Class II members (Kenneth G. Campbell, Carol J.
Parry and Barry Lawson Williams) of the Board of Directors of the
Company for three year terms;
2. Approval of the 2001 Stock Award and Incentive Plan; and
3. Ratification of PricewaterhouseCoopers LLP as the Company's
independent accountants for 2001.
(See pages 5-12 for more details.)
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Q: WHAT DOES THE BOARD OF DIRECTORS RECOMMEND WITH RESPECT TO THE MATTERS
TO BE PRESENTED AT THE MEETING?
A: The Board of Directors recommends a vote IN FAVOR of the (i) election
of the three nominees for the Class II members of the Board of
Directors; (ii) approval of the 2001 Stock Award and Incentive Plan;
and (iii) ratification of PricewaterhouseCoopers LLP as the Company's
independent accountants for 2001.
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Q: WHO IS ENTITLED TO VOTE?
A: Stockholders of record as of the close of business on March 2, 2001
(the "Record Date") are entitled to vote at the Meeting. As of the
Record Date, 30,878,433 shares of the Company's common stock were
outstanding and entitled to vote at the Meeting. As of the Record Date,
the outstanding shares of the Company's common stock were held by
approximately 7,200 holders of record in addition to approximately
17,000 stockholders whose shares were held in nominee name. Each share
of common stock is entitled to one vote on each proposal to properly
come before the Meeting.
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Q: HOW DO I VOTE BY PROXY?
A: Sign and date each proxy card that you receive and return it in the
postage prepaid envelope. The proxy will be voted at the Meeting
according to your instructions as indicated on the proxy card. If the
proxy card is signed and returned but no instructions are given, then
your proxy will be voted in favor of the proposals described herein and
on the proxy card. With respect to proposals brought before the Meeting
but not referenced on the proxy card or in this Proxy Statement, your
proxy will be voted in the discretion of the proxies named on the proxy
card. (See page 3 for more details.)
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Q: MAY I REVOKE MY PROXY?
A: Yes. Your proxy may be revoked at any time before it is voted at the
Meeting by (i) written notice to the Secretary of the Company (at the
address of the Company set forth on the first page of this Proxy
Statement), (ii) a duly executed proxy bearing a later date or (iii)
voting in person at the Meeting.
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Q: HOW DO I VOTE SHARES THAT ARE HELD IN EMPLOYEE BENEFIT PLANS?
A: If you are a participant in the Company's Profit Participation Plan or
the DonTech Profit Participation Plan (collectively the "Plans") and
have funds invested in the Company's common stock, your proxy card will
serve as a voting instruction for the trustee of the respective Plan.
Fractional shares you hold in the Plans are not printed on the proxy
card but will be voted by the trustee as if included thereon. If a
proxy covering shares in the Plans has not been received on or before
April 26, 2001, or if it is signed and returned without instructions,
the trustee will vote those shares in the same proportion as the shares
for which it has received instructions, except as otherwise required by
law.
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Q: WHO WILL COUNT THE VOTE AT THE MEETING?
A: Representatives of The Bank of New York, the Company's transfer agent,
will tabulate the vote and serve as inspector of election at the
Meeting.
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Q: WHAT CONSTITUTES A QUORUM FOR THE MEETING?
A: A majority of the Company's outstanding shares, present or represented
by proxy at the Meeting, constitutes a quorum for purposes of
conducting business at the Meeting. Shares represented by proxies that
are marked "abstain" or "withhold authority" on any or all matters will
be counted as shares present for purposes of determining the presence
of a quorum on all matters. Proxies relating to shares held in "street
name" that are voted by brokers on some but not all of the matters will
be treated as shares present for purposes of determining the presence
of a quorum on all matters.
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Q: WHAT ARE THE VOTING REQUIREMENTS FOR THE APPROVAL OF EACH OF THE
PROPOSALS?
A: 1. The nominees for Class II members of the Board of Directors must be
elected by a plurality of the shares present in person or represented
by proxy and entitled to vote; and
2. The (a) approval of the 2001 Stock Award and Incentive Plan, (b)
ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for 2001 and (c) any other matter
that properly comes before the Meeting, in each case, requires the
approval of the majority of the shares present in person or represented
by proxy and entitled to vote at the Meeting.
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Q: HOW IS MY PROXY VOTED ON MATTERS NOT IDENTIFIED ON THE PROXY CARD OR IN
THIS PROXY STATEMENT?
A: The Board of Directors presently knows of no other matters to be
presented for action at the Meeting. However, the proxy card confers
upon the persons named on the proxy card authority to vote your shares
in their discretion upon any other matter that may properly come before
the Meeting.
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Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It means that your shares are registered differently and, therefore,
are in more than one account. Sign and return all proxy cards to ensure
that all of your shares are voted. To provide better stockholder
services, we encourage you to have all shares and accounts registered
in the same name and address. You may do this by contacting our
transfer agent, The Bank of New York, at 1-800-524-4458.
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Q: WHO MAY ATTEND THE ANNUAL MEETING?
A: All stockholders as of the Record Date (March 2, 2001) are invited to
attend, although seating may be limited.
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Q: WHO IS BEARING THE COST OF THIS PROXY SOLICITATION AND HOW IS THE
SOLICITATION EFFECTED?
A: The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the
Company. The solicitation of proxies may be made by directors, officers
and employees of the Company personally or by mail, telephone or
facsimile communication. No additional compensation will be paid for
such solicitation. In addition, arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to
forward proxy soliciting material to the beneficial owners of stock
held of record by such persons, and the Company will reimburse them for
reasonable out-of-pocket expenses incurred by them in so doing.
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Q: UNDER WHAT CIRCUMSTANCES MAY THE MEETING BE ADJOURNED?
A: Adjournments may be made for the purpose of, among other things,
soliciting additional proxies. Any adjournment may be made from time to
time by approval of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Meeting
(whether or not a quorum exists) without further notice other than by
an announcement made at the Meeting. The Company does not currently
intend to seek an adjournment of the Meeting.
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Q: WHEN ARE STOCKHOLDER PROPOSALS DUE FOR INCLUSION IN THE COMPANY'S PROXY
STATEMENT FOR THE 2002 ANNUAL MEETING?
A: Proposals of the Company's stockholders intended to be presented at the
Company's 2002 Annual Meeting of Stockholders must be received by the
Company no later than November 23, 2001 to be included in the Company's
proxy statement and form of proxy relating to the 2002 Annual Meeting.
Any proposal should be addressed to Robert J. Bush, Esq., Vice
President, General Counsel and Corporate Secretary, R.H. Donnelley
Corporation, One Manhattanville Road, Purchase, New York 10577, and
should be sent by certified mail, return receipt requested. (Also see
"Other Information -- How to Nominate Members of the Board of
Directors" on page 31.)
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PROPOSALS TO BE VOTED UPON
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes. At the
2001 Annual Meeting of Stockholders, Kenneth G. Campbell, Carol J. Parry and
Barry Lawson Williams, presently Class II directors and the Board of Directors'
nominees for Class II of the Board of Directors, are up for re-election. (See
page 13 for more information regarding the nominees.) If elected, they will each
serve until the 2004 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified. Unless a proxy shall specify that it
is not to be voted for them, the shares of common stock represented by each duly
executed and returned proxy will be voted FOR their election as directors.
With respect to the election of directors, only shares that are voted in
favor of a particular nominee will be counted toward such nominee's achievement
of a plurality. Shares present at the Meeting that are not voted for a
particular nominee or shares present by proxy where the stockholder properly
withholds authority to vote for such nominee or broker non-votes will not be
counted toward such nominee's achievement of a plurality. A "broker non-vote"
occurs when a broker does not have the authority to vote on a particular
proposal. This happens because brokers who hold shares in "street name" have the
authority to vote only on certain routine matters in the absence of instructions
from the beneficial owners.
If any nominee does not stand for re-election at the Meeting, an event
which the Board of Directors does not anticipate, the proxies will be voted for
a substitute nominee appointed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES.
PROPOSAL 2:
APPROVAL OF 2001 STOCK AWARD AND INCENTIVE PLAN
The Board of Directors adopted the R.H. Donnelley Corporation 2001 Stock
Award and Incentive Plan (the "2001 Plan") at its regular meeting on February
27, 2001, subject to approval by stockholders. The purposes of the Plan are to:
- Advance the interests of the Company and its stockholders by providing
incentives to attract, retain, motivate and reward employees and
non-employee directors of the Company and its subsidiaries or affiliates;
- Create long-term shareholder value by linking the participants'
compensation to the Company's performance with stock-based and cash-based
incentives; and
- Recognize individual contributions and reward achievement of Company
goals.
Upon approval by stockholders, the 2001 Plan will replace a number of
Company plans, including the 1991 Key Employees' Stock Option Plan; the Key
Employees' Performance Unit Plan; the Annual Incentive Plan; and the 1998
Directors' Stock Plan, each as it may have been amended to date (collectively,
the "Preexisting Plans").
A summary of the material features of the 2001 Plan follows. It is subject
to, and you should also review, the full text of the 2001 Plan, which can be
found at Annex A.
ELIGIBLE PARTICIPANTS. Employees and non-employee directors of the Company
or its subsidiaries or affiliates will be eligible for awards under the 2001
Plan. Any person who is offered employment will also be eligible but cannot
receive any benefit under his or her award until after beginning employment with
the Company or a subsidiary or affiliate. Currently, approximately 650 employees
and seven non-employee directors would be eligible for awards under the 2001
Plan.
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NUMBER OF AUTHORIZED SHARES. Upon approval by the Company's stockholders,
the 2001 Plan will authorize the Company to issue up to a total of 4 million
shares of common stock, plus 10% of any shares issued by the Company other than
in connection with any incentive compensation plan, including the 2001 Plan. The
number of shares authorized by the 2001 Plan represents approximately 13% of the
Company's outstanding stock on the Record Date. Shares may be issued from
treasury or other currently authorized but unissued shares.
No further awards under the Company's Preexisting Plans will be made upon
stockholder approval of the 2001 Plan, provided that existing awards under the
Preexisting Plans will continue to be governed by the Preexisting Plans.
However, shares that subsequently become available under the Preexisting Plans
will be available for award under the 2001 Plan. These include shares that are
cancelled, expired, forfeited, settled in cash, or otherwise terminated without
a delivery of shares. As of the Record Date, the Company had approximately 3.3
million shares reserved for outstanding awards under the Preexisting Plans. The
closing price of the Company's common stock on the Record Date was $28.35 per
share.
If the 2001 Plan is not approved by stockholders, the Preexisting Plans
will remain in effect and awards could still be made under those Preexisting
Plans, except that no awards may be made under the 1991 Key Employees' Stock
Option Plan after February 18, 2001.
SHARE COUNTING. The 2001 Plan includes rules to assure that all awards are
properly counted. For most purposes, the rules recognize all forms of awards
permitted by the 2001 Plan as interchangeable. Forfeited, terminated or expired
awards of shares, as well as awards settled in cash without issuing any shares
(whether under the 2001 Plan or any Preexisting Plan), will become available for
future awards. So too will any shares a participant surrenders to pay the
exercise price of an award and those which the Company withholds to satisfy a
withholding tax obligation. In addition, shares that are issued or are issuable
in connection with any awards used to substitute for awards under a compensation
plan of an acquired entity will not count against the shares authorized under
the 2001 Plan.
ADJUSTMENTS. The Company may adjust the number of shares authorized by the
2001 Plan if there is a stock-split, stock dividend, merger or other
extraordinary event. In each of those cases, the Company may also adjust
existing awards outstanding under the 2001 Plan in addition to adjusting any
aggregate or individual limits in the 2001 Plan, including the number of shares
available for awards other than stock options or stock appreciation rights.
However, these adjustments will not enlarge the proportionate interest
represented by the shares before the extraordinary event, but will be made to
prevent a reduction in the value of the Company's outstanding shares, also
called dilution.
PLAN ADMINISTRATION. The Compensation & Benefits Committee of the
Company's Board of Directors will administer the 2001 Plan. Members of the
Committee are "non-employee directors" within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and "outside
directors" within the meaning of Internal Revenue Code Section 162(m) ("Code
Section 162(m)"). See "Committees of the Board of Directors" on page 15 for
further information regarding the Committee. The Board of Directors itself may
also administer the 2001 Plan, and only the Board of Directors may make awards
to non-employee directors. In addition, the Board and the Compensation &
Benefits Committee may delegate the authority to perform any function (whether
administrative or otherwise) to the fullest extent permitted by the Delaware
General Corporation Law, except to the extent that by doing so any award would
fail to qualify for (i) any exemption under Rule 16b-3(d) of the Exchange Act or
(ii) treatment as "performance-based compensation" under Code Section 162(m).
For convenience, we will refer to anyone who administers the 2001 Plan as the
"Committee."
Administration of the 2001 Plan includes selecting eligible individuals who
will receive awards, determining the type of awards and their specific terms
(e.g., valuation/exercise price, vesting, expiration, etc.), deciding whether
specific awards should be accelerated or cancelled in appropriate cases and
otherwise interpreting the 2001 Plan. All decisions of the Committee with
respect to the administration of the 2001 Plan will be final, conclusive and
binding on all persons interested in the 2001 Plan.
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FORM OF AWARDS. The 2001 Plan awards may take a number of forms, including
stock options ("Options"), stock appreciation rights ("SARs"), limited SARs,
restricted stock ("Restricted Stock"), deferred stock ("Deferred Stock"), bonus
shares, stock granted in lieu of another kind of compensation, and other awards
tied to the market value of the Company's common stock or factors that influence
its value. Options and SARs allow a participant to benefit from increases in the
market price of the Company's common stock after the grant date. Other awards
may allow a participant to receive the current value of common stock on the
grant date as well as appreciation in value, and therefore these could be more
costly to the Company. Accordingly, the 2001 Plan limits the number of shares
that may be used for awards other than Options or SARs to 1 million shares,
subject to adjustment as described above. The awards to be received by
participants under the 2001 Plan (other than for non-employee directors whose
annual awards are described below under "-- Non-employee Directors") are not yet
determinable as those awards will be made at the discretion of the Committee.
STOCK OPTIONS AND SARS. Options include both incentive stock options
(called "ISOs"), which may result in favorable tax treatment to the participant,
and non-qualified stock options. An SAR or a limited SAR entitles the
participant to receive payment of the amount of appreciation in the market value
of his or her shares on the exercise date over the grant price. SARs may be
granted in tandem with, or independently from, Options. A limited SAR is a SAR
that is exercisable only in limited circumstances, such as following a Change in
Control (as defined in the 2001 Plan) of the Company or any other special event
specified by the Committee. The Committee will determine exercise prices for
options and grant prices for SARs and limited SARs, but these may not be less
than the fair market value of the Company's common stock on the grant date,
except when determined to be appropriate by the Committee if a participant gives
up a right to compensation equal to any discount in the exercise price or grant
price.
Options will have a maximum term of ten years. The participant may pay the
exercise price of an option in cash, stock, other awards that have in-the-money
value or any other means approved by the Committee. These could include notes or
other obligations to make payment on a deferred basis or broker-assisted
cashless exercise procedures to the extent permitted by law. In addition, the
terms of any ISOs that are granted to any participant will comply with the
provisions of Internal Revenue Code Section 422.
RESTRICTED STOCK. Restricted Stock is a grant of shares that is subject to
a risk of forfeiture, transferability restrictions and/or other restrictions as
determined by the Committee (including satisfaction of performance goals and
service requirements). Upon termination of employment or service, Restricted
Stock that is subject to restriction will be forfeited (subject to the
Committee's discretion to make exceptions on a case by case basis). Restricted
Stock generally entitles the recipient to all the rights of a stockholder,
including the right to vote and receive dividends. Such dividends (if declared)
will be paid to participants at the time and in the form determined by the
Committee.
The 2001 Plan contains certain limitations on the terms and conditions upon
which the Committee may award Restricted Stock. Generally, Restricted Stock will
vest over a minimum of three years. However, if the grant of Restricted Stock is
based upon the achievement of performance conditions, it may vest over as little
as a one-year period. Up to 5% of the shares authorized under the 2001 Plan may
be granted as Restricted Stock without any minimum vesting conditions.
DEFERRED STOCK. Deferred Stock gives a participant the right to receive
shares at the end of a defined deferral period selected by the Committee or the
participant. Deferred Stock is subject to restrictions on transferability, risk
of forfeiture and/or other restrictions imposed by the Committee. Upon
termination of employment or service, Deferred Stock that is at that time
subject to forfeiture will be forfeited (subject to the Committee's discretion
to make exceptions on a case by case basis).
PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS. The Committee may
require a participant to meet certain performance goals as a condition of any
award or as a condition to exercise or to an acceleration of settlement. The
Committee will determine if and when any such performance goals are satisfied by
applicable participants.
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Performance awards may take the form of annual incentive awards that are
subject to settlement in cash or in stock when the participant achieves the
performance goals for a particular year. In this way, the Committee intends to
qualify such annual incentive awards to avoid the limitation on tax
deductibility under Code Section 162(m). The Committee may adjust performance
conditions and other terms of performance awards in keeping with extraordinary
corporate events or changes in laws, regulations or accounting principles, but
any adjustment to an award intended to qualify as performance-based must still
comply with the requirements of Code Section 162(m). In accordance with Code
Section 162(m), the Committee may, in its discretion, pay out less (but not
more) than the amount called for by any performance award intended to qualify
for full tax deductibility under Code Section 162(m).
The Committee may also establish a performance award pool on an unfunded
basis for purposes of measuring Company performance in connection with
performance awards. The amount of such pool will be determined by achievement of
one or more goals established by the Committee. For purposes of Code Section
162(m), performance goals must be established no later than the earlier of (i)
90 days after the beginning of the performance period, or (ii) before 25% of the
performance period has elapsed. See "-- Compliance with Code Section 162(m)"
below for a discussion of other relevant matters.
DIVIDEND EQUIVALENTS. The Committee is authorized to grant the right to
receive dividends declared on the Company's common stock either alone or as part
of any award. The Committee may provide that these dividend equivalents may be
paid or distributed when declared or may be deemed to be reinvested in
additional shares, awards or other investment vehicles on terms and conditions
established by the Committee. The Company does not presently pay, or expect in
the foreseeable future to pay dividends.
OTHER TERMS. The Company may settle awards under the 2001 Plan in cash,
shares, other awards or other property. The settlement of any award may be
accelerated by the Committee in its discretion upon the occurrence of one or
more special events. The Committee may also make awards in exchange for other
awards or other rights to payment from the Company. All awards will be
non-transferable, except upon death or as may be permitted in individual cases
for estate planning and similar purposes. Participants will not normally give
consideration for awards under the 2001 Plan, other than their services to the
Company.
CHANGE IN CONTROL. Unless otherwise provided in any award agreement, if a
Change in Control of the Company occurs, all outstanding awards will immediately
vest and become fully exercisable, while any deferral of settlement, forfeiture
conditions and/or other restrictions will lapse and such awards shall be fully
payable as of the effective date of the Change in Control (unless waived or
deferred at participant's option). In addition, the Committee may decide to
offer participants the right to receive cash settlement equal to the intrinsic
value of any Options held by a participant. The Committee may also decide that
participants have met their performance goals and other conditions of such
awards in the event of a Change in Control. Termination of a participant's
employment by the Company without Cause (as defined in the 2001 Plan) after the
commencement of negotiations with respect to a potential business combination
will result in acceleration of vesting of the participant's outstanding awards
if such negotiations result in a transaction constituting a Change in Control
within 24 months following the commencement of such negotiations. Such
acceleration will be retroactive to the time immediately preceding the Change in
Control.
TERMINATION AND AMENDMENT OF THE 2001 PLAN. The 2001 Plan will terminate
when no shares remain available for issuance and when the Company has no further
obligations under outstanding awards, provided that no ISOs may be granted after
February 26, 2011. Before termination, the Board of Directors may amend, suspend
or terminate the 2001 Plan without further stockholder approval, unless
applicable law or exchange rules require such approval, or if such amendment
would materially increase the number of shares reserved for issuance and
delivery under the 2001 Plan. No amendment may have a material adverse effect on
awards previously granted without the affected holder's consent. Specifically,
stockholders need not approve amendments that might increase the cost to the
Company of the 2001 Plan. In its discretion, however, the Board of Directors may
submit other amendments for stockholder approval.
REPRICING. Without the approval of stockholders, the Committee will not
amend or replace previously granted Options in a transaction that constitutes a
"repricing," as such term is used in Instruction 3 to Item 402(b)(2)(iv) of
Regulation S-K, as promulgated by the Securities and Exchange Commission.
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FORFEITURE OF AWARD GAINS. The 2001 Plan contains certain restrictive
covenants, including non-compete, non-solicitation and non-disclosure
provisions, that govern the behavior of participants (other than non-employee
directors) during their employment with the Company and for 12 months after
termination of their employment. Compliance with each of the covenants contained
in the 2001 Plan is a pre-condition to a participant's right to realize and
retain any gain from any award made under the 2001 Plan. In the event that a
participant violates any of these covenants ("Forfeiture Event"), the Company
has the right to recover all gains derived from 2001 Plan-based awards realized
by that participant within the period that is six months prior to the date of
the Forfeiture Event or the participant's termination of employment, and to
cancel any existing awards. The Committee has discretion to waive or modify the
Company's right to forfeiture, or to include additional forfeiture provisions in
the agreement governing any 2001 Plan award.
NON-EMPLOYEE DIRECTORS. The 2001 Plan provides that non-employee directors
will be compensated in accordance with the policies of the Board of Directors,
which are subject to change from time to time. Currently, these policies provide
that each non-employee director of the Company will receive (i)(a) 1,500 shares
of deferred stock and (b) an option to purchase 1,500 shares of the Company's
common stock upon his or her initial election or appointment to the Board, and
(ii)(a) 1,500 shares of deferred stock and (b) an option to purchase 1,500
shares of common stock at each annual meeting of the Company's stockholders
thereafter. All such deferred stock and option grants currently vest in three
equal installments on the day before the date of the next three annual meetings
of stockholders following the date of grant, subject to acceleration in the
event of death, disability or retirement of the non-employee director or a
Change in Control of the Company. Any unvested portion of such deferred stock or
option grants will be forfeited in the event of a termination of service prior
to a Change in Control for any reason other than death, disability or
retirement.
Each non-employee director may elect to receive retainer fees in the form
of options or to defer the receipt of retainer fees and/or other director
compensation into deferred stock or deferred cash. Non-employee directors who
elect to receive options will be granted an appropriate number of options, as
determined by the Board of Directors using a reasonable option valuation
methodology, such as the Black-Scholes option pricing methodology. Such options
will be fully vested by the conclusion of one year and have a ten-year term,
unless forfeited earlier by the termination of the non-employee director's
service.
If retainer fees and/or other director compensation are deferred into
deferred stock, an appropriate number of deferred shares will be credited to the
non-employee director's account as of the date such retainer fees or other
director compensation otherwise would have been payable. If dividends are paid,
a non-employee director will have the right to receive dividend equivalents on
such deferred stock. If retainer fees and/or other director compensation are
deferred into deferred cash, such amounts will accrue interest or investment
earnings in accordance with investment alternatives offered from time to time
under the Company's Deferred Compensation Plan. The right and interest of each
non-employee director relating to deferrals of retainer fees into deferred stock
or deferred cash is always nonforfeitable.
Non-employee directors may designate in writing the timing upon which
deferred amounts will be settled and whether distribution will be in a single
lump sum or in annual installments. In the event of a Change in Control,
settlement of deferred amounts will be made within fifteen (15) business days
following such Change in Control.
FEDERAL INCOME TAX SUMMARY. The following is a summary of the current,
general federal income tax consequences of awards under the 2001 Plan. It is not
intended to be a comprehensive description of all possible tax consequences
related to awards under the 2001 Plan.
The grant of an Option or SAR will trigger no federal income tax for a
participant or a deduction for the Company. Nor will the participant have
taxable income upon exercising an ISO, although the alternative minimum tax may
apply. Upon the exercise of an Option that is not an ISO, the difference between
the exercise price and the fair market value of the Option shares is taxable to
the participant as ordinary income on the exercise date. On the exercise of a
SAR, the cash or the fair market value of the shares received will also be
taxable as ordinary income.
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If a participant disposes of ISO shares before the end of applicable ISO
holding periods, he or she will be taxed on ordinary income equal to the lesser
of (i) the fair market value of the shares at exercise minus the exercise price,
or (ii) the amount realized upon the disposition minus the exercise price. The
applicable ISO holding period is the longer of two years from the date of grant
or one year from the date of exercise. Otherwise, a disposition of shares
acquired by exercising an Option or SAR will result in short-term or long-term
capital gain or loss equal to the sale price minus the participant's tax basis
in such shares. The tax basis is the exercise price paid plus any amount
previously taxed as ordinary income upon exercise of the award.
The Company is normally entitled to a tax deduction equal to the amount
taxed as ordinary income to the participant. The Company will not be entitled to
a tax deduction for amounts taxed as capital gain to the participant. Therefore,
the Company will not be entitled to a tax deduction if a participant exercises
an ISO and holds the shares received for the ISO holding period.
In the case of awards other than Options and SARs, the participant
generally will be taxed on ordinary income equal to the fair market value of
shares, cash or other property received. This tax will accrue at the time of
receipt, except in the case of an award that is non-transferable and subject to
a risk of forfeiture. In that case, the tax may not accrue until lapse of at
least one of these restrictions, although the participant may elect to be taxed
at the time of grant. Subject to an exception discussed below under
"-- Compliance with Code Section 162(m)", the Company will be entitled to a tax
deduction in an amount equal to the ordinary income taxed to the participant.
COMPLIANCE WITH CODE SECTION 162(M). The Committee intends that some
awards under the 2001 Plan should qualify as performance-based, as defined in
Code Section 162(m). Code Section 162(m) imposes a cap of $1 million on the
amount of tax deductions the Company may take for compensation to any particular
executive in a single year, but qualifying performance-based compensation
remains fully deductible regardless of its amount. Under the 2001 Plan, Options
and SARs, annual incentive awards to employees whom the Committee expects to be
covered executives and other awards conditioned upon achievement of performance
goals are intended to qualify as performance-based compensation.
By approving the 2001 Plan, stockholders will also be approving the
eligibility of executive officers and others to participate, the per-person
limitations and the general business criteria on which performance objectives
for performance-based awards may be based. The 2001 Plan imposes per-person
limitations so that a participant may not receive awards intended to qualify as
performance-based in excess of his or her annual limit. For each type of award,
a participant's annual limit is two million shares plus the amount of his or her
unused annual limit for that same type of award at the end of the previous year.
In the case of awards not valued in a way in which the share limitation would be
effective -- for example, cash annual incentive awards -- a participant may not
be paid during any calendar year an amount that exceeds his or her annual limit,
which is $4 million each year plus the amount of the participant's unused cash
annual limit for the previous year. A participant's annual limit applies if it
is potentially earnable, even if there is a deferral of payout. Options, SARs,
limited SARs, Restricted Stock, Deferred Stock, other stock-based awards, annual
incentive awards and long-term performance awards each represent a separate type
of award for purposes of the annual limit. The annual limit has been set above
the Committee's present anticipated award levels because Code Section 162(m)
permits only downward discretionary adjustments.
In establishing goals for a performance-based award to an executive who is
subject to Code Section 162(m), the Committee may select any of the following
business criteria: (1) advertising sales (either calendar cycle or publication
cycle basis) or other sales or revenue measures; (2) operating income, earnings
from operations, earnings before or after taxes, earnings before or after
interest, depreciation, amortization, or extraordinary or special items; (3) net
income or net income per common share (basic or diluted); (4) return on assets,
return on investment, return on capital, or return on equity; (5) cash flow,
free cash flow, cash flow return on investment, or net cash provided by
operations; (6) interest expense after taxes; (7) economic profit or value
created; (8) operating margin; (9) stock price or total stockholder return; and
(10) strategic business criteria, consisting of one or more objectives based on
meeting specified market penetration, geographic business expansion goals, cost
targets, customer
10
14
satisfaction, employee satisfaction, management of employment practices and
employee benefits, supervision of litigation and information technology, and
goals relating to acquisitions or divestitures of subsidiaries, affiliates or
joint ventures. The targeted level or levels of performance of business criteria
may be established by the Committee in absolute terms, as a goal relative to
performance in prior periods, or as a goal compared to the performance of one or
more comparable companies or an index covering multiple companies. These
business criteria may apply to the Company on a consolidated basis or to
specified subsidiaries or business units. Both annual incentive awards and
long-term performance awards may incorporate these criteria. Stockholder
approval of the 2001 Plan, including these business criteria without specific
targeted levels of performance, will qualify awards as performance-based for a
period of approximately five years. Thereafter, the 2001 Plan authorizes further
awards of Options and SARs that may continue to qualify as performance-based
under Code Section 162(m), as well as other awards that will not so qualify.
A number of other requirements must be met in order for particular
compensation to qualify as performance-based under Code Section 162(m). There
can be no assurance that compensation resulting from awards under the 2001 Plan
intended to qualify under Code Section 162(m) will in fact be fully deductible
under all circumstances. In addition, the 2001 Plan authorizes types of awards
that will not qualify as performance-based. Compensation paid as a result of
these awards may be subject to the limitation on deductibility under Code
Section 162(m) if it and other non-performance-based compensation paid to any
named executive exceed $1 million in a given year. The Committee's policy is to
preserve corporate tax deductions attributable to the compensation of executives
while maintaining the flexibility to approve, when appropriate, compensation
arrangements which it deems to be in the best interests of the Company and its
stockholders, but which may not always qualify for full tax deductibility under
Code Section 162(m).
With respect to Proposal 2, if a stockholder abstains from voting or
directs the stockholder's proxy to abstain from voting, the shares are
considered present at the Meeting for such proposal but, since they are not
affirmative votes for the proposal, they will have the same effect as votes
against the proposal. With respect to broker non-votes on such proposal, the
shares are not considered present at the Meeting for such proposal and they are,
therefore, not counted in respect of such proposal. Such broker non-votes,
however, do have the practical effect of reducing the number of affirmative
votes required to achieve a majority for such proposal by reducing the total
number of shares from which the majority is calculated.
The non-employee directors and management each have an interest in this
Proposal 2 since they are eligible participants under the 2001 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2001 STOCK
AWARD AND INCENTIVE PLAN.
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PROPOSAL 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
It is proposed that the stockholders ratify the appointment by the Board of
Directors of PricewaterhouseCoopers LLP as independent accountants for the
Company for the year ending December 31, 2001. The Company expects
representatives of PricewaterhouseCoopers LLP to be present at the Meeting and
available to respond to appropriate questions submitted by stockholders. Such
representatives will also be afforded an opportunity at such time to make such
statements as they may desire. See page 16 for the Report of the Audit and
Finance Committee on Financial Reporting for certain disclosures that may be
relevant to the selection of independent accountants.
Approval by the stockholders of the appointment of the Company's
independent accountants is not required by law, any applicable stock exchange
regulation or by the Company's organizational documents, but the Board of
Directors deems it desirable to submit this matter to stockholders as a
corporate governance practice. If holders of a majority of the outstanding
shares of common stock present in person or represented by proxy and entitled to
vote at the Meeting do not ratify the Company's appointment of
PricewaterhouseCoopers LLP, the selection of independent accountants will be
reconsidered by the Board, but not necessarily changed.
With respect to Proposal 3, if a stockholder abstains from voting or
directs the stockholder's proxy to abstain from voting, the shares are
considered present at the Meeting for such proposal but, since they are not
affirmative votes for the proposal, they will have the same effect as votes
against the proposal. With respect to broker non-votes on such proposal, the
shares are not considered present at the Meeting for such proposal and they are,
therefore, not counted in respect of such proposal. Such broker non-votes,
however, do have the practical effect of reducing the number of affirmative
votes required to achieve a majority for such proposal by reducing the total
number of shares from which the majority is calculated.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS FOR THE
COMPANY FOR 2001.
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BOARD OF DIRECTORS
NOMINEES
CLASS II -- TERM TO EXPIRE AT THE 2004 ANNUAL MEETING
KENNETH G. CAMPBELL Director since November 1999
Mr. Campbell, 54, was the co-founder and has been Chairman and Chief
Executive Officer of Centegy Corporation (formerly NETEQ, Inc.) since 1998. Mr.
Campbell co-founded and was Executive Vice President of Affiliate Sales and
Operations at USWEB from 1995 to 1998. From 1992 to 1995, Mr. Campbell was Vice
President and General Manager, North America at Inmac Corporation. From 1990 to
1992, Mr. Campbell was co-founder and President of Advanced Partners. Prior to
that, Mr. Campbell held management positions at CopyMat Corporation from 1988 to
1990 and was co-founder and Vice President of Sales and Operations for
USTelecenters from 1985 to 1988. Mr. Campbell serves on the board of Centegy
Corporation.
CAROL J. PARRY Director since June 1998
Ms. Parry, 59, has been the President of Corporate Social Responsibility
Associates since September 2000. Previously, Ms. Parry served as Executive Vice
President in charge of the Community Development Group at The Chase Manhattan
Bank (the "Bank") from 1996 to June 1999. In 1999, Ms. Parry was nominated to
serve on the Board of Governors of the Federal Reserve System, the central bank
of the United States. Ms. Parry was Managing Director of the Bank's Community
Development Group from 1992 to 1996 and served on the Bank's Policy Council, the
central governing body of the Bank, from 1997 to 1999. Ms. Parry has served on
the Federal Reserve Board Advisory Council and the advisory board for the
Community Development Financial Institutions Program. Ms. Parry is a Trustee for
the Committee for Economic Development and serves on the boards of a number of
not-for-profit organizations.
The Bank is Administrative Agent for, and one of the lenders under, the
Company's $400 million credit facility, and an affiliate of the Bank was one of
the initial purchasers of the Company's 9 1/8% subordinated notes in the
aggregate principal amount of $150 million. In connection with serving in such
roles, the Bank and its affiliate received usual and customary fees. All of such
debt was incurred by the Company in order to fund certain cash distributions
payable to The Dun & Bradstreet Corporation ("D&B"), the Company's former
parent, in connection with the spin-off ("Spin-Off") of D&B from the Company
effective as of July 1, 1998.
BARRY LAWSON WILLIAMS Director since June 1998
Mr. Williams, 56, is currently serving as President and Chief Executive
Officer of the American Management Association International from November 2000
to present. He also serves as President and Founder of Williams Pacific
Ventures, Inc. since 1988, Senior Mediator of JAMS/Endispute, Inc. since 1993,
Adjunct Lecturer, Entrepreneurship at Haas School of Business since 1995, and
General Partner of WDG Ventures (a California limited partnership) since 1987.
He was previously President of C.N. Flagg Power Inc. from 1989 to 1992. Mr.
Williams serves on the boards of CH2M Hill Companies, Ltd., Newhall Land &
Farming Company, Northwestern Mutual Life Insurance Company, PG&E Corp.,
Synavant Inc. and Simpson Manufacturing Company. Mr. Williams is also a
director-elect of Kaiser Permanente and serves on the boards of a number of
other not-for-profit organizations.
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DIRECTORS CONTINUING IN OFFICE
CLASS I -- TERM EXPIRES AT THE 2003 ANNUAL MEETING
DIANE P. BAKER Director since June 1998
Ms. Baker, 46, was Senior Vice President and Chief Financial Officer of The
New York Times Company from 1995 to 1998. From 1990 through 1995, Ms. Baker was
Group Senior Vice President and Chief Financial Officer of R.H. Macy & Co., Inc.
Ms. Baker is a Trustee for the New School University and serves on the boards of
a number of not-for-profit organizations.
ROBERT KAMERSCHEN Director since June 1998
Mr. Kamerschen, 65, has been Chairman and Chief Executive Officer of DIMAC
Corporation since October 1999. In July 1999, he retired as Chairman of ADVO,
Inc., a position he had held since 1989, and has served as Senior Consultant to
ADVO, Inc. since July 1999. Prior to January 1999, in addition to serving as
Chairman of ADVO, Inc., Mr. Kamerschen had also been Chief Executive Officer
since 1988. Mr. Kamerschen currently serves on the boards of Coolsavings.com,
DIMAC Corporation, IMS Health Incorporated, Micrografx, Inc., Synavant, Inc.,
Tandy Corporation and TravelCLICK.com. Mr.
Kamerschen is a Trustee for the University of Hartford and serves on the boards
of a number of not-for-profit organizations.
CLASS III -- TERM EXPIRES AT THE 2002 ANNUAL MEETING
DARIUS W. GASKINS, JR. Director since November 1999
Mr. Gaskins, 61, has been a founding partner of Norbridge, Inc. since 1993
and a partner of High Street Associates since 1991. Mr. Gaskins was a visiting
professor at Harvard University, John F. Kennedy School of Government, Center
for Business and Government from 1989 to 1991. Mr. Gaskins served as President
and Chief Executive Officer of Burlington Northern Railroad from 1985 to 1989.
Prior to that, Mr. Gaskins held several senior federal government positions
including Chairman of the Interstate Commerce Commission. Mr. Gaskins serves on
the boards of Anacomp, Inc., Northwestern Steel and Wire Company and Sapient
Corporation. Mr. Gaskins is Chairman of Resources for the Future, a not-for-
profit organization.
WILLIAM G. JACOBI Director since June 1998
Mr. Jacobi, 57, was Chairman of Nielsen Media Research, Inc. from November
1996 to October 1999. He was Chairman of IMS International from February 1995 to
December 1997 and Executive Vice President of Cognizant Corporation from
September 1996 to December 1997. Mr. Jacobi served as Executive Vice President
of The Dun & Bradstreet Corporation from February 1995 to October 1996 and
Senior Vice President of The Dun & Bradstreet Corporation from July 1993 to
February 1995. Mr. Jacobi was President and Chief Operating Officer of Nielsen
Media Research, Inc. from 1991 to 1993. Mr. Jacobi held other management
positions at Dun & Bradstreet since joining in 1978. Mr. Jacobi serves on the
board of the Windward School.
FRANK R. NOONAN Director since April 1998
Mr. Noonan, 58, has been a director of R.H. Donnelley Inc. since February
1995, its President from August 1991 to December 2000, and has been Chairman and
Chief Executive Officer of the Company since June 30, 1998. Mr. Noonan was a
director of The Dun & Bradstreet Corporation from April 1998 to June 1998. Mr.
Noonan was Senior Vice President Finance of Dun & Bradstreet Information
Services from 1989 to August 1991. Prior to joining Dun & Bradstreet, Mr. Noonan
served as Senior Vice President and Chief Financial Officer of UNUM Corporation
and in various financial positions for the General Electric Company. Mr. Noonan
is Vice Chairman of the Board of Trustees for New York United Hospital Medical
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Center, a member of the Boards of Trustees of Manhattanville College and the
University of New Hampshire Foundation, and Vice Chairman of the Board of
Governors for the Buick Classic.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit and Finance Committee
The Audit & Finance Committee has overall responsibility for the integrity
of the Company's financial reporting process, including oversight of the
preparation of financial statements and related financial information, as well
as the annual independent audit of such statements. The Audit & Finance
Committee, among other matters: recommends independent certified public
accountants; reviews the scope of the audit examination, including fees and
staffing; reviews the independence of the accountants; assesses the adequacy of
financial disclosures to shareholders and reviews and approves the interim and
year-end financial statements prepared by management prior to external
reporting; reviews and approves non-audit services provided by the accountants,
if any; reviews findings and recommendations of the accountants and management's
response; reviews the internal audit function; reviews the system of internal
controls; assesses the adequacy of the Committee Charter (the Committee Charter
has been included as Annex B) and recommends changes to the Charter as
appropriate; and prepares the Report of the Audit and Finance Committee on
Financial Reporting included in this Proxy Statement on page 16. In addition,
the Audit and Finance Committee has responsibility for reviewing existing
financing arrangements (and compliance with governing documents) and for making
recommendations to the Board regarding financing requirements for the Company
and sources for such financing. The Audit and Finance Committee met three times
during 2000. The Audit and Finance Committee members are Messrs. Williams
(chairperson) and Gaskins and Mdmes. Baker and Parry.
Compensation & Benefits Committee
The Compensation & Benefits Committee, among other matters: reviews
management compensation programs; reviews and approves compensation changes for
senior management; administers the Company's compensation and benefit plans; and
prepares the Report of the Compensation and Benefits Committee included in this
Proxy Statement beginning on page 25. The Compensation & Benefits Committee met
six times during 2000. The Compensation and Benefits Committee members are
Messrs. Kamerschen (chairperson) and Williams and Ms. Baker.
Corporate Governance Committee
The Corporate Governance Committee, among other matters: makes
recommendations to the Board regarding criteria to be used to assess
qualifications for Board membership; reviews qualifications of potential
candidates and makes recommendations to the Board of persons to serve on the
Board and the various committees of the Board; and makes recommendations to the
Board regarding corporate governance guidelines. The Corporate Governance
Committee met twice during 2000. The Corporate Governance Committee members are
Ms. Parry (chairperson) and Messrs. Campbell, Jacobi and Kamerschen.
Stockholders' recommendations for nominees to the Board of Directors will
be considered by the Corporate Governance Committee provided such nominations
are made in accordance with the Company's By-Laws. (See discussion on page 31.)
ATTENDANCE AT BOARD MEETINGS
Eleven meetings of the Board of Directors were held during 2000. No
director attended fewer than 75% of the aggregate of all meetings of the Board
of Directors and of the committees of the Board on which he or she served during
the period for which he or she was a director.
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REPORT OF THE AUDIT AND FINANCE COMMITTEE
ON FINANCIAL REPORTING
The Audit and Finance Committee of the Board of Directors (the "Committee")
is comprised entirely of independent directors, within the meaning of, and in
accordance with, applicable New York Stock Exchange rules. The Committee
operates pursuant to a written charter attached to this Proxy Statement as Annex
B and under delegated authority from the Board of Directors.
Management is responsible for the Company's financial reporting process,
financial statements (including notes thereto) and internal controls. The
Company's independent accountants, PricewaterhouseCoopers LLC ("PwC"), are
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted auditing standards,
and issuing a written report thereon to the Board and the Company's
shareholders. The Committee is responsible for monitoring and overseeing this
entire process.
In this context, the Committee met and held discussions with management and
PwC regarding the financial reporting process, the consolidated financial
statements and the internal controls. Specifically, the Committee discussed with
PwC (i) the overall scope of its audit, (ii) the results of its examination,
(iii) its evaluation of internal controls, (iv) the overall quality of the
financial reporting process and the financial statement disclosures and (v) the
matters required to be discussed by PwC under (a) Statement on Auditing
Standards No. 61 (Communication with Audit Committees) and (b) Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
including the written disclosures regarding independence made by PwC to the
Committee thereunder.
Audit Fees. The Company incurred approximately $366,000 in fees and
expenses for professional services rendered in connection with PwC's annual
audit and quarterly reviews of the Company's consolidated financial statements
for 2000, of which approximately $200,000 had been billed and paid by December
31, 2000.
Other Fees. During 2000, the Company paid PwC approximately $1.4 million
in fees and expenses in connection with other non-audit matters, primarily a
special consulting project with respect to certain tax matters (approximately
$1.0 million), as well as the provision of internal audit services
(approximately $0.2 million). During 2000, the Committee considered whether
PwC's provision of these other non-audit services impaired PwC's independence.
While the Committee determined that the provision of such services did not
impair PwC's independence, for several reasons, the Company determined that it
would no longer utilize PwC to manage the internal audit function after 2000.
Management has represented to the Committee that the Company's audited
consolidated financial statements were prepared in accordance with generally
accepted accounting principles. Accordingly, based upon the Committee's review
of the financial statements and in reliance on its discussions with management
and PwC, the Committee has recommended to the Board of Directors (and the Board
has approved) that the Company's audited consolidated financial statements be
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000, for filing with the Securities and Exchange Commission.
AUDIT AND FINANCE COMMITTEE
Barry Lawson Williams, Chairperson
Diane P. Baker
Darius W. Gaskins, Jr.
Carol J. Parry
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DIRECTOR AND EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
Presently, each non-employee director annually receives a cash retainer of
$20,000, 1,500 deferred shares of the Company's common stock and an option to
purchase 1,500 shares of the Company's common stock. In addition, each
non-employee director receives $1,000 for each Board and committee meeting he or
she attends and $1,000 for each committee meeting for which he or she serves as
chairperson. All such deferred share and option grants vest in three equal
installments as of the close of business on the day immediately preceding the
date of the three annual meetings of stockholders immediately following the date
of grant, subject to acceleration in the event of death, disability or
retirement or a change in control of the Company. Directors may elect to defer
their cash retainer fees into a deferred cash account, which may be invested in
various investment alternatives, a deferred share account or options to purchase
additional shares of the Company's common stock. Previously, all non-cash awards
to non-employee directors have been made under the Company's 1998 Directors'
Stock Plan. In the event that the 2001 Plan is approved by stockholders at the
Meeting, no grants will be made under the 1998 Plan after such approval.
However, these same formula grants to non-employee directors have been included
in the 2001 Plan. See Proposal 2 beginning on page 5 for a detailed discussion
of the 2001 Plan.
EXECUTIVE COMPENSATION
The following tables provide information regarding the compensation of the
Chief Executive Officer and the next four most highly compensated executive
officers (collectively, the "Named Executive Officers") in 2000.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS PAYOUTS
-------------------------------------- -----------------------------------------
OTHER SECURITIES LONG-
ANNUAL RESTRICTED UNDERLYING TERM
COMPEN- STOCK OPTIONS/ INCENTIVE
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS(1)($) SATION(2)($) AWARDS($) SARS(3)(#) PAYOUTS(4)($)
- --------------------------- ---- --------- ----------- ------------ ------------ ---------- -------------
Frank R. Noonan.......... 2000 475,008 677,749 16,441 0 113,579 739,745
Chairman and Chief 1999 430,000 308,052 4,491 0 0 448,805
Executive Officer 1998 402,917 413,167 6,287 0 420,000 83,118
David C. Swanson(6)...... 2000 258,000 670,171 16,878 0 20,000 252,080
President and Chief 1999 244,843 145,519 4,396 0 27,100 152,935
Operating Officer 1998 206,875 108,820 3,144 0 58,050 11,713
Philip C. Danford........ 2000 317,016 506,732 13,747 0 30,000 322,580
Senior Vice President and 1999 300,000 161,190 1,993 0 0 195,700
Chief Financial Officer 1998 290,250 181,852 0 0 81,000 90,488
Judith A. Norton......... 2000 218,000 147,128 14,246 0 18,000 177,771
Senior Vice President 1999 210,000 94,028 4,005 0 0 107,852
Human Resources 1998 190,151 139,550 6,115 0 63,525 7,944
Thomas A. Daniel(7)...... 2000 205,498 125,000 0 0 0 0
President and Chief
Executive Officer
Get Digital Smart
ALL
OTHER
COMPEN-
NAME AND PRINCIPAL POSITION YEAR SATION(5)($)
- ----------------------- ---- ------------
Frank R. Noonan.......... 2000 20,143
Chairman and Chief 1999 22,423
Executive Officer 1998 27,234
David C. Swanson(6)...... 2000 10,320
President and Chief 1999 9,998
Operating Officer 1998 8,096
Philip C. Danford........ 2000 13,003
Senior Vice President and 1999 12,431
Chief Financial Officer 1998 9,231
Judith A. Norton......... 2000 9,976
Senior Vice President 1999 10,623
Human Resources 1998 3,095
Thomas A. Daniel(7)...... 2000 0
President and Chief
Executive Officer
Get Digital Smart
- ---------------
(1) The 2000 bonus awards were paid under the Company's Annual Incentive Plan in
March 2001 based on 2000 performance. Mr. Swanson's 2000 bonus amount
includes a special bonus of $50,000 paid in connection with the
publicly-announced suspended strategic process. Mr. Danford's 2000 bonus
amount includes a special bonus of $250,000 for his role in the
restructuring of the Company during 2000. Included in 1998 for Mr. Noonan is
a $50,000 special transition-related bonus paid in connection with the
Spin-Off. Included in 1998 for Ms. Norton is a $50,000 sign-on bonus.
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(2) Amounts shown represent reimbursement for taxes paid by the Named Executive
Officers with respect to company-directed travel and certain other expenses.
(3) In consideration of their efforts in establishing Get Digital Smart.com,
Inc., a wholly owned subsidiary of the Company ("Get Digital Smart" or
"GDS"), and implementing its operational plan, as well as to incentivize
future performance, during 2000 the Board of Directors of Get Digital Smart
awarded to certain of the Named Executive Officers options to purchase
common stock of GDS, as follows: Mr. Noonan:10,000 shares; Mr. Danford:
7,500 shares; Ms. Norton: 3,000 shares; and Mr. Daniel: 55,800 shares. Each
option had an exercise price of $2.00 per share and the options would have
vested 25% on the first anniversary of the date of grant and in equal
increments each month for the following 24 months, except in the case of Mr.
Daniel, whose shares would have vested 25% per year on each of the first
four anniversaries of the date of grant. The grants were intended to be made
at fair market value as of the date of grant. Get Digital Smart ceased
operations in December 2000 with a substantial negative net worth.
Consequently, these options were effectively worthless as of December 31,
2000.
(4) Amounts shown for 1999 and 2000 represent the dollar value of the
performance shares ("PERS") earned under the Company's Performance Unit
Plan. Upon completion of the performance period (July 1, 1998 to December
31, 1999), a dollar amount was determined for each recipient based on the
Company's performance against economic profit and earnings per share goals.
The dollar amount was converted into a number of performance shares by
dividing the dollar amount of the award by the Company's stock price
(calculated as the average of the high and low prices of the Company's
common stock on the 10 trading days subsequent to delivery of the Company's
audited 1999 financial statements to the Compensation and Benefits
Committee). Dollar amounts shown in 1999 represent one-third of the
aggregate award, which was paid in the form of shares in March 2000. Dollar
amounts for 2000 represent an additional one third of the aggregate award,
which was paid in the form of shares in March 2001. An additional one-third
of the aggregate award will be payable in shares in the first quarter of
2002. The amount shown for 1998 represents performance share payouts under
the D&B long-term incentive plan.
(5) Amounts shown represent aggregate annual Company contributions for the
account of each Named Executive Officer under the Company's Profit
Participation Plan (the "PPP") and the Profit Participation Benefit
Equalization Plan (the "PPBEP"). The PPP is a tax-qualified defined
contribution plan and the PPBEP is a non-qualified plan that provides
benefits to participants in the PPP equal to the amount of Company's
contributions that would have been made to the participant's PPP account but
for certain Federal tax laws.
(6) Mr. Swanson was appointed President and Chief Operating Officer of the
Company effective December 15, 2000. Previously, he served as President of
Directory Services for R.H. Donnelley Inc. Because officers had received
option grants in connection with the Spin-Off in June 1998, options were not
generally awarded in 1999, except that in February 1999, Mr. Swanson
received a grant of non-qualified stock options covering 27,100 shares in
connection with his promotion to President of Directory Services.
(7) Mr. Daniel was hired by Get Digital Smart in March 2000. Mr. Daniel did not
receive awards under the Company's Annual Incentive, 1991 Stock Option or
Performance Unit Plans. Mr. Daniel was granted an option to purchase up to
5% of the outstanding common stock of Get Digital Smart, which option was
effectively worthless as of December 31, 2000.
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STOCK OPTION/SAR GRANTS IN LAST YEAR
The following table provides information on grants of options under the
Company's 1991 Key Employee Stock Option Plan to the Named Executive Officers
for the year ended December 31, 2000.
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1)(#) 2000 ($/SHARE) DATE VALUE(2)($)
- ---- ------------- ------------ ----------- ---------- -----------
Frank R. Noonan............. 101,786 14.8% $16.5313 02/22/10 862,127
11,793(3) 1.7% $20.5938 12/19/00 99,887
David C. Swanson............ 20,000 2.9% $16.5313 02/22/10 169,400
Philip C. Danford........... 30,000 4.4% $16.5313 02/22/10 254,100
Judith A. Norton............ 18,000 2.6% $16.5313 02/22/10 152,460
Thomas A. Daniel(4)......... 0 0.0% N/A N/A N/A
- ---------------
(1) These options were granted on February 22, 2000 at market price and are
exercisable in four equal installments on the first four anniversaries of
the date of grant. In consideration of their efforts in establishing Get
Digital Smart and implementing its operational plan, as well as to
incentivize future performance, during 2000 the Board of Directors of Get
Digital Smart awarded to certain of the Named Executive Officers options to
purchase common stock of GDS, as follows: Mr. Noonan: 10,000 shares; Mr.
Danford: 7,500 shares; Ms. Norton: 3,000 shares; and Mr. Daniel: 55,800
shares. Each option had an exercise price of $2.00 per share and the options
would have vested 25% on the first anniversary of the date of grant and in
equal increments each month for the following 24 months, except in the case
of Mr. Daniel, whose shares would have vested 25% per year on each of the
first four anniversaries of the date of grant. The grants were intended to
be made at fair market value as of the date of grant. Get Digital Smart
ceased operations in December 2000 with a substantial negative net worth.
Consequently, these options were effectively worthless as of December 31,
2000.
(2) The hypothetical grant date present value is calculated under the modified
Black-Scholes option pricing methodology, which is a mathematical formula
used to value options traded on stock exchanges. This formula considers a
number of factors in hypothesizing an option's present value. The Company
made the following assumptions with respect to the range of factors used to
value the option grants: the stock's expected volatility rate (23.01%), risk
free rate of return (5.07%), dividend yield (0%) and projected time of
exercise (7 years).
(3) These shares were granted to Mr. Noonan in August 2000 upon exercise of an
earlier option pursuant to a "reload" feature authorized in connection with
the Spin-Off for pre-existing options of certain executive officers.
(4) Mr. Daniel was hired by Get Digital Smart in March 2000. Mr. Daniel did not
receive awards under the Company's 1991 Stock Option Plan. Mr. Daniel was
granted an option to purchase up to 5% of the outstanding common stock of
Get Digital Smart, which option was effectively worthless as of December 31,
2000.
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AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION/SAR VALUES
The following table provides information concerning the number and value of
(i) option exercises during 2000 and (ii) unexercised stock options held at
December 31, 2000 by the Named Executive Officers.
NUMBER OF SECURITIES UNDER- VALUE OF UNEXERCISED
LYING UNEXERCISED OPTIONS/ IN-THE-MONEY OPTIONS/
SHARES SAR'S AT YEAR-END(3) SAR'S AT YEAR-END(4)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(1) REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Frank R. Noonan........ 31,334 $266,828 436,642 433,938 $5,300,224 $3,872,457
David C. Swanson....... 0 0 115,488 90,697 1,380,439 814,677
Philip C. Danford...... 0 0 155,843 104,875 1,873,440 943,865
Judith A. Norton....... 0 0 20,512 61,013 186,069 536,233
Thomas A. Daniel(5).... 0 0 0 0 0 0
- ---------------
(1) Represents all shares covered by options exercised by the Named Executive
Officers during 2000.
(2) The value realized equals the market value of the common stock acquired on
the date of exercise minus the exercise price.
(3) No SAR's were outstanding at December 31, 2000. This table excludes options
with respect to shares of Get Digital Smart, as none of those options were
exercisable during 2000 and all of those options were effectively worthless
as of December 31, 2000.
(4) The values shown equal the difference between the exercise price of the
unexercised in-the-money options and the closing market price of the
Company's common stock on December 31, 2000 ($24.50). Options are
"in-the-money" if the fair market value of the Company's common stock
covered by such option exceeds the exercise price of the option.
(5) Mr. Daniel was hired by Get Digital Smart in March 2000. Mr. Daniel did not
receive awards under the Company's 1991 Stock Option Plan. Mr. Daniel was
granted an option to purchase up to 5% of the outstanding common stock of
Get Digital Smart, which option was effectively worthless as of December 31,
2000.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST YEAR
The Company made no awards of PERS under the Company's Performance Unit
Plan or other long-term incentive awards during 2000 to the Named Executive
Officers.
RETIREMENT BENEFITS
The following table sets forth the estimated aggregate annual benefits
payable under the Company's Retirement Account Plan, Pension Benefit
Equalization Plan ("PBEP") and Supplemental Executive Benefit Plan ("SEBP") to
Messrs. Noonan and Danford (who are the only Named Executive Officers that
participate in the SEBP) upon retirement at age 65. Amounts shown in the table
include U.S. Social Security benefits and benefits payable under predecessor
plans of the Company which would be deducted in calculating benefits payable
under these plans. These aggregate annual retirement benefits do not increase as
a result of additional credited service after 15 years.
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AVERAGE YEARS OF PARTICIPATION SERVICE
FINAL -----------------------------------------------------------------------
COMPENSATION 5 YRS 10 YRS 15 YRS 20 YRS 25 YRS 30 YRS
- ------------ -------- -------- ---------- ---------- ---------- ----------
$ 450,000 $112,500 $225,000 $ 270,000 $ 270,000 $ 270,000 $ 270,000
500,000 125,000 250,000 300,000 300,000 300,000 300,000
550,000 137,500 275,000 330,000 330,000 330,000 330,000
700,000 175,000 350,000 420,000 420,000 420,000 420,000
850,000 212,500 425,000 510,000 510,000 510,000 510,000
1,000,000 250,000 500,000 600,000 600,000 600,000 600,000
1,300,000 325,000 650,000 780,000 780,000 780,000 780,000
1,600,000 400,000 800,000 960,000 960,000 960,000 960,000
1,900,000 475,000 950,000 1,140,000 1,140,000 1,140,000 1,140,000
The number of years of credited service under the plans as of December 31,
2000 of Messrs. Noonan and Danford are 11 and 12, respectively.
Compensation, for the purpose of determining retirement benefits, consists
of salary, wages, regular cash bonuses, commissions and overtime pay. Severance
pay, contingent payments and other forms of special remuneration are excluded.
Bonuses included in the Summary Compensation Table are normally not paid until
the year following the year in which they are accrued and expensed; therefore,
compensation for purposes of determining retirement benefits varies from the
Summary Compensation Table amounts in that bonuses expensed in the previous
year, but paid in the current year, are part of retirement compensation in the
current year, and current year's bonuses accrued and included in the Summary
Compensation Table are not.
For the reasons discussed above, compensation for determining retirement
benefits for the Named Executive Officers differed by more than 10% from the
amounts shown in the Summary Compensation Table. For 2000, compensation for
purposes of determining retirement benefits for Messrs. Noonan and Danford was
$783,052 and $478,206, respectively.
Average final compensation is defined as the highest average annual
compensation during five consecutive twelve-month periods in the last ten
consecutive twelve-month periods of the member's credited service. Members vest
in their accrued retirement benefit upon completion of five years of service.
The benefits shown in the table above are calculated on a straight-life annuity
basis.
The Retirement Account Plan, together with the PBEP, provides retirement
income based on a percentage of annual compensation. The percentage of
compensation allocated annually ranges from 3% to 12.5%, based on age and
credited service. Amounts allocated also receive interest credits based on
30-year Treasury rates with a minimum interest credit rate of 3%. Mr. Swanson
and Ms. Norton participate only in the Retirement Account Plan and the PBEP, but
do not participate in the SEBP. Mr. Daniel does not participate in any of these
plans. The number of years of credited service under the plans as of December
31, 2000 for Mr. Swanson and Ms. Norton are 14.5 and 2.0, respectively. Based on
their salaries (as set forth in the Employment Agreements section that follows),
the annual projected pension at normal retirement age for Mr. Swanson and Ms.
Norton are $191,000 and $34,000, respectively.
The SEBP provides retirement benefits in addition to the benefits provided
under the Retirement Account Plan and the PBEP. The SEBP has the effect of
increasing the retirement benefits under the Retirement Account Plan and the
PBEP to the amounts depicted in the preceding table under the compensation
levels applicable to Messrs. Noonan and Danford. The SEBP provides maximum
benefits after 15 years.
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EMPLOYMENT AGREEMENTS
Each of the Named Executive Officers, other than Mr. Daniel, executed an
employment agreement with the Company dated as of September 28, 1998. Mr. Daniel
executed an employment agreement with Get Digital Smart on March 23, 2000.
As of December 31, 2000, the base salary and cash bonus opportunity
established by the employment agreements of the Named Executive Officers are as
follows:
GUIDELINE
NAME BASE SALARY BONUS OPPORTUNITY
- ---- ----------- -----------------
(% OF BASE
SALARY)
Frank R. Noonan................................. $475,000 100%
David C. Swanson................................ $308,000 65%
Philip C. Danford............................... $317,000 60%
Judith A. Norton................................ $218,000 50%
Thomas A. Daniel................................ $250,000 50%
The cash bonus is measured as a percentage of base salary and is presently
governed by the Company's Annual Incentive Plan, which mandates the
establishment of criteria for the determination of an executive's bonus. If the
2001 Plan is approved by stockholders at the Meeting, any future cash bonuses
would be governed by the 2001 Plan. See Proposal 2 beginning on page 5 for a
detailed discussion of the 2001 Plan. The foregoing compensation is subject to
annual review and increase (but not decrease).
The terms and conditions of each of the employment agreements, other than
Mr. Daniel's, which will be discussed separately below, are substantially
similar, except where specified below. The key terms of the employment
agreements (other than Mr. Daniel's) are as follows:
TERM The employment agreements expire on June 30, 2001,
subject to automatic one-year renewals, unless
notice has been given ninety days prior to any
termination date. Any nonrenewal of the employment
agreement by the Company shall be considered a
termination without Cause*.
ADDITIONAL COMPENSATION Each executive is eligible to participate in all
bonuses, long-term incentive compensation, stock
options and other equity participation arrangements
made available to other senior executives of the
Company.
BENEFITS Each executive is eligible to participate in all
employee benefit programs (including fringe
benefits, vacation, pension and profit sharing plan
participation and life, health, accident and
disability insurance) no less favorable than in
effect prior to September 28, 1998.
TERMINATION WITHOUT CAUSE*
BY THE COMPANY NOT ARISING
FROM A CHANGE IN CONTROL* Chief Executive Officer: Receives a severance
package equal to three times the sum of his base
salary and target bonus. Others: Each receives a
severance package equal to two times the sum of
base salary and target bonus. Each of the Chief
Executive Officer and the others receive
continuation of benefits for three and two years,
respectively.
TERMINATION ARISING FROM,
AND WITHIN TWO YEARS AFTER,
A CHANGE IN CONTROL Each executive shall receive a severance package
equal to three times the sum of base salary and
target bonus and continuation of benefits for three
years. In addition, under the Annual Incentive
Plan, upon a Change in Control, each executive
would be entitled to receive a full year's cash
bonus at target and, under the 1991 Stock Option
Plan, all
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26
unvested options would automatically vest.
Moreover, under the Performance Unit Plan, all PERS
would accelerate and be payable at 200% of target
upon a Change in Control. If negotiations commence
prior to a termination of employment but eventually
result in a Change in Control within two years,
then the executive shall be treated as having been
terminated within two years following a Change in
Control and, therefore, shall be entitled to the
foregoing benefits.
DEATH/DISABILITY Each executive (or beneficiary) shall receive
salary through date of termination and a pro rata
portion of the target bonus.
EXCISE TAX The compensation of each executive will be "grossed
up" for any excise tax imposed under Section 4999
of the U.S. Internal Revenue Code relating to any
payments made on account of a Change in Control or
a termination of the executive's employment.
- ---------------
* Such terms have the meanings ascribed to such terms in the employment
agreements. The employment agreements, as amended, will be filed as exhibits
to the Company's Annual Report on Form 10-K for the year ended December 31,
2000.
Under his employment agreement, in the event of his termination without
cause (as defined in such agreement), Mr. Daniel would be entitled to receive a
severance package equal to one times his base salary plus target bonus,
continuation of benefits for one year and accelerated vesting of 25% of all
unvested options in Get Digital Smart with continued exercisability of all
vested options for one year following such termination. In the event of his
termination arising from or within two years following a change in control (as
defined in such agreement), Mr. Daniel would be entitled to receive a severance
package equal to one times his base salary plus target bonus, continuation of
benefits for one year and accelerated vesting of 100% of all unvested options in
Get Digital Smart with continued exercisability of all vested options for one
year following such termination. Mr. Daniel did not receive any awards under the
Company's Annual Incentive, 1991 Stock Option or Performance Unit Plans. Mr.
Daniel's employment agreement will be filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000. In connection
with the Company's decision to cease operations of Get Digital Smart in December
2000, Mr. Daniel's employment was terminated (without cause) as of February 28,
2001 and he received severance and other benefits under the terms of his
agreement.
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27
PERFORMANCE MEASUREMENT COMPARISON
The following graph sets forth as of December 31, 2000, the cumulative
total stockholder return on the Company's common stock compared with the
cumulative total return of the Russell 2000 Stock Index and a peer group of the
Company. As the Company is not included in an identifiable and accepted peer
group, the Company has created a peer group based on several factors: revenues,
net income and enterprise value, which is comprised of market capitalization and
total debt. The peer group consists of the following companies: Acxiom
Corporation, Advest Group Inc., ADVO, Inc., APAC Teleservices, Inc., Catalina
Marketing Corporation, HA-LO Industries, Inc., Hanover Direct, Inc., National
Processing, Inc., Personnel Group of America, Inc., Sitel Corporation, True
North Communications, Inc., and Valassis Communications, Inc.
For purposes of this year's performance comparison, the following companies
have been eliminated from the peer group disclosed last year for the following
reasons. Precision Response Corporation was effectively acquired by USA
Networks, Inc. in April 2000 and therefore is no longer an independent, publicly
traded company. The Company does not consider USA Networks to be comparable to
the Company (or the other peer group members) based upon the criteria listed
above. In addition, in May 2000, Romac International Inc. changed its name to
kforce.com, Inc. in an effort to make its name more consistent with that
company's stated long-term goal to focus its efforts as a Web-based staffing
firm. The Company does not consider kforce.com, Inc. to be comparable to the
Company or the other peer group members in light of kforce.com's status in the
investing community as an internet company with a significantly higher price to
earnings ratio than the Company or other members of the peer group.
The total return assumes a $100 investment on July 1, 1998 (the date of the
Spin-Off) and reinvestment of dividends in the Company's common stock and in
each index.
[PERFORMANCE GRAPH]
R.H. DONNELLEY CORP. RUSSELL 2000 INDEX PEER GROUP INDEX
-------------------- ------------------ ----------------
7/1/98 100.00 100.00 100.00
9/30/98 80.23 79.85 86.93
12/31/98 95.56 92.63 105.68
3/31/99 101.30 87.31 94.10
6/30/99 128.37 100.55 100.63
9/30/99 122.22 93.87 100.97
12/31/99 123.86 110.78 124.99
3/31/00 111.55 118.31 112.91
6/30/00 127.14 113.46 116.94
9/30/00 138.62 114.31 100.11
12/31/00 159.54 106.00 116.56
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REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE
ON EXECUTIVE COMPENSATION
COMPENSATION AND BENEFITS COMMITTEE
The Compensation and Benefits Committee of the Board of Directors (the
"Committee") is comprised entirely of outside and independent Directors. The
Committee is responsible for establishing, implementing, administering and
monitoring the Company's strategy, policies and plans for executive
compensation.
EXECUTIVE COMPENSATION OBJECTIVES
The Company's executive compensation objectives are to:
- Attract and retain top-performing executives at the corporate level and
in each of the Company's business units;
- Provide compensation opportunities that are fair and competitive with
those provided by comparable organizations;
- Utilize compensation vehicles that are cost-effective and tax efficient;
and
- Motivate and reward its executives based on corporate, business unit and
individual annual and long-term business performance, strategic progress
and the creation of stockholder value.
DETERMINING EXECUTIVE OFFICER COMPENSATION
In accordance with its responsibilities, the Committee reviews the
Company's overall corporate mission, strategy and objectives. These form the
basis for establishing both corporate and business unit annual and long-term
performance goals that are subject to Board and Committee review and approval at
the beginning of each year, and for executive officer performance-based
compensation initiatives. Based on this review, the Committee, in its sole
discretion, determines the Company's total compensation structure for the coming
year, including the elements and level of compensation opportunities and the
variable portion of "at risk" pay for performance and equity participation. At
year-end, results and strategic progress achieved at the corporate, business
unit and individual levels are assessed by the Committee, relative to previously
approved goals, taking into consideration prevailing economic and business
conditions and opportunities, performance by comparable organizations, and
stockholder value.
In establishing the Company's executive officer compensation structure and
program, the Committee also considers:
- Industry conditions;
- Corporate performance relative to a selected peer group;
- Current market data among comparable companies;
- Current and evolving practices and trends among comparable companies; and
- Overall effectiveness of the program in measuring and rewarding desired
performance levels.
The Committee has been assisted in this review and evaluation by an
independent consulting firm retained by the Company to serve as outside advisors
in the discharge of the Committee's responsibilities. The consultants provide
data to the Committee, relative to the above-mentioned considerations, with
respect to the compensation paid to the Chief Executive Officer and other
executive officers. In setting competitive compensation levels, the Company
compares itself with a peer group of companies based on several factors
including revenues, net income and enterprise value, which is comprised of
market capitalization and total debt. Based on this information, the Committee
evaluates the reasonableness, fairness and competitiveness of the Company's
executive compensation program. The peer group used for executive compensation
purposes is similar to (with relevant distinctions) the peer group used for the
Performance Measurement Comparison on page 24.
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29
COMPENSATION COMPONENTS
The compensation program for the Company's Chief Executive Officer and
other executive officers is comprised of three major elements:
- Base Salary
- Annual Incentive Opportunity
- Long-Term Equity Incentive Opportunities
Base salaries and total compensation for target performance are generally
positioned in the mid-range of the peer group. Actual annual and long-term
incentive compensation levels, which are based on performance relative to goals,
will vary from year to year below and above those of the peer group.
BASE SALARY:
Salaries are established relative to the competitive marketplace at the
appropriate level and reflect the individual performance and contribution of
each executive officer to the business, the level of the executive's experience
and overall corporate financial circumstances. Base salaries are generally
subject to review for adjustment by the Committee every twelve to eighteen
months.
ANNUAL INCENTIVE OPPORTUNITY:
Executive officers have participated in the Annual Incentive Plan ("AIP")
under which annual incentive awards are generally made in cash. In the event
that the 2001 Stock Award and Incentive Plan ("2001 Plan") is approved by
stockholders at the Meeting, no grants will be made under the AIP after such
approval. However, the Committee would still consider granting cash annual
incentive awards to executive officers in the future under the 2001 Plan, and
may be obligated to do so under certain employment agreements. See Proposal 2
beginning on page 5 for a detailed discussion of the 2001 Plan and "Director and
Executive Compensation -- Employment Agreements" beginning on page 22 for a
description of these employment agreements.
Each executive officer is assigned performance goals and an annual
incentive award opportunity based on position responsibilities. Performance
weightings vary by executive officer and include corporate performance goals
and/or business unit performance goals for those executive officers who have
business unit responsibilities. In addition, under the AIP, the Committee could,
in its sole discretion, adjust annual incentive awards by 20%, based on an
individual's annual accomplishments and achievements versus pre-defined goals.
The target annual award opportunity for the Named Executive Officers range
from 50% to 100% of base salary. In 2000, performance goals included advertising
sales, operating income, and earnings per share growth for all executive
officers, and business unit advertising sales and operating income for those
executive officers who also had business unit responsibilities. Based on
performance versus goals, awards to the Named Executive Officers with respect to
2000 averaged approximately (a) 175% of target including officers with business
unit responsibilities and (b) 135% of target excluding officers with business
unit responsibilities, in each case, excluding any special one-time bonuses. The
above target pay out reflects the Company's strong financial performance during
the year. The Committee did not make any individual adjustments.
LONG-TERM INCENTIVE EQUITY OPPORTUNITIES:
Grants are in the form of stock options to purchase the Company's common
stock and long-term performance-based stock awards. These equity opportunities
are designed to align the interests of executive officers and the stockholders
in the Company's long-term growth by increasing each executive officer's equity
position in the Company.
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30
- STOCK OPTIONS
Executive officers, including the Chief Executive Officer, were granted
stock options shortly after the Spin-Off in mid-1998 under the Company's 1991
Key Employees' Stock Option Plan ("1991 Plan"), in recognition of the Company's
new status as an independent, publicly-traded entity. With the exception of a
one-time special recognition grant to Mr. Swanson and grants to select new
hires, subsequent option grants to the Chief Executive Officer and other
executive officers were not made in 1999, but were made in 2000 and are
currently scheduled to be made annually thereafter. In the event that the 2001
Plan is approved by stockholders at the Meeting, no grants will be made under
the 1991 Plan after such approval. However, the Committee would still consider
granting options to executive officers in the future under the 2001 Plan. See
Proposal 2 beginning on page 5 for a detailed discussion of the 2001 Plan.
- LONG-TERM PERFORMANCE-BASED STOCK AWARDS
This "at risk" equity interest in the Company has been granted to executive
officers, including the Chief Executive Officer, under the Company's Key
Employees' Performance Unit Plan ("PUP"), with such grants in the form of
performance shares ("PERS"). In the event that the 2001 Plan is approved by
stockholders at the Meeting, no grants will be made under the PUP after such
approval. However, the Committee would still consider granting performance
shares or other long-term performance-based awards to executive officers in the
future under the 2001 Plan. See Proposal 2 beginning on page 5 for a detailed
discussion of the 2001 Plan.
Target award opportunities are determined as a percent of base salary.
Actual awards are based on performance versus objectives for each performance
period. Award values, in dollars, are determined upon the completion of each
performance period and are converted into shares of the Company's common stock
by dividing the dollar amount of the award by the Company's common stock price
(calculated as the average of the high and low prices of the Company's common
stock on the 10 trading days subsequent to delivery of the Company's audited
financial statements to the Compensation and Benefits Committee). The PERS vest
and are payable one-third immediately after calculation of the Company's stock
price for purposes of computing PERS, an additional one-third one year
thereafter and the last one-third two years thereafter.
The annualized target award opportunity for the Named Executive Officers
range from 40% to 80% of base salary. Presently, new performance cycles commence
every other year, therefore, the target award opportunity for each performance
period is two times the annualized target.
In 2000, no performance period concluded and no performance period
commenced. In 1999, one performance period ended (July 1998 through December
1999) and another performance period commenced (January 1999 through December
2001). The next performance period commenced in January 2001 and continues
through December 2003. As noted above, an additional one third of the 1998 award
vested in 2000 and was paid in March 2001.
It is the Committee's policy to make stock option grants, as well as
long-term performance related stock awards, to executive officers on a
discretionary basis within a guideline range that takes into account the
position responsibilities of each individual executive officer and competitive
practice. Such grants reflect the relative value of the individual's position,
as well as the current performance, continuing contribution and prospective
impact of executive officers, including the Chief Executive Officer, on the
Company's future success and creation of long-term stockholder value.
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31
CEO COMPENSATION
Mr. Noonan received a merit salary increase of $45,000 effective January 1,
2000 based on performance and competitive positioning. His salary had remained
unchanged in 1999. As outlined earlier in this report, base salaries are
generally subject to review for adjustment by the Committee every twelve to
eighteen months.
Mr. Noonan's 2000 AIP performance goals were based on the Company's gross
advertising sales, operating income, earnings per share and cumulative return to
stockholders over the last three years relative to the total cumulative return
of the Russell 2000 Stock Index over that period. Based on results versus these
performance goals, Mr. Noonan received an award of $677,749, or 143% of his
annual incentive target. Mr. Noonan's annual target is set at 100% of base
salary. The above target pay out reflects the Company's strong financial
performance during the year, as well as the Company's favorable total cumulative
return to stockholders over that time.
In 2000, Mr. Noonan was granted stock options covering 101,786 shares based
on performance and competitive positioning. Mr. Noonan did not receive an option
grant in 1999 since he had received a grant at the time of the Spin-Off. He will
be eligible to receive option grants in 2001 and on an annual basis thereafter.
In March 2001, Mr. Noonan received a PERS award payment in shares equal to
$739,745, which represents the second installment (of three) of the PERS award
for the performance period July 1998 to December 1999. He is also eligible for a
PERS award of 160% of current base salary at target performance in Company
common stock after completion of the performance period from January 1, 1999 to
December 31, 2001. There were no new PERS awards granted in 2000, but the next
PERS performance period began in January 2001 and continues through December
2003.
TAX CONSIDERATIONS
As noted above, one of the Company's objectives is to maintain
cost-effective and tax efficient executive compensation programs. Code Section
162(m) limits the Company's tax deduction to $1 million for compensation paid to
any one of the Named Executive Officers identified in this Proxy Statement
unless certain requirements are met. One of the requirements is that
compensation over $1 million must be based upon attainment of performance goals
approved by stockholders. The Annual Incentive Plan, the 1991 Stock Option Plan,
the Performance Unit Plan, as well as the 2001 Stock Award and Incentive Plan
submitted for shareholder approval in this Proxy Statement, were each designed
to meet these requirements. The Committee's policy is to preserve corporate tax
deductions attributable to the compensation of executives while maintaining the
flexibility to approve, when appropriate, compensation arrangements which it
deems to be in the best interests of the Company and its stockholders, but which
may not always qualify for full tax deductibility.
COMPENSATION AND BENEFITS COMMITTEE
Robert Kamerschen, Chairperson
Diane P. Baker
Barry Lawson Williams
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's common
stock beneficially owned as of March 2, 2001 by (i) each of the Company's Named
Executive Officers, (ii) each of the Company's directors, (iii) all directors
and executive officers of the Company as a group and (iv) owners of more than 5%
of the outstanding shares of the Company's common stock. Except as indicated in
the footnotes to the table, the Company believes that the persons named in the
table have sole voting and investment power with respect to all shares owned
beneficially by them. The mailing address for each of the Company's directors
and Named Executive Officers listed below is One Manhattanville Road, Purchase,
NY 10577.
SHARES OF THE COMPANY'S
COMMON STOCK
----------------------------------
AMOUNT BENEFICIALLY PERCENTAGE
BENEFICIAL OWNERS OWNED(1) OF CLASS(1)
- ----------------- ------------------- -----------
Frank R. Noonan............................................. 518,134(2) 1.7%
Philip C. Danford........................................... 180,701(3) *
David C. Swanson............................................ 151,074(4) *
Judith A. Norton............................................ 38,026(5) *
Thomas A. Daniel............................................ 0(6) *
Diane P. Baker.............................................. 7,045(7) *
Kenneth G. Campbell......................................... 3,150(8) *
Darius W. Gaskins, Jr....................................... 2,500(8) *
William G. Jacobi........................................... 8,161(7) *
Robert Kamerschen........................................... 14,045(7) *
Carol J. Parry.............................................. 8,045(7)(9) *
Barry Lawson Williams....................................... 15,147(7) *
All Directors and Executive Officers as a Group (15
persons).................................................. 1,072,040(10) 3.4%
FMR Corp.................................................... 1,660,200(11) 5.4%
82 Devonshire Street
Boston, Massachusetts 02109
Lazard Freres & Co. LLC..................................... 1,652,415(12) 5.4%
30 Rockefeller Plaza
New York, New York 10020
- ---------------
* Represents ownership of less than 1%.
(1) The amounts and percentage of the Company's common stock beneficially owned
are reported on the basis of rules and regulations of the Securities and
Exchange Commission (the "Commission") governing the determination of
beneficial ownership of securities. Under such rules and regulations, a
person is deemed to be a "beneficial owner" of a security if that person
has or shares "voting power", which includes the power to vote or to direct
the voting of such security, or "investment power", which includes the
power to dispose of or to direct the disposition of such security. A person
is also deemed to be a beneficial owner of any securities which that person
has a right to acquire beneficial ownership of within 60 days. Under these
rules and regulations, more than one person may be deemed a beneficial
owner of the same securities and a person may be deemed to be a beneficial
owner of securities in which he has no economic interest. As of March 2,
2001, the Company had 30,878,433 shares outstanding.
(2) Includes 462,088 shares of the Company's common stock which may be acquired
pursuant to options exercisable as of March 2, 2001 or within 60 days
thereafter.
(3) Includes 163,343 shares of the Company's common stock which may be acquired
pursuant to options exercisable as of March 2, 2001 or within 60 days
thereafter.
29
33
(4) Includes 127,263 shares of the Company's common stock which may be acquired
pursuant to options exercisable as of March 2, 2001 or within 60 days
thereafter.
(5) Includes 29,643 shares of the Company's common stock which may be acquired
pursuant to options exercisable as of March 2, 2001 or within 60 days
thereafter. Includes 400 shares owned by Ms. Norton's husband, for which
Ms. Norton disclaims beneficial ownership.
(6) Mr. Daniel was employed by the Company's wholly owned subsidiary, Get
Digital Smart, and was granted options with respect to the common stock of
Get Digital Smart, but held no equity interest in the Company. As of
February 28, 2001, Mr. Daniel's employment was terminated in connection
with the Company's decision to cease operations of GDS effective December
31, 2000.
(7) Includes (i) 4,545 deferred shares of the Company's common stock and (ii)
options to purchase 2,500 shares of the Company's common stock that are
vested or will vest within 60 days of March 2, 2001, except for Mr.
Williams, for whom it includes (i) 4,545 deferred shares and (ii) 10,602
options to purchase shares of the Company's common stock that are vested or
will vest within 60 days of March 2, 2001.
(8) Includes (i) 1,500 deferred shares of the Company's common stock and (ii)
(A) for Mr. Campbell, options to purchase 1,650 shares of the Company's
common stock that are vested or will vest within 60 days of March 2, 2001
and (B) for Mr. Gaskins, options to purchase 1,000 shares of the Company's
common stock that are vested or will vest within 60 days of March 2, 2001.
(9) Ms. Parry shares voting and dispositive power over all of her shares with
her husband.
(10) Includes options to purchase 922,821 shares of the Company's common stock
that are exercisable as of March 2, 2001 or within 60 days thereafter.
(11) FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson jointly filed
Amendment No. 1 to Schedule 13G with the Commission on February 14, 2001.
According to such Amended Schedule 13G, FMR Corp. and its affiliates
beneficially owned 1,660,200 shares as of December 31, 2000, including the
sole power to vote 565,700 shares and sole power to dispose of 1,660,200
shares of the Company's common stock. Mr. and Ms. Johnson are control
persons of FMR Corp.
(12) Lazard Freres & Co. LLC filed a corrected Schedule 13G with the Commission
on March 12, 2001. According to that corrected Schedule 13G, it
beneficially owned 1,652,415 shares as of December 31, 2000, including the
sole power to vote 1,485,500 shares and the sole power to dispose of
1,652,415 shares of the Company's common stock.
30
34
OTHER INFORMATION
HOW TO NOMINATE MEMBERS OF THE BOARD OF DIRECTORS
The Company's By-Laws provide that stockholders may nominate individuals
for the Board of Directors if such nomination is made pursuant to timely notice
in writing to the Secretary of the Company at the address set forth on the cover
page of this Proxy Statement. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice by prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received by the Company not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting or such public disclosure was made. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (ii) as to the stockholder giving the
notice (a) the name and address, as they appear on the Company's books, of such
stockholder and (b) the class and number of shares of the Company which are
beneficially owned by such stockholder as of the date of such notice. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Company that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Commission and the New York Stock
Exchange. Officers, directors and greater than ten percent stockholders are
required by the Commission to furnish the Company with copies of all Forms 3, 4
and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all of its officers, directors and greater
than ten percent beneficial owners complied with all filing requirements
applicable to them with respect to transactions during 2000.
DELIVERY OF ANNUAL REPORT ON FORM 10-K
The Company will provide without charge a copy of the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 to each of the
Company's stockholders of record as of March 2, 2001 and each beneficial
stockholder on that date, upon receipt of a written request therefor mailed to
the Company's principal executive offices, One Manhattanville Road, Purchase,
New York 10577, Attention: Investor Relations. Requests from beneficial
stockholders must set forth a good faith representation as to such ownership on
that date.
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35
RETURN OF PROXY
It is important that the accompanying proxy be returned promptly.
Therefore, whether or not you plan to attend the Meeting in person, you are
earnestly requested to date, sign and return your proxy in the enclosed
envelope. No postage is required if mailed in the United States. Thanks for your
prompt attention to this important matter.
By Order of the Board of Directors
/s/ Robert J. Bush
Robert J. Bush
Vice President, General Counsel
and Corporate Secretary
March 16, 2001
Purchase, New York
32
36
ANNEX A
R.H. DONNELLEY CORPORATION
2001 STOCK AWARD AND INCENTIVE PLAN
A-i
37
R.H. DONNELLEY CORPORATION
2001 STOCK AWARD AND INCENTIVE PLAN
PAGE
----
1. Purpose..................................................... A-1
2. Definitions................................................. A-1
3. Administration.............................................. A-3
4. Stock Subject to Plan....................................... A-4
5. Eligibility; Per-Person Award Limitations................... A-5
6. Specific Terms of Awards.................................... A-6
7. Performance Awards, Including Annual Incentive Awards....... A-9
8. Non-Employee Director Awards................................ A-11
9. Certain Provisions Applicable to Awards..................... A-17
10. Change in Control........................................... A-18
11. Additional Award Forfeiture Provisions...................... A-20
12. General Provisions.......................................... A-22
A-ii
38
R.H. DONNELLEY CORPORATION
2001 STOCK AWARD AND INCENTIVE PLAN
1. PURPOSE. The purpose of this 2001 Stock Award and Incentive Plan (the
"Plan") is to aid R.H. Donnelley Corporation, a Delaware corporation (together
with its successors and assigns, the "Company"), in attracting, retaining,
motivating and rewarding employees and non-employee directors of the Company or
its subsidiaries or affiliates, to provide for equitable and competitive
compensation opportunities, to recognize individual contributions and reward
achievement of Company goals, and promote the creation of long-term value for
stockholders by closely aligning the interests of Participants with those of
stockholders. The Plan authorizes stock-based and cash-based incentives for
Participants.
2. DEFINITIONS. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan have the
respective meanings set forth in this Section:
(a) "Annual Incentive Award" means a type of Performance Award granted
to a Participant under Section 7(c) representing a conditional right to
receive cash, Stock or other Awards or payments, as determined by the
Committee, based on performance in a performance period of one fiscal year
or a portion thereof.
(b) "Annual Limit" shall have the meaning specified in Section 5(b).
(c) "Award" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock granted as a bonus or in lieu of another award, Dividend Equivalent,
Other Stock-Based Award, Performance Award or Annual Incentive Award,
together with any related right or interest, granted to a Participant under
the Plan.
(d) "Beneficiary" means the legal representatives of the Participant's
estate entitled by will or the laws of descent and distribution to receive
the benefits under a Participant's Award upon a Participant's death,
provided that, if and to the extent authorized by the Committee, a
Participant may be permitted to designate a Beneficiary, in which case the
"Beneficiary" instead will be the person, persons, trust or trusts (if any
are then surviving) which have been designated by the Participant in his or
her most recent written and duly filed beneficiary designation to receive
the benefits specified under the Participant's Award upon such
Participant's death. Unless otherwise determined by the Committee, any
designation of a Beneficiary other than a Participant's spouse shall be
subject to the written consent of such spouse.
(e) "Board" means the Company's Board of Directors.
(f) "Cause" shall have the meaning defined in any employment agreement
or severance agreement between the Participant and the Company or a
subsidiary or affiliate then in effect or, if no such agreement is then in
effect, "Cause" shall mean (i) the Participant's willful and continued
failure substantially to perform the duties of his or her position after
notice and opportunity to cure; (ii) any willful act or omission by the
Participant constituting dishonesty, fraud or other malfeasance, which in
any such case is demonstrably injurious to the financial condition or
business reputation of the Company or any of its subsidiaries or
affiliates; or (iii) a felony conviction in a court of law under the laws
of the United States or any state thereof or any other jurisdiction in
which the Company or a subsidiary or affiliate conducts business which
materially impairs the value of the Participant's service to the Company or
any of its subsidiaries or affiliates; provided, however, that for purposes
of this definition, no act or failure to act shall be deemed "willful"
unless effected by the Participant not in good faith and without a
reasonable belief that such action or failure to act was in or not opposed
to the Company's best interests, and no act or failure to act shall be
deemed "willful" if it results from any incapacity of the Participant due
to physical or mental illness.
(g) "Change in Control" and related terms have the meanings specified
in Section 10.
A-1
39
(h) "Code" means the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a proposed
regulation) thereunder shall include any successor provisions and
regulations.
(i) "Committee" means a committee of two or more directors designated
by the Board to administer the Plan; provided, however, that, directors
appointed or serving as members of a Board committee designated as the
Committee shall not be employees of the Company or any subsidiary or
affiliate. In appointing members of the Committee, the Board will consider
whether a member is or will be a Qualified Member, but such members are not
required to be Qualified Members at the time of appointment or during their
term of service on the Committee. The full Board may perform any function
of the Committee hereunder, in which case the term "Committee" shall refer
to the Board.
(j) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 12(j).
(k) "Deferral Account" means the account established and maintained by
the Company for Deferred Stock and/or deferred cash credited under Section
8. A Deferral Account shall include one or more subaccounts, including a
Deferred Stock Account for forfeitable Deferred Stock under Section 8(c), a
Deferred Stock Account for shares of Deferred Stock that have become
nonforfeitable under Section 8(c) or that are at all times nonforfeitable
under Section 8(e)(iii), a Deferred Stock Account for Deferred Stock
resulting from Option exercises under Section 8(f)(i), and a Deferred Cash
Account described in Section 8(e)(iv). The Deferral Account and
subaccounts, and Deferred Stock and deferred cash credited thereto, will be
maintained solely as bookkeeping entries by the Company to evidence
unfunded obligations of the Company.
(l) "Deferred Stock" means a right, granted under this Plan, to
receive Stock or other Awards or a combination thereof at the end of a
specified deferral period.
(m) "Disability" means, with respect to a non-employee director,
termination of service as a director of the Company due to a physical or
mental incapacity of long duration which renders the Participant unable to
perform the duties of a director of the Company.
(n) "Dividend Equivalent" means a right, granted under this Plan, to
receive cash, Stock, other Awards or other property equal in value to all
or a specified portion of the dividends paid with respect to a specified
number of shares of Stock.
(o) "Effective Date" means the effective date specified in Section
12(p).
(p) "Eligible Person" has the meaning specified in Section 5.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule (including
a proposed rule) thereunder shall include any successor provisions and
rules.
(r) "Fair Market Value" means the fair market value of Stock, Awards
or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Stock shall be the average of the high and low
sales prices per share of Stock reported on a consolidated basis for
securities listed on the principal stock exchange or market on which Stock
is traded on the day immediately preceding the day as of which such value
is being determined or, if there is no sale on that day, then on the last
previous day on which a sale was reported.
(s) "Incentive Stock Option" or "ISO" means any Option designated as
an incentive stock option within the meaning of Code Section 422 and
qualifying thereunder.
(t) "Option" means a right, granted under this Plan, to purchase
Stock.
A-2
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(u) "Option Valuation Methodology" means the method for determining
the number of shares to be subject to Options, and the exercise price
thereof, granted in payment of Retainer Fees under Section 8(e)(ii).
(v) "Other Director Compensation" means fees payable to a director in
his or her capacity as such, other than Retainer Fees, for attending
meetings and other service on the Board and Board committees or otherwise.
(w) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(h).
(x) "Participant" means a person who has been granted an Award under
the Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(y) "Performance Award" means a conditional right, granted to a
Participant under Sections 6(i) and 7, to receive cash, Stock or other
Awards or payments.
(z) "Plan Year" means, with respect to a non-employee director, the
period commencing at the time of election of the director at an annual
meeting of shareholders (or the election of a class of directors if the
Company then has a classified Board of Directors), or the director's
initial appointment to the Board if not at an annual meeting of
shareholders, and continuing until the close of business of the day
preceding the next annual meeting of shareholders; provided, however, that
the initial Plan Year shall begin on the day of the Company's 2001 Annual
Meeting of Stockholders.
(aa) "Preexisting Plans" means each of the following Company plans:
the 1991 Key Employees' Stock Option Plan, as amended and restated; the Key
Employees' Performance Unit Plan, as amended and restated; the 1998
Directors' Stock Plan, as amended and restated; and the Annual Incentive
Plan, as amended and restated.
(bb) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an
"outside director" within the meaning of Regulation 1.162-27 under Code
Section 162(m).
(cc) "Restricted Stock" means Stock granted under this Plan which is
subject to certain restrictions and to a risk of forfeiture.
(dd) "Retainer Fees" means annual Board and chair retainer fees
payable to a director in his or her capacity as such for service on the
Board and Board committees.
(ee) "Retirement" means, with respect to a non-employee director,
termination of service as a director of the Company at or after age 65.
(ff) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to Participants, promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act.
(gg) "Stock" means the Company's Common Stock, par value $1.00 per
share, and any other equity securities of the Company that may be
substituted or resubstituted for Stock pursuant to Section 12(c).
(hh) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c).
(ii) "Valuation Date" shall mean the close of business on the last
business day of each calendar quarter and, in the case of any final
distribution from a Participant's Deferred Cash Account (described in
Section 8(f)(iv)), the day preceding such distribution.
3. ADMINISTRATION.
(a) Authority of the Committee. The Plan shall be administered by the
Committee, which shall have full and final authority, in each case subject
to and consistent with the provisions of the Plan, to select Eligible
Persons to become Participants; to grant Awards; to determine the type and
number of
A-3
41
Awards, the dates on which Awards may be exercised and on which the risk of
forfeiture or deferral period relating to Awards shall lapse or terminate,
the acceleration of any such dates, the expiration date of any Award,
whether, to what extent, and under what circumstances an Award may be
settled, or the exercise price of an Award may be paid, in cash, Stock,
other Awards, or other property, and other terms and conditions of, and all
other matters relating to, Awards; to prescribe documents evidencing or
setting terms of Awards (such Award documents need not be identical for
each Participant), amendments thereto, and rules and regulations for the
administration of the Plan and amendments thereto; to construe and
interpret the Plan and Award documents and correct defects, supply
omissions or reconcile inconsistencies therein; and to make all other
decisions and determinations as the Committee may deem necessary or
advisable for the administration of the Plan. Decisions of the Committee
with respect to the administration and interpretation of the Plan shall be
final, conclusive, and binding upon all persons interested in the Plan,
including Participants, Beneficiaries, transferees under Section 12(b) and
other persons claiming rights from or through a Participant, and
stockholders. The foregoing notwithstanding, the Board shall perform the
functions of the Committee for purposes of granting Awards under the Plan
to non-employee directors (the functions of the Committee with respect to
other aspects of non-employee director awards is not exclusive to the
Board, however).
(b) Manner of Exercise of Committee Authority. The express grant of
any specific power to the Committee, and the taking of any action by the
Committee, shall not be construed as limiting any power or authority of the
Committee. The Committee may delegate to officers or managers of the
Company or any subsidiary or affiliate, or committees thereof, the
authority, subject to such terms as the Committee shall determine, to
perform such functions, including administrative functions, as the
Committee may determine, to the extent (x) that such delegation will not
result in the loss of an exemption under Rule 16b-3(d) for Awards granted
to Participants subject to Section 16 of the Exchange Act in respect of the
Company and will not cause Awards intended to qualify as "performance-based
compensation" under Code Section 162(m) to fail to so qualify, and (y)
permitted by the Delaware General Corporation Law.
(c) Limitation of Liability. The Committee and each member thereof,
and any person acting pursuant to authority delegated by the Committee,
shall be entitled, in good faith, to rely or act upon any report or other
information furnished by any executive officer, other officer or employee
of the Company or a subsidiary or affiliate, the Company's independent
auditors, consultants or any other agents assisting in the administration
of the Plan. Members of the Committee, any person acting pursuant to
authority delegated by the Committee, and any officer or employee of the
Company or a subsidiary or affiliate acting at the direction or on behalf
of the Committee or a delegee shall not be personally liable for any action
or determination taken or made in good faith with respect to the Plan, and
shall, to the extent permitted by law, be fully indemnified and protected
by the Company with respect to any such action or determination.
4. STOCK SUBJECT TO PLAN.
(a) Overall Number of Shares Available for Delivery. Subject to
adjustment as provided in Section 12(c), the total number of shares of
Stock reserved and available for delivery in connection with Awards under
the Plan shall be (i) four million shares, plus (ii) the number of shares
subject to awards under the Preexisting Plans which become available in
accordance with Section 4(b) after the Effective Date, plus (iii) 10% of
the number of shares issued or delivered by the Company during the term of
the Plan other than issuances or deliveries under the Plan or other
incentive compensation plans of the Company; provided, however, that the
total number of shares with respect to which ISOs may be granted shall not
exceed the number specified under clause (i) above; and provided further,
that the total number of shares which may be issued and delivered in
connection with Awards other than Options and SARs shall not exceed one
million shares. Any shares of Stock delivered under the Plan shall consist
of authorized and unissued shares or treasury shares.
A-4
42
(b) Share Counting Rules. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards) and make adjustments
if the number of shares of Stock actually delivered differs from the number
of shares previously counted in connection with an Award. Shares subject to
an Award or an award under the Preexisting Plans that is canceled, expired,
forfeited, settled in cash or otherwise terminated without a delivery of
shares to the Participant will again be available for Awards, and shares
withheld in payment of the exercise price or taxes relating to an Award or
Preexisting Plan award and shares equal to the number surrendered in
payment of any exercise price or taxes relating to an Award or Preexisting
Plan award shall be deemed to constitute shares not delivered to the
Participant and shall be deemed to again be available for Awards under the
Plan. In addition, in the case of any Award granted in assumption of or in
substitution for an award of a company or business acquired by the Company
or a subsidiary or affiliate or with which the Company or a subsidiary or
affiliate combines, shares issued or issuable in connection with such
substitute Award shall not be counted against the number of shares reserved
under the Plan. This Section 4(b) shall apply to the number of shares
reserved and available for ISOs only to the extent consistent with
applicable regulations relating to ISOs under the Code.
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS.
(a) Eligibility. Awards may be granted under the Plan only to
Eligible Persons. For purposes of the Plan, an "Eligible Person" means an
employee of the Company or any subsidiary or affiliate, including any
executive officer or non-employee director of the Company or a subsidiary
or affiliate, and any person who has been offered employment by the Company
or a subsidiary or affiliate, provided that such prospective employee may
not receive any payment or exercise any right relating to an Award until
such person has commenced employment with the Company or a subsidiary or
affiliate. An employee on leave of absence may be considered as still in
the employ of the Company or a subsidiary or affiliate for purposes of
eligibility for participation in the Plan. For purposes of the Plan, a
joint venture in which the Company or a subsidiary has a substantial direct
or indirect equity investment shall be deemed an affiliate, if so
determined by the Committee. Holders of awards granted by a company or
business acquired by the Company or a subsidiary or affiliate, or with
which the Company or a subsidiary or affiliate combines, are eligible for
grants of substitute awards granted in assumption of or in substitution for
such outstanding awards previously granted under the Plan in connection
with such acquisition or combination transaction.
(b) Per-Person Award Limitations. In each calendar year during any
part of which the Plan is in effect, an Eligible Person may be granted
Awards intended to qualify as "performance-based compensation" under Code
Section 162(m) under each of Section 6(b), 6(c), 6(d), 6(e), 6(f), 6(g) or
6(h) relating to up to his or her Annual Limit (such Annual Limit to apply
separately to the type of Award authorized under each specified subsection,
except that the limitation applies to Dividend Equivalents under Section
6(g) only if such Dividend Equivalents are granted separately from and not
as a feature of another Award). A Participant's Annual Limit, in any year
during any part of which the Participant is then eligible under the Plan,
shall equal two million shares plus the amount of the Participant's unused
Annual Limit relating to the same type of Award as of the close of the
previous year, subject to adjustment as provided in Section 12(c). In the
case of an Award which is not valued in a way in which the limitation set
forth in the preceding sentence would operate as an effective limitation
satisfying applicable law (including Treasury Regulation 1.162-27(e)(4)),
an Eligible Person may not be granted Awards authorizing the earning during
any calendar year of an amount that exceeds the Eligible Person's Annual
Limit, which for this purpose shall equal $4 million plus the amount of the
Eligible Person's unused cash Annual Limit as of the close of the previous
year (this limitation is separate and not affected by the number of Awards
granted during such calendar year subject to the limitation in the
preceding sentence). For this purpose, (i) "earning" means satisfying
performance conditions so that an amount becomes payable, without regard to
whether it is to be paid currently or on a deferred basis or continues to
be subject to any service requirement or other non-performance condition,
and (ii) a Participant's Annual Limit is used to the extent an
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amount or number of shares may be potentially earned or paid under an
Award, regardless of whether such amount or shares are in fact earned or
paid.
6. SPECIFIC TERMS OF AWARDS.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to
Section 12(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including
terms requiring forfeiture of Awards in the event of termination of
employment or service by the Participant and terms permitting a Participant
to make elections relating to his or her Award. The Committee shall retain
full power and discretion with respect to any term or condition of an Award
that is not mandatory under the Plan. The Committee shall require the
payment of lawful consideration for an Award to the extent necessary to
satisfy the requirements of the Delaware General Corporation Law, and may
otherwise require payment of consideration for an Award except as limited
by the Plan.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option (including both ISOs and non-qualified
Options) shall be determined by the Committee, provided that such
exercise price shall be not less than the Fair Market Value of a share
of Stock on the date of grant of such Option, subject to Section 9(a).
Notwithstanding the foregoing, any substitute award granted in
assumption of or in substitution for an outstanding award granted by a
company or business acquired by the Company or a subsidiary or
affiliate, or with which the Company or a subsidiary or affiliate
combines may be granted with an exercise price per share of Stock other
than as required above.
(ii) Option Term; Time and Method of Exercise. The Committee shall
determine the term of each Option, provided that in no event shall the
term of any ISO or SAR in tandem therewith exceed a period of ten years
from the date of grant. The Committee shall determine the time or times
at which or the circumstances under which an Option may be exercised in
whole or in part (including based on achievement of performance goals
and/or future service requirements), the methods by which such exercise
price may be paid or deemed to be paid and the form of such payment
(subject to Section 12(k)), including, without limitation, cash, Stock,
other Awards or awards granted under other plans of the Company or any
subsidiary or affiliate, or other property (including notes and other
contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent
permitted by applicable law), and the methods by or forms in which Stock
will be delivered or deemed to be delivered in satisfaction of Options
to Participants (including deferred delivery of shares representing the
Option "profit," at the election of the Participant or as mandated by
the Committee, with such deferred shares subject to any vesting,
forfeiture or other terms as the Committee may specify).
(iii) ISOs. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Code Section 422,
including but not limited to the requirement that no ISO shall be
granted more than ten years after the Effective Date.
(c) Stock Appreciation Rights. The Committee is authorized to grant
SAR's to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess
of (A) the Fair Market Value of one share of Stock on the date of
exercise (or, in the case of a "Limited SAR," the Fair Market Value
determined by reference to the Change in Control Price, as defined under
Section 10(d) hereof) over (B) the grant price of the SAR as determined
by the Committee.
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(ii) Other Terms. The Committee shall determine at the date of
grant or thereafter, the time or times at which and the circumstances
under which a SAR may be exercised in whole or in part (including based
on achievement of performance goals and/or future service requirements),
the method of exercise, method of settlement, form of consideration
payable in settlement, method by or forms in which Stock will be
delivered or deemed to be delivered to Participants, and whether or not
a SAR shall be free-standing or in tandem or combination with any other
Award. Limited SARs that may only be exercised in connection with a
Change in Control or other event as specified by the Committee may be
granted on such terms, not inconsistent with this Section 6(c), as the
Committee may determine.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals
and/or future service requirements), in such installments or otherwise
and under such other circumstances as the Committee may determine at the
date of grant or thereafter. Except to the extent restricted under the
terms of the Plan and any Award document relating to the Restricted
Stock, a Participant granted Restricted Stock shall have all of the
rights of a stockholder, including the right to vote the Restricted
Stock and the right to receive dividends thereon (subject to any
mandatory reinvestment or other requirement imposed by the Committee).
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company; provided
that the Committee may provide, by rule or regulation or in any Award
document, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Stock will lapse in whole
or in part, including in the event of terminations resulting from
specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine.
If certificates representing Restricted Stock are registered in the name
of the Participant, the Committee may require that such certificates
bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock, that the Company
retain physical possession of the certificates, and that the Participant
deliver a stock power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award
of Restricted Stock, the Committee may require that any dividends paid
on a share of Restricted Stock shall be either (A) paid with respect to
such Restricted Stock at the dividend payment date in cash, in kind, or
in a number of shares of unrestricted Stock having a Fair Market Value
equal to the amount of such dividends, or (B) automatically reinvested
in additional Restricted Stock or held in kind, which shall be subject
to the same terms as applied to the original Restricted Stock to which
it relates, or (C) deferred as to payment, either as a cash deferral or
with the amount or value thereof automatically deemed reinvested in
shares of Deferred Stock, other Awards or other investment vehicles,
subject to such terms as the Committee shall determine or permit a
Participant to elect. Unless otherwise determined by the Committee,
Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other property has
been distributed.
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(e) Deferred Stock. The Committee is authorized to grant Deferred
Stock to Participants, subject to the following terms and conditions:
(i) Award and Restrictions. Issuance of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred
Stock by the Committee (or, if permitted by the Committee, as elected by
the Participant). In addition, Deferred Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions
may lapse at the expiration of the deferral period or at earlier
specified times (including based on achievement of performance goals
and/or future service requirements), separately or in combination, in
installments or otherwise, and under such other circumstances as the
Committee may determine at the date of grant or thereafter. Deferred
Stock may be satisfied by delivery of Stock, other Awards, or a
combination thereof (subject to Section 12(k)), as determined by the
Committee at the date of grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service during the applicable deferral
period or portion thereof to which forfeiture conditions apply (as
provided in the Award document evidencing the Deferred Stock), all
Deferred Stock that is at that time subject to such forfeiture
conditions shall be forfeited; provided that the Committee may provide,
by rule or regulation or in any Award document, or may determine in any
individual case, that restrictions or forfeiture conditions relating to
Deferred Stock will lapse in whole or in part, including in the event of
terminations resulting from specified causes.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee, Dividend Equivalents on the specified number of shares of
Stock covered by an Award of Deferred Stock shall be either (A) paid
with respect to such Deferred Stock at the dividend payment date in cash
or in shares of unrestricted Stock having a Fair Market Value equal to
the amount of such dividends, or (B) deferred with respect to such
Deferred Stock, either as a cash deferral or with the amount or value
thereof automatically deemed reinvested in additional Deferred Stock,
other Awards or other investment vehicles having a Fair Market Value
equal to the amount of such dividends, as the Committee shall determine
or permit a Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of obligations of the Company or a subsidiary or affiliate to pay cash
or deliver other property under the Plan or under other plans or
compensatory arrangements, subject to such terms as shall be determined by
the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to a Participant, which may be awarded on a
free-standing basis or in connection with another Award. The Committee may
provide that Dividend Equivalents shall be paid or distributed when accrued
or shall be deemed to have been reinvested in additional Stock, Awards, or
other investment vehicles, and subject to restrictions on transferability,
risks of forfeiture and such other terms as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock or factors that
may influence the value of Stock, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Stock, purchase rights for Stock, Awards with value and
payment contingent upon performance of the Company or business units
thereof or any other factors designated by the Committee, and Awards valued
by reference to the book value of Stock or the value of securities of or
the performance of specified subsidiaries or affiliates or other business
units. The Committee shall determine the terms and conditions of such
Awards. Stock delivered pursuant to an Award in the nature of a purchase
right granted under this Section 6(h) shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other Awards, notes, or other
property, as the Committee
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shall determine. Cash awards, as an element of or supplement to any other
Award under the Plan, may also be granted pursuant to this Section 6(h).
(i) Performance Awards. Performance Awards, denominated in cash or in
Stock or other Awards, may be granted by the Committee in accordance with
Section 7.
7. PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS.
(a) Performance Awards Generally. Performance Awards may be
denominated as a cash amount, number of shares of Stock, or specified
number of other Awards (or a combination) which may be earned upon
achievement or satisfaction of performance conditions specified by the
Committee. In addition, the Committee may specify that any other Award
shall constitute a Performance Award by conditioning the right of a
Participant to exercise the Award or have it settled, and the timing
thereof, upon achievement or satisfaction of such performance conditions as
may be specified by the Committee. The Committee may use such business
criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce or increase the amounts payable under any Award subject to
performance conditions, except as limited under Sections 7(b) and 7(c) in
the case of a Performance Award intended to qualify as "performance-based
compensation" under Code Section 162(m).
(b) Performance Awards Granted to Covered Employees. If the Committee
determines that a Performance Award to be granted to an Eligible Person who
is designated by the Committee as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of Code Section
162(m), the grant, exercise and/or settlement of such Performance Award
shall be contingent upon achievement of a preestablished performance goal
and other terms set forth in this Section 7(b).
(i) Performance Goal Generally. The performance goal for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section
7(b). The performance goal shall be objective and shall otherwise meet
the requirements of Code Section 162(m) and regulations thereunder,
including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance goals
being "substantially uncertain." The Committee may determine that such
Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise
and/or settlement of such Performance Awards. Performance goals may
differ for Performance Awards granted to any one Participant or to
different Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or affiliates or other business units of the Company shall
be used by the Committee in establishing performance goals for such
Performance Awards: (1) advertising sales (either calendar cycle or
publication cycle basis) or other sales or revenue measures; (2)
operating income, earnings from operations, earnings before or after
taxes, earnings before or after interest, depreciation, amortization, or
extraordinary or special items, (3) net income or net income per common
share (basic or diluted); (4) return on assets, return on investment,
return on capital, or return on equity; (5) cash flow, free cash flow,
cash flow return on investment, or net cash provided by operations; (6)
interest expense after taxes; (7) economic profit or value created; (8)
operating margin; (9) stock price or total stockholder return; and (10)
strategic business criteria, consisting of one or more objectives based
on meeting specified market penetration, geographic business expansion
goals, cost targets, customer satisfaction, employee satisfaction,
management of employment practices and employee benefits, supervision of
litigation and information technology, and goals relating to
acquisitions or divestitures of subsidiaries, affiliates or joint
ventures. The targeted level or levels of performance with respect to
such business criteria may be established at such levels and in such
terms as the Committee may determine, in its discretion, including in
absolute terms, as a goal relative to
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performance in prior periods, or as a goal compared to the performance
of one or more comparable companies or an index covering multiple
companies.
(iii) Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of up to one year or
more than one year, as specified by the Committee. A performance goal
shall be established not later than the earlier of (A) 90 days after the
beginning of any performance period applicable to such Performance Award
or (B) the time 25% of such performance period has elapsed.
(iv) Performance Award Pool. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes of
measuring performance of the Company in connection with Performance
Awards. The amount of such Performance Award pool shall be based upon
the achievement of a performance goal or goals based on one or more of
the business criteria set forth in Section 7(b)(ii) during the given
performance period, as specified by the Committee in accordance with
Section 7(b)(iv). The Committee may specify the amount of the
Performance Award pool as a percentage of any of such business criteria,
a percentage thereof in excess of a threshold amount, or as another
amount which need not bear a strictly mathematical relationship to such
business criteria.
(v) Settlement of Performance Awards; Other Terms. Settlement of
Performance Awards shall be in cash, Stock, other Awards or other
property, in the discretion of the Committee. The Committee may, in its
discretion, increase or reduce the amount of a settlement otherwise to
be made in connection with such Performance Awards, but may not exercise
discretion to increase any such amount payable to a Covered Employee in
respect of a Performance Award subject to this Section 7(b). Any
settlement which changes the form of payment from that originally
specified shall be implemented in a manner such that the Performance
Award and other related Awards do not, solely for that reason, fail to
qualify as "performance-based compensation" for purposes of Code Section
162(m). The Committee shall specify the circumstances in which such
Performance Awards shall be paid or forfeited in the event of
termination of employment by the Participant or other event (including a
Change in Control) prior to the end of a performance period or
settlement of such Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered
Employees. The Committee may grant an Annual Incentive Award to an
Eligible Person who is designated by the Committee as likely to be a
Covered Employee. Such Annual Incentive Award will be intended to qualify
as "performance-based compensation" for purposes of Code Section 162(m),
and its grant, exercise and/or settlement shall be contingent upon
achievement of preestablished performance goals and other terms set forth
in this Section 7(c).
(i) Grant of Annual Incentive Awards. Not later than the earlier
of 90 days after the beginning of any performance period applicable to
such Annual Incentive Award or the time 25% of such performance period
has elapsed, the Committee shall determine the Covered Employees who
will potentially receive Annual Incentive Awards, and the amount(s)
potentially payable thereunder, for that performance period. The
amount(s) potentially payable shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria
set forth in Section 7(b)(ii) in the given performance period, as
specified by the Committee. The Committee may designate an annual
incentive award pool as the means by which Annual Incentive Awards will
be measured, which pool shall conform to the provisions of Section
7(b)(iv). In such case, the portion of the Annual Incentive Award pool
potentially payable to each Covered Employee shall be preestablished by
the Committee. In all cases, the maximum Annual Incentive Award of any
Participant shall be subject to the limitation set forth in Section 5.
(ii) Payout of Annual Incentive Awards. After the end of each
performance period, the Committee shall determine the amount, if any, of
the Annual Incentive Award for that
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performance period payable to each Participant. The Committee may, in
its discretion, determine that the amount payable to any Participant as
a final Annual Incentive Award shall be reduced from the amount of his
or her potential Annual Incentive Award, including a determination to
make no final Award whatsoever, but may not exercise discretion to
increase any such amount. The Committee shall specify the circumstances
in which an Annual Incentive Award shall be paid or forfeited in the
event of termination of employment by the Participant or other event
prior to the end of a performance period or settlement of such Annual
Incentive Award.
(d) Written Determinations. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable in
respect of Performance Awards and Annual Incentive Awards, the level of
actual achievement of the specified performance goals relating to
Performance Awards and Annual Incentive Awards, and the amount of any final
Performance Award and Annual Incentive Award shall be recorded in writing
in the case of Performance Awards intended to qualify under Section 162(m).
Specifically, the Committee shall certify in writing, in a manner
conforming to applicable regulations under Section 162(m), prior to
settlement of each such Award granted to a Covered Employee, that the
performance objective relating to the Performance Award and other material
terms of the Award upon which settlement of the Award was conditioned have
been satisfied.
8. NON-EMPLOYEE DIRECTOR AWARDS. Options, Deferred Stock, Restricted
Stock and other Awards (which other Awards, if granted, will be governed by
Sections 6 and 7 of this Plan) shall be granted to non-employee directors of the
Company or a subsidiary or an affiliate in accordance with policies established
from time to time by the Board specifying the classes of non-employee directors
to be granted such Awards, the number of shares to be subject to each Award, and
the time or times at which such Awards shall be granted. All Options granted to
non-employee directors shall be non-qualified stock options.
(a) Initial Policy -- Option Grants. The initial policy with respect
to Options granted under this Section 8(a), effective as of the Effective
Date and continuing until modified or revoked by the Board from time to
time, shall be as follows:
(i) Initial Grants. At the date of a person's initial election or
appointment as a member of the Board after the Effective Date, such
person, if he or she is a non-employee director of the Company eligible
to participate upon such election or appointment, shall be granted an
Option to purchase 1,500 shares of Stock, subject to adjustment as
provided in Section 12(c). At the Effective Date, each person who is a
non-employee director of the Company eligible to participate at that
date shall be granted an Option to purchase 1,500 shares of Stock,
subject to adjustment as provided in Section 12(c).
(ii) Annual Grants. At the date of each annual meeting of
shareholders following the Effective Date at which a director is elected
or reelected as a member of the Board (or at which members of another
class of directors are elected or reelected, if the Company then has a
classified Board), such director, if he or she is a non-employee
director of the Company eligible to participate at that date and if he
or she has not been granted an Option under this Section 8(a) previously
during the same calendar year, shall be granted an Option to purchase
1,500 shares of Stock, subject to adjustment as provided in Section
12(c).
(b) Terms of Options Granted Under Section 8(a). Each Option granted
under Section 8(a) shall be subject to the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be equal to 100% of the Fair Market
Value of Stock on the date of grant of the Option, subject to Section
9(a).
(ii) Option Term. Each Option shall expire ten years after the
date of grant, or such earlier date as the Option may no longer be
exercised and cannot, by its terms, thereafter become exercisable.
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(iii) Vesting and Exercisability. The Board may establish terms
regarding the times at which Options shall become vested and
exercisable. Unless otherwise determined by the Board, an Option granted
under this Section 8(a) and not previously forfeited shall vest and
become exercisable by a Participant as to one-third of the number of
shares subject to the Option at the close of business on the day
preceding each of the three annual meetings of shareholders following
the date of grant of the Option, rounded to the nearest number of whole
shares. The foregoing notwithstanding, an Option not previously
forfeited shall vest and become exercisable on an accelerated basis upon
a Change in Control or upon the termination of the Participant's service
as a director due to death, Disability or Retirement. Unless otherwise
determined by the Board, an Option will cease to vest and become
exercisable upon the termination of the Participant's service prior to a
Change in Control for any reason other than death, Disability or
Retirement, and such portion that has not vested and become exercisable
at the time of such termination shall be forfeited.
(iv) Payment. The exercise price of an Option shall be paid to the
Company either in cash or by the surrender of Stock, or any combination
thereof, or in such other form or manner as may be consistent with
Section 6(b)(ii).
(c) Initial Policy -- Grant of Deferred Stock and Restricted
Stock. The initial policy with respect to Awards granted under this
Section 8(c), effective as of the Effective Date and continuing until
modified or revoked by the Board from time to time, shall be as follows:
(i) Initial Grant. At the date of a person's initial election or
appointment as a member of the Board after the Effective Date, such
person, if he or she is a non-employee director of the Company eligible
to participate upon such election or appointment, shall be granted 1,500
shares of Deferred Stock, subject to adjustment as provided in Section
12(c). At the Effective Date, each person who is a non-employee director
of the Company eligible to participate at that date shall be granted
1,500 shares of Deferred Stock, subject to adjustment as provided in
Section 12(c).
(ii) Annual Grants. At the date of each annual meeting of
shareholders following the Effective Date at which a director is elected
or reelected as a member of the Board (or at which members of another
class of directors are elected or reelected, if the Company then has a
classified Board), such director, if he or she is a non-employee
director of the Company eligible to participate at that date and if he
or she has not been granted Deferred Stock or Restricted Stock under
Section 8(c) previously during the same calendar year, shall be granted
1,500 shares of Deferred Stock, unless the director has elected, prior
to such annual meeting of shareholders, to receive such grant in the
form of an equal number of shares of Restricted Stock. The number of
shares subject to such annual grants shall be subject to adjustment as
provided in Section 12(c).
(d) Terms of Deferred Stock and Restricted Stock Granted Under Section
8(c). Deferred Stock granted under Section 8(c) shall be subject to the
terms and conditions of Deferred Stock specified in Sections 8(f)(ii),
(iii), and (iv), unless otherwise determined by the Board. Deferred Stock
and Restricted Stock granted under this Section 8(c) shall also be subject
to the following additional terms and conditions:
(i) Vesting and Forfeiture. The Board may establish terms
regarding the times at which Deferred Stock and Restricted Stock shall
become vested and non-forfeitable. Unless otherwise determined by the
Board, an Award granted under Section 8(c) and not previously forfeited
shall become vested and non-forfeitable as to one-third of the number of
shares of Deferred Stock or Restricted Stock at the close of business on
the day preceding each of the three annual meetings of shareholders
following the date of grant of such Award, rounded to the nearest number
of whole shares. The foregoing notwithstanding, an Award of Deferred
Stock or Restricted Stock not previously vested or forfeited shall vest
and become non-forfeitable on an accelerated basis upon a Change in
Control or upon the termination of the Participant's service as a
director due
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to death, Disability or Retirement. Unless otherwise determined by the
Board, an Award of Deferred Stock or Restricted Stock not previously
vested or forfeited will cease to vest and will be forfeited upon the
termination of the Participant's service prior to a Change in Control
for any reason other than death, Disability or Retirement.
(ii) Deferred Stock Credited as a Result of Dividend
Equivalents. Unless otherwise determined by the Board, Deferred Stock
credited as a result of Dividend Equivalents under Section 8(f)(ii)
shall be subject to the same terms, including risk of forfeiture, as the
Deferred Stock with respect to which the dividend equivalents were
credited.
(iii) Dividends on Restricted Stock. Unless otherwise determined
by the Board, dividends on Restricted Stock declared and paid prior to
the lapse of the risk of forfeiture on such Restricted Stock shall be
automatically reinvested in additional shares of Restricted Stock, which
shall be subject to the same terms, including risk of forfeiture, as the
Restricted Stock on which the dividend was paid.
(iv) Awards Nontransferable. Deferred Stock and Restricted Stock
shall be nontransferable by the Participant at any time that the Award
remains subject to a risk of forfeiture.
(e) Options Granted in Payment of Fees and Deferral of Fees in
Deferred Stock and Deferred Cash. Each non-employee director of the
Company may elect, in accordance with Section 8(e)(i), to be paid Retainer
Fees in the form of Options under Section 8(e)(ii) or to defer receipt of
Retainer Fees and Other Director Compensation in the form of Deferred Stock
under Section 8(e)(iii) or deferred cash under Section 8(e)(iv).
(i) Elections. A director shall elect to participate and the terms
of such participation by filing an election with the Company prior to
the beginning of a Plan Year (the initial Plan Year will begin August
14, 1998 and Plan Years thereafter generally will begin at each annual
meeting of shareholders or, in the case of a new director, upon initial
appointment) or at such other date as may be specified by the Board,
provided that any date so specified shall ensure effective deferral of
taxation and otherwise comply with applicable laws.
(A) Effect and Irrevocability of Elections. Elections shall be
deemed continuing, and therefore applicable to Plan Years after the
initial Plan Year covered by the election, until the election is
modified or superseded by the Participant. Elections other than those
subject to Section 8(f)(iv) shall become irrevocable at the
commencement of the Plan Year to which an election relates, unless
the Board specifies a different time. Elections relating to the time
of settlement of a Deferral Account shall become irrevocable at the
time specified in Section 8(f)(iv). Elections may be modified or
revoked by filing a new election prior to the time the election to be
modified or revoked has become irrevocable. The latest election filed
with the Board shall be deemed to revoke all prior inconsistent
elections that remain revocable at the time of filing of the latest
election.
(B) Matters To Be Elected. The Company will provide a form of
election which will permit a director to make appropriate elections
with respect to all relevant matters under this Section 8.
(C) Time of Filing Elections. An election must be received by
the Company prior to the date specified by the Board. Under no
circumstances may a Participant defer compensation to which the
Participant has attained, at the time of deferral, a legally
enforceable right to current receipt of such compensation.
(ii) Options Granted in Payment of Retainer Fees. A Participant
who has elected to be paid a specified amount of Retainer Fees in the
form of Options shall be granted, at the close of business on the day
the Participant's Plan Year commences an Option to purchase the number
of whole shares of Stock determined in accordance with the Option
Valuation Methodology
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specified by the Board. Each Option granted under this Section 8(e)(ii)
shall be subject to the following terms and conditions:
(A) Option Valuation Methodology. The Board shall determine the
Option Valuation Methodology which will be used to determine the
number of Options granted and the Option exercise price. The Option
Valuation Methodology may be based upon a valuation of the Option, a
discounting of the aggregate exercise price of the Options by the
amount of Retainer Fees to be paid in the form of Options, or such
other methodology as may be deemed reasonable for purposes of this
Section 8(e)(ii).
(B) Option Term. Each Option will expire ten years after the
date of grant; provided, however, that, unless otherwise determined
by the Board, any portion of an Option that is not yet exercisable as
of the date a Participant ceases to serve as a director for any
reason will expire at the date such service ceases.
(C) Vesting and Exercisability. Unless otherwise determined by
the Board, each Option will vest and become exercisable as to 25% of
the underlying shares on the June 30, September 30, December 31, and
March 31 following the date of grant; provided, however, that, in the
case of a Plan Year which begins on or after June 30 and before
September 30, the vesting percentage shall be 33%, and in the case of
a Plan Year which begins on or after September 30 and before December
31, the vesting percentage shall be 50%; and provided further, that
an Option will become fully vested and exercisable at the close of
business on the last day of the Plan Year in which it was granted.
The number of shares as to which the Option becomes vested and
exercisable will be rounded to the nearest whole number. The
foregoing notwithstanding, (i) upon a Change in Control a
Participant's Option not previously forfeited shall vest and become
exercisable in full, and (ii) upon termination of the Participant's
service as a director due to death, Disability, or Retirement, that
portion of the Option which would become vested and exercisable on
the last day of the calendar quarter in which such death, Disability,
or Retirement occurred will become immediately vested and
exercisable.
(D) Exercise Price. The exercise price per share of Stock
purchasable under an Option will be determined in accordance with the
Option Valuation Methodology. The exercise price of an Option shall
be paid to the Company either in cash or by the surrender of Stock,
or any combination thereof, or in such other form or manner as may be
established by the Board; provided, however, that, unless otherwise
determined by the Board, shares shall not be surrendered in payment
of the exercise price if such surrender would result in additional
accounting expense to the Company.
(E) Changes in Fees; Changes in Service as a Committee
Chair. If the amount of Retainer Fees is increased during a Plan
Year, or if a Director is appointed chair of a Board committee such
that an additional Retainer Fee is payable during a Plan Year, such
increased or additional fees will not be paid in the form of Options.
If a Director has been granted an Option in respect of a Plan Year in
payment of Retainer Fees which included committee-related fees for
service as chair or a member of any Board committee, and during such
Plan Year he or she ceases such service but remains on the Board, the
Option will expire in part at the time such service ceases, to the
extent of that portion of the Option which is not yet exercisable
multiplied by a fraction the numerator of which is the amount of
committee-related fees included in such Retainer Fees and the
denominator of which is the total amount of such Retainer Fees.
(F) Service During Part of a Quarter. If a Participant ceases
to serve as a director or on a committee at a date other than a
vesting date for the Option and if the Board does not exercise its
discretion to permit vesting of the Participant's Option in
consideration for the Participant's service in that final quarterly
period, the Participant shall be entitled to
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payment in cash for his or her service in that final quarterly period
if and to the extent then provided in the Company's regular
non-employee director compensation policies.
(iii) Deferral of Retainer Fees and Other Director Compensation in
the Form of Deferred Stock. If a Participant has elected to defer
receipt of a specified amount of Retainer Fees or Other Director
Compensation in the form of Deferred Stock, a number of shares of
Deferred Stock shall be credited to the Participant's Deferred Stock
Account, as of the date such Retainer Fees or Other Director
Compensation otherwise would have been payable to the Participant but
for such election to defer, equal to (i) such amount otherwise payable
divided by (ii) the Fair Market Value of a share of Stock at that date.
Deferred Shares credited under this Section 8(e)(iii) shall be subject
to the terms and conditions of Deferred Stock specified in Sections
8(f)(ii), (iii) and (iv). The right and interest of each Participant in
Deferred Stock credited to the Participant's Deferred Stock Account
under this Section 8(e)(iii) at all times will be nonforfeitable.
(iv) Deferral of Retainer Fees and Other Director Compensation in
the Form of Deferred Cash. If a Participant has elected to defer
receipt of a specified amount of Retainer Fees or Other Director
Compensation in the form of deferred cash, an amount equal to such
specified amount shall be credited to the Participant's Deferred Cash
Account as of the date such Retainer Fees or Other Director Compensation
otherwise would have been payable to the Participant but for such
election to defer. Each Participant shall be entitled to direct the
manner in which his or her Deferred Cash Account will be deemed to be
invested, selecting among the same investment alternatives (other than
Company common stock) as are offered from time to time to participants
in the Company's Deferred Compensation Plan. The right and interest of
each Participant relating to his or her Deferred Cash Account at all
times will be nonforfeitable.
(v) Cessation of Service as a Director. If any Retainer Fee or
Other Director Compensation otherwise subject to an election would be
paid to a Participant after he or she has ceased to serve as a director,
such payment shall not be subject to deferral under this Section 8(e),
but shall instead be paid in accordance with the Company's regular
non-employee director compensation policies.
(f) Other Deferrals and Terms of Deferral Accounts.
(i) Deferral of Certain Option Shares. Upon any exercise of an
Option or an option granted under any other plan or program of the
Company by a non-employee director, if the exercise price of such option
is paid by surrender of shares of Stock to the Company, the director may
elect to defer receipt of all or a portion of the shares deliverable
upon exercise of the option in excess of the number surrendered in
payment of the exercise price. In such case, the number of shares
deferred shall be credited to the Participant's Deferred Stock Account.
(ii) Dividend Equivalents on Deferred Stock. Dividend Equivalents
will be credited on Deferred Stock credited to a Participant's Deferred
Stock Account(s) as follows:
(A) Cash and Non-Share Dividends. If the Company declares and
pays a dividend on Stock in the form of cash or property other than
shares of Stock, then a number of additional shares of Deferred Stock
shall be credited to a Participant's Deferred Stock Account(s) as of
the payment date for such dividend equal to (i) the number of shares
of Deferred Stock credited to the respective Account as of the record
date for such dividend, multiplied by (ii) the amount of cash plus
the Fair Market Value of any property other than shares actually paid
as a dividend on each share at such payment date, divided by (iii)
the Fair Market Value of a share of Stock at such payment date.
(B) Share Dividends and Splits. If the Company declares and
pays a dividend on Stock in the form of additional shares of Stock,
or there occurs a forward split of Stock, then a number of additional
shares of Deferred Stock shall be credited to the Participant's
Deferred Stock Account(s) as of the payment date for such dividend or
forward Stock split
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equal to (i) the number of shares of Deferred Stock credited to the
respective Account as of the record date for such dividend or split
multiplied by (ii) the number of additional shares actually paid as a
dividend or issued in such split in respect of each share of Stock.
(iii) Reallocation of Accounts. A Participant may allocate amounts
credited to his or her Deferred Cash Account to one or more of the
investment vehicles authorized under the Company's Deferred Compensation
Plan. Subject to the rules established by the Board and subject to the
provisions of this Section 8(f), a Participant may reallocate amounts
credited to his or her Deferred Cash Account as of the Valuation Date
following the Participant's election, to one or more of such investment
vehicles, by filing with the Company a notice, in such form, and in
accordance with such procedures, as the Board shall determine from time
to time. The Board may, in its discretion, restrict allocation into or
reallocation by specified Participants into or out of special investment
vehicles or specify minimum or maximum amounts that may be allocated or
reallocated by Participants. Notwithstanding the foregoing, a
Participant shall have no right to have amounts credited as cash to the
Participant's Deferred Cash Account reallocated or switched to his or
her Deferred Stock Account or amounts credited to the Participant's
Deferred Stock Account reallocated or switched to his or her Deferred
Cash Account, except as may be permitted by the Board.
(iv) Elections as to Settlement. Each Participant, while still a
director of the Company, shall file an election with the Company
specifying the time or times at which the Participant's Deferral Account
will be settled, following the Participant's termination of service as a
director of the Company, and whether distribution will be in a single
lump sum or in a number of annual installments not exceeding ten (or
such other number as may be determined by the Board); provided, however,
that, if no valid election has been filed as to the time of settlement
of a Participant's Deferral Account or any portion thereof, such
Deferral Account or portion thereof shall be distributed in a single
lump sum on the first business day of the year following the year in
which the Participant ceases to serve as a director. If installments are
elected, such installments must be annual installments, unless otherwise
determined by the Board, commencing not later than the first year
following the year in which the Participant ceases to serve as a
director (on such annual installment date as may be specified by the
Board) and extending over a period not to exceed ten years, unless
otherwise determined by the Board.
(A) Matters Covered by Election. Subject to the terms of the
Plan, the Board shall determine whether all deferrals under the Plan
must be subject to a single election as to the time or times of
settlement, or whether settlement elections may relate to a specified
sub-account (i.e., the Deferred Stock Account or the Deferred Cash
Account) and/or a specified Plan Year. If the Board permits elections
to relate to a specified Plan Year, such election shall apply to the
amounts originally credited to the specified subaccount in respect of
such Plan Year and to any additional amounts credited as Dividend
Equivalents or interest in respect of such originally credited
amounts and previously credited additional amounts.
(B) Modifying Elections. A Participant may modify a prior
election as to the time at which a Participant's Deferral Account
(including a specified subaccount) will be settled at any time prior
to the time the Participant ceases to serve as a director, subject to
such requirements as may be specified by the Company. Such
modification shall be made by filing a new election with the Company.
The foregoing notwithstanding, the Board may disapprove or limit
elections under this Section 8(f)(iv) in order to ensure that the
Participant will not be deemed to have constructively received
compensation in respect of the Participant's Deferral Account prior
to settlement.
(v) Election Forms. Elections under the Plan shall be made in
writing on such form or forms as may be specified from time to time by
the Board.
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(vi) Statements. The Company will furnish statements to each
Participant reflecting the amount credited to a Participant's Deferral
Account, transactions therein, and other related information no less
frequently than once each calendar year.
(vii) Fractional Shares. The amount of Deferred Stock credited to
a Deferred Stock Account shall include fractional shares calculated to
at least three decimal places.
(g) Settlement of Deferral Accounts. The Company will settle a
Participant's Deferral Account by making one or more distributions to the
Participant (or his or her Beneficiary, following Participant's death) at
the time or times, in a lump sum or installments, as specified in the
Participant's election filed in accordance with Section 8(f)(iv); provided,
however, that a Deferral Account will be settled at times earlier than
those specified in such election in accordance with Sections 8(g)(ii),
(iii), and (iv).
(i) Form of Distribution. Distributions in respect of a
Participant's Deferred Stock Account shall be made only in shares of
Stock, together with cash in lieu of any fractional share remaining at a
time that less than one whole share of Deferred Stock is credited to
such Deferred Stock Account. Shares may be delivered in certificate form
to a Participant (or his or her Beneficiary) or to a nominee for the
account of the Participant (or his or her Beneficiary), or in such other
manner as the Board may determine. Distributions in respect of a
Participant's Deferred Cash Account shall be made only in cash.
(ii) Death. If a Participant ceases to serve as a director due to
death or dies prior to distribution of all amounts from his or her
Deferral Account, the Company shall make a single lump-sum distribution
to the Participant's Beneficiary. Any such distribution shall be made as
soon as practicable following notification to the Company of the
Participant's death.
(iii) Financial Emergency and Other Payments. Other provisions of
the Plan notwithstanding, if, upon the written application of a
Participant, the Board determines that the Participant has a financial
emergency of such a substantial nature and beyond the Participant's
control that payment of amounts previously deferred under the Plan is
warranted, the Board may direct the payment to the Participant of all or
a portion of the balance of a Deferral Account and the time and manner
of such payment.
(iv) Change in Control. In the event of a Change in Control,
payments in settlement of any Deferral Account (including a Deferral
Account with respect to which one or more installment payments have
previously been made) shall be made within fifteen (15) business days
following such Change in Control.
9. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of
the Company, any subsidiary or affiliate, or any business entity to be
acquired by the Company or a subsidiary or affiliate, or any other right of
a Participant to receive payment from the Company or any subsidiary or
affiliate. Awards granted in addition to or in tandem with other Awards or
awards may be granted either as of the same time as or a different time
from the grant of such other Awards or awards. Subject to Section 12(k),
the Committee may determine that, in granting a new Award, the in-the-money
value of any surrendered Award or award or the value of any other right to
payment surrendered by the Participant may be applied to reduce the
exercise price of any Option, grant price of any SAR, or purchase price of
any other Award.
(b) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee, subject to the express limitations
set forth in Sections 6(b)(ii) and 8 or elsewhere in the Plan.
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(c) Form and Timing of Payment under Awards; Deferrals. Subject to
the terms of the Plan (including Section 12(k)) and any applicable Award
document, payments to be made by the Company or a subsidiary or affiliate
upon the exercise of an Option or other Award or settlement of an Award may
be made in such forms as the Committee shall determine, including, without
limitation, cash, Stock, other Awards or other property, and may be made in
a single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash paid in lieu of Stock
in connection with such settlement, in the discretion of the Committee or
upon occurrence of one or more specified events (subject to Section 12(k)).
Installment or deferred payments may be required by the Committee (subject
to Section 12(e)) or permitted at the election of the Participant on terms
and conditions established by the Committee. Payments may include, without
limitation, provisions for the payment or crediting of reasonable interest
on installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments
denominated in Stock.
(d) Limitation on Vesting of Certain Awards. Subject to Section 8,
Restricted Stock will vest over a minimum period of three years except in
the event of a Participant's death, disability, or retirement, or in the
event of a Change in Control or other special circumstances. The foregoing
notwithstanding, (i) Restricted Stock as to which either the grant or
vesting is based on, among other things, the achievement of one or more
performance conditions generally will vest over a minimum period of one
year except in the event of a Participant's death, disability, or
retirement, or in the event of a Change in Control or other special
circumstances, and (ii) up to 5% of the shares of Stock authorized under
the Plan may be granted as Restricted Stock without any minimum vesting
requirements. For purposes of this Section 9(d), vesting over a three-year
period or one-year period will include periodic vesting over such period if
the rate of such vesting is proportional throughout such period.
10. CHANGE IN CONTROL.
(a) Effect of "Change in Control" on Non-Performance Based Awards. In
the event of a "Change in Control," the following provisions shall apply to
non-performance based Awards, including Awards as to which performance
conditions previously have been satisfied or are deemed satisfied under
Section 10(b), unless otherwise provided by the Committee in the Award
document:
(i) All deferral of settlement, forfeiture conditions and other
restrictions applicable to Awards granted under the Plan shall lapse and
such Awards shall be fully payable as of the time of the Change in
Control without regard to deferral and vesting conditions, except to the
extent of any waiver by the Participant or other express election to
defer beyond a Change in Control and subject to applicable restrictions
set forth in Section 12(a);
(ii) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of
the time of the Change in Control and shall remain exercisable and
vested for the balance of the stated term of such Award without regard
to any termination of employment or service by the Participant other
than a termination for Cause, subject only to applicable restrictions
set forth in Section 12(a); and
(iii) The Committee may, in its discretion, determine to extend to
any Participant who holds an Option the right to elect, during the
60-day period immediately following the Change in Control, in lieu of
acquiring the shares of Stock covered by such Option, to receive in cash
the excess of the Change in Control Price over the exercise price of
such Option, multiplied by the number of shares of Stock covered by such
Option, and to extend to any Participant who holds other types of Awards
denominated in shares the right to elect, during the 60-day period
immediately following the Change in Control, in lieu of receiving the
shares of Stock covered by such Award, to receive in cash the Change in
Control Price multiplied by the number of shares of Stock covered by
such Award.
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(b) Effect of "Change in Control" on Performance-Based Awards. In the
event of a "Change in Control," with respect to an outstanding Award
subject to achievement of performance goals and conditions, such
performance goals and conditions shall be deemed to be met or exceeded if
and to the extent so provided by the Committee in the Award document
governing such Award or other agreement with the Participant.
(c) Definition of "Change in Control." A "Change in Control" shall be
deemed to have occurred if, after the Effective Date, there shall have
occurred any of the following:
(i) Any "person," as such term is used in Section 13(d) and 14(d)
of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any company owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as
their ownership of stock of the Company), acquires voting securities of
the Company and immediately thereafter is a "20% Beneficial Owner." For
purposes of this provision, a "20% Beneficial Owner" shall mean a person
who is the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then-outstanding voting securities; provided that the term "20%
Beneficial Owner" shall not include any person who, at all times
following such an acquisition of securities, remains eligible to file a
Schedule 13G pursuant to Rule 13d-1(b) under the Exchange Act, or
remains exempt from filing a Schedule 13D under Section 13(d)(6)(b) of
the Exchange Act, with respect to all classes of Company voting
securities;
(ii) During any period of two consecutive years commencing on or
after the Effective Date, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person (as defined above) who has entered into an
agreement with the Company to effect a transaction described in
subsections (i), (iii) or (iv) of this definition) whose election by the
Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the period
or whose election or nomination for election was previously so approved
(the "Continuing Directors") cease for any reason to constitute at least
a majority thereof;
(iii) The shareholders of the Company have approved a merger,
consolidation, recapitalization, or reorganization of the Company, or a
reverse stock split of any class of voting securities of the Company, or
the consummation of any such transaction if shareholder approval is not
obtained, other than any such transaction which would result in at least
60% of the combined voting power of the voting securities of the Company
or the surviving entity outstanding immediately after such transaction
being beneficially owned by persons who together beneficially owned at
least 80% of the combined voting power of the voting securities of the
Company outstanding immediately prior to such transaction, with the
relative voting power of each such continuing holder compared to the
voting power of each other continuing holder not substantially altered
as a result of the transaction; provided that, for purposes of this
paragraph (iii), such continuity of ownership (and preservation of
relative voting power) shall be deemed to be satisfied if the failure to
meet such 60% threshold (or to substantially preserve such relative
voting power) is due solely to the acquisition of voting securities by
an employee benefit plan of the Company, such surviving entity or a
subsidiary thereof; and provided further, that, if consummation of the
corporate transaction referred to in this Section 10(c)(iii) is subject,
at the time of such approval by shareholders, to the consent of any
government or governmental agency or approval of the shareholders of
another entity or other material contingency, no Change in Control shall
occur until such time as such consent and approval has been obtained and
any other material contingency has been satisfied;
(iv) The shareholders of the Company have approved a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of
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the Company's assets (or any transaction having a similar effect);
provided that, if consummation of the transaction referred to in this
Section 10(c)(iv) is subject, at the time of such approval by
shareholders, to the consent of any government or governmental agency or
approval of the shareholders of another entity or other material
contingency, no Change in Control shall occur until such time as such
consent and approval has been obtained and any other material
contingency has been satisfied; and
(v) any other event which the Board of Directors of the Company
determines shall constitute a Change in Control for purposes of this
Plan.
(d) Definition of "Change in Control Price." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share
paid (including extraordinary dividends) in any transaction triggering the
Change in Control or any liquidation of shares following a sale of
substantially all assets of the Company, or (ii) the highest Fair Market
Value per share at any time during the 60-day period preceding and 60-day
period following the Change in Control.
(e) Termination of Employment After Change in Control Negotiations
Have Commenced. For purposes of this Section 10, a termination of a
Participant's employment by the Company without Cause after the
commencement of negotiations with a potential acquirer or business
combination partner will be deemed to be a termination of employment
immediately after a Change in Control if such negotiations result in a
transaction constituting a Change in Control within 24 months of the
commencement date of such negotiations.
11. ADDITIONAL AWARD FORFEITURE PROVISIONS.
(a) Forfeiture of Options and Other Awards and Gains Realized Upon
Prior Option Exercises or Award Settlements. Unless otherwise determined
by the Committee, each Award granted hereunder, other than Awards granted
to non-employee directors, shall be subject to the following additional
forfeiture conditions, to which the Participant, by accepting an Award
hereunder, agrees. If any of the events specified in Section 11(b)(i),
(ii), or (iii) occurs (a "Forfeiture Event"), all of the following
forfeitures will result:
(i) The unexercised portion of the Option, whether or not vested,
and any other Award not then settled (except for an Award that has not
been settled solely due to an elective deferral by the Participant and
otherwise is not forfeitable in the event of any termination of service
of the Participant) will be immediately forfeited and canceled upon the
occurrence of the Forfeiture Event; and
(ii) The Participant will be obligated to repay to the Company, in
cash, within five business days after demand is made therefor by the
Company, the total amount of Award Gain (as defined herein) realized by
the Participant upon each exercise of an Option or settlement of an
Award (regardless of any elective deferral) that occurred on or after
(A) the date that is six months prior to the occurrence of the
Forfeiture Event, if the Forfeiture Event occurred while the Participant
was employed by the Company or a subsidiary or affiliate, or (B) the
date that is six months prior to the date the Participant's employment
by the Company or a subsidiary or affiliate terminated, if the
Forfeiture Event occurred after the Participant ceased to be so
employed. For purposes of this Section, the term "Award Gain" shall mean
(i), in respect of a given Option exercise, the product of (X) the Fair
Market Value per share of Stock at the date of such exercise (without
regard to any subsequent change in the market price of shares) minus the
exercise price times (Y) the number of shares as to which the Option was
exercised at that date, and (ii), in respect of any other settlement of
an Award granted to the Participant, the Fair Market Value of the cash
or Stock paid or payable to Participant (regardless of any elective
deferral) less any cash or the Fair Market Value of any Stock or
property (other than an Award or award which would have itself then been
forfeitable hereunder and excluding any payment of tax withholding) paid
by the Participant to the Company as a condition of or in connection
such settlement.
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(b) Events Triggering Forfeiture. The forfeitures specified in
Section 11(a) will be triggered upon the occurrence of any one of the
following Forfeiture Events at any time during the Participant's employment
by the Company or a subsidiary or affiliate and resulting in his or her
termination of employment, or during the one-year period following
termination of such employment:
(i) The Participant, acting alone or with others, directly or
indirectly, prior to a Change in Control, (A) engages, either as
employee, employer, consultant, advisor, or director, or as an owner,
investor, partner, or stockholder unless the Participant's interest is
insubstantial, in any business in an area or region in which the Company
conducts business at the date the event occurs, which is directly in
competition with a business then conducted by the Company or a
subsidiary or affiliate; (B) induces any customer or supplier of the
Company or a subsidiary or affiliate, or telephone company with which
the Company or a subsidiary or affiliate has a business relationship, to
curtail, cancel, not renew, or not continue his or her or its business
with the Company or any subsidiary or affiliate; or (C) induces, or
attempts to influence, any employee of or service provider to the
Company or a subsidiary or affiliate to terminate such employment or
service. The Committee shall, in its discretion, determine which lines
of business the Company conducts on any particular date and which third
parties may reasonably be deemed to be in competition with the Company.
For purposes of this Section 11(b)(i), a Participant's interest as a
stockholder is insubstantial if it represents beneficial ownership of
less than five percent of the outstanding class of stock, and a
Participant's interest as an owner, investor, or partner is
insubstantial if it represents ownership, as determined by the Committee
in its discretion, of less than five percent of the outstanding equity
of the entity;
(ii) The Participant discloses, uses, sells, or otherwise
transfers, except in the course of employment with or other service to
the Company or any subsidiary or affiliate, any confidential or
proprietary information of the Company or any subsidiary or affiliate,
including but not limited to information regarding the Company's current
and potential customers, organization, employees, finances, and methods
of operations and investments, so long as such information has not
otherwise been disclosed to the public or is not otherwise in the public
domain, except as required by law or pursuant to legal process, or the
Participant makes statements or representations, or otherwise
communicates, directly or indirectly, in writing, orally, or otherwise,
or takes any other action which may, directly or indirectly, disparage
or be damaging to the Company or any of its subsidiaries or affiliates
or their respective officers, directors, employees, advisors, businesses
or reputations, except as required by law or pursuant to legal process;
or
(iii) The Participant fails to cooperate with the Company or any
subsidiary or affiliate in any way, including, without limitation, by
making himself or herself available to testify on behalf of the Company
or such subsidiary or affiliate in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, or otherwise
fails to assist the Company or any subsidiary or affiliate in any way,
including, without limitation, in connection with any such action, suit,
or proceeding by providing information and meeting and consulting with
members of management of, other representatives of, or counsel to, the
Company or such subsidiary or affiliate, as reasonably requested.
(c) Agreement Does Not Prohibit Competition or Other Participant
Activities. Although the conditions set forth in this Section 11 shall be
deemed to be incorporated into an Award, a Participant is not thereby
prohibited from engaging in any activity, including but not limited to
competition with the Company and its subsidiaries and affiliates. Rather,
the non-occurrence of the Forfeiture Events set forth in Section 11(b) is a
condition to the Participant's right to realize and retain value from his
or her compensatory Options and Awards, and the consequence under the Plan
if the Participant engages in an activity giving rise to any such
Forfeiture Event are the forfeitures specified herein. The Company and the
Participant shall not be precluded by this provision or otherwise from
entering into other agreements concerning the subject matter of Sections
11(a) and 11(b).
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(d) Committee Discretion. The Committee may, in its discretion, waive
in whole or in part the Company's right to forfeiture under this Section,
but no such waiver shall be effective unless evidenced by a writing signed
by a duly authorized officer of the Company. In addition, the Committee may
impose additional conditions on Awards, by inclusion of appropriate
provisions in the document evidencing or governing any such Award.
12. GENERAL PROVISIONS.
(a) Compliance with Legal and Other Requirements. The Company may, to
the extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Stock or payment of other benefits under any Award
until completion of such registration or qualification of such Stock or
other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or
automated quotation system upon which the Stock or other securities of the
Company are listed or quoted, or compliance with any other obligation of
the Company, as the Committee may consider appropriate, and may require any
Participant to make such representations, furnish such information and
comply with or be subject to such other conditions as it may consider
appropriate in connection with the issuance or delivery of Stock or payment
of other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other obligations. The foregoing
notwithstanding, in connection with a Change in Control, the Company shall
take or cause to be taken no action, and shall undertake or permit to arise
no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits
under any Award or the imposition of any other conditions on such issuance,
delivery or payment, to the extent that such postponement or other
condition would represent a greater burden on a Participant than existed on
the 90th day preceding the Change in Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right
or interest of a Participant under the Plan shall be pledged, hypothecated
or otherwise encumbered or subject to any lien, obligation or liability of
such Participant to any party (other than the Company or a subsidiary or
affiliate thereof), or assigned or transferred by such Participant
otherwise than by will or the laws of descent and distribution or to a
Beneficiary upon the death of a Participant, and such Awards or rights that
may be exercisable shall be exercised during the lifetime of the
Participant only by the Participant or his or her guardian or legal
representative, except that Awards and other rights (other than ISOs and
SARs in tandem therewith) may be transferred to one or more transferees
during the lifetime of the Participant, and may be exercised by such
transferees in accordance with the terms of such Award, but only if and to
the extent such transfers are permitted by the Committee, subject to any
terms and conditions which the Committee may impose thereon (including
limitations the Committee may deem appropriate in order that offers and
sales under the Plan will meet applicable requirements of registration
forms under the Securities Act of 1933 specified by the Securities and
Exchange Commission). A Beneficiary, transferee, or other person claiming
any rights under the Plan from or through any Participant shall be subject
to all terms and conditions of the Plan and any Award document applicable
to such Participant, except as otherwise determined by the Committee, and
to any additional terms and conditions deemed necessary or appropriate by
the Committee.
(c) Adjustments. In the event that any large, special and
non-recurring dividend or other distribution (whether in the form of cash
or property other than Stock), recapitalization, forward or reverse split,
Stock dividend, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that an
adjustment is determined by the Committee to be appropriate under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust
any or all of (i) the number and kind of shares of Stock which may be
delivered in connection with Awards granted thereafter, (ii) the number and
kind of shares of Stock by which annual per-person Award limitations are
measured under Section 5, (iii) the number and kind of shares of Stock
subject to or deliverable in respect of outstanding Awards and (iv) the
exercise price, grant price or purchase price relating to any Award or, if
deemed appropriate, the Committee may make provision for a payment of cash
or
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property to the holder of an outstanding Option (subject to Section 12(k)).
In addition, the Committee is authorized to make adjustments in the terms
and conditions of, and the criteria included in, Awards (including
Performance Awards and performance goals and any hypothetical funding pool
relating thereto) in recognition of unusual or nonrecurring events
(including, without limitation, events described in the preceding sentence,
as well as acquisitions and dispositions of businesses and assets)
affecting the Company, any subsidiary or affiliate or other business unit,
or the financial statements of the Company or any subsidiary or affiliate,
or in response to changes in applicable laws, regulations, accounting
principles, tax rates and regulations or business conditions or in view of
the Committee's assessment of the business strategy of the Company, any
subsidiary or affiliate or business unit thereof, performance of comparable
organizations, economic and business conditions, personal performance of a
Participant, and any other circumstances deemed relevant; provided that no
such adjustment shall be authorized or made if and to the extent that the
existence of such authority (i) would cause Options, SARs, or Performance
Awards granted under the Plan to Participants designated by the Committee
as Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder to
otherwise fail to qualify as "performance-based compensation" under Code
Section 162(m) and regulations thereunder, or (ii) would cause the
Committee to be deemed to have authority to change the targets, within the
meaning of Treasury Regulation 1.162-27(e)(4)(vi), under the performance
goals relating to Options or SARs granted to Covered Employees and intended
to qualify as "performance-based compensation" under Code Section 162(m)
and regulations thereunder.
(d) Tax Provisions.
(i) Withholding. The Company and any subsidiary or affiliate is
authorized to withhold from any Award granted, any payment relating to
an Award under the Plan, including from a distribution of Stock, or any
payroll or other payment to a Participant, amounts of withholding and
other taxes due or potentially payable in connection with any
transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company and Participants to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Participant's
withholding obligations, either on a mandatory or elective basis in the
discretion of the Committee. Other provisions of the Plan
notwithstanding, only the minimum amount of Stock deliverable in
connection with an Award necessary to satisfy statutory withholding
requirements will be withheld.
(ii) Required Consent to and Notification of Code Section 83(b)
Election. No election under Section 83(b) of the Code (to include in
gross income in the year of transfer the amounts specified in Code
Section 83(b)) or under a similar provision of the laws of a
jurisdiction outside the United States may be made unless expressly
permitted by the terms of the Award document or by action of the
Committee in writing prior to the making of such election. In any case
in which a Participant is permitted to make such an election in
connection with an Award, the Participant shall notify the Company of
such election within ten days of filing notice of the election with the
Internal Revenue Service or other governmental authority, in addition to
any filing and notification required pursuant to regulations issued
under Code Section 83(b) or other applicable provision.
(iii) Requirement of Notification Upon Disqualifying Disposition
Under Code Section 421(b). If any Participant shall make any
disposition of shares of Stock delivered pursuant to the exercise of an
Incentive Stock Option under the circumstances described in Code Section
421(b), such Participant shall notify the Company of such disposition
within ten days thereof.
(e) Changes to the Plan. The Board may amend, suspend or terminate
the Plan or the Committee's authority to grant Awards under the Plan
without the consent of stockholders or
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61
Participants; provided, however, that any amendment to the Plan shall be
submitted to the Company's stockholders for approval not later than the
earliest annual meeting for which the record date is after the date of such
Board action if such stockholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system on which the Stock may then be listed or quoted, or if
such amendment would materially increase the number of shares reserved for
issuance and delivery under the Plan, and the Board may otherwise, in its
discretion, determine to submit other amendments to the Plan to
stockholders for approval; and provided further, that, without the consent
of an affected Participant, no such Board action may materially and
adversely affect the rights of such Participant under any outstanding
Award. Without the approval of stockholders, the Committee will not amend
or replace previously granted Options in a transaction that constitutes a
"repricing," as such term is used in Instruction 3 to Item 402(b)(2)(iv) of
Regulation S-K, as promulgated by the Securities and Exchange Commission.
With regard to other terms of Awards, the Committee shall have no authority
to waive or modify any such Award term after the Award has been granted to
the extent the waived or modified term would be mandatory under the Plan
for any Award newly granted at the date of the waiver or modification.
(f) Right of Setoff. The Company or any subsidiary or affiliate may,
to the extent permitted by applicable law, deduct from and set off against
any amounts the Company or a subsidiary or affiliate may owe to the
Participant from time to time, including amounts payable in connection with
any Award, owed as wages, fringe benefits, or other compensation owed to
the Participant, such amounts as may be owed by the Participant to the
Company, including but not limited to amounts owed under Section 11(a),
although the Participant shall remain liable for any part of the
Participant's payment obligation not satisfied through such deduction and
setoff. By accepting any Award granted hereunder, the Participant agrees to
any deduction or setoff under this Section 12(f).
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the
Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company; provided that the
Committee may authorize the creation of trusts and deposit therein cash,
Stock, other Awards or other property, or make other arrangements to meet
the Company's obligations under the Plan. Such trusts or other arrangements
shall be consistent with the "unfunded" status of the Plan unless the
Committee otherwise determines with the consent of each affected
Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive arrangements,
apart from the Plan, as it may deem desirable, including incentive
arrangements and awards which do not qualify under Code Section 162(m), and
such other arrangements may be either applicable generally or only in
specific cases.
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash consideration, the
Participant shall be repaid the amount of such cash consideration. No
fractional shares of Stock shall be issued or delivered pursuant to the
Plan or any Award. The Committee shall determine whether cash, other Awards
or other property shall be issued or paid in lieu of such fractional shares
or whether such fractional shares or any rights thereto shall be forfeited
or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the
Company that Options and SARs granted to Covered Employees and other Awards
designated as Awards to Covered Employees subject to Section 7 shall
constitute qualified "performance-based compensation" within the meaning of
Code Section 162(m) and regulations thereunder, unless otherwise determined
by the Committee at the time of allocation of an Award. Accordingly, the
terms of Sections 7(b), (c), and (d),
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62
including the definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing notwithstanding, because the
Committee cannot determine with certainty whether a given Participant will
be a Covered Employee with respect to a fiscal year that has not yet been
completed, the term Covered Employee as used herein shall mean only a
person designated by the Committee as likely to be a Covered Employee with
respect to a specified fiscal year. If any provision of the Plan or any
Award document relating to a Performance Award that is designated as
intended to comply with Code Section 162(m) does not comply or is
inconsistent with the requirements of Code Section 162(m) or regulations
thereunder, such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements, and no provision shall be
deemed to confer upon the Committee or any other person discretion to
increase the amount of compensation otherwise payable in connection with
any such Award upon attainment of the applicable performance objectives.
(k) Certain Limitations Relating to Accounting Treatment of
Awards. Other provisions of the Plan notwithstanding, the Committee's
authority under the Plan (including under Sections 9(c), 12(c) and 12(d))
is limited to the extent necessary to ensure that any Option or other Award
of a type that the Committee has intended to be subject to fixed accounting
with a measurement date at the date of grant or the date performance
conditions are satisfied under APB 25 shall not become subject to
"variable" accounting solely due to the existence of such authority, unless
the Committee specifically determines that the Award shall remain
outstanding despite such "variable" accounting. In addition, other
provisions of the Plan notwithstanding, (i) if any right under this Plan
would cause a transaction to be ineligible for pooling-of-interests
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, such right shall be automatically adjusted so that
pooling-of-interests accounting shall be available, including by
substituting Stock or cash having a Fair Market Value equal to any cash or
Stock otherwise payable in respect of any right to cash which would cause
the transaction to be ineligible for pooling-of-interests accounting, and
(ii) if any authority under Section 10 would cause a transaction to be
ineligible for pooling-of-interests accounting that would, but for such
authority, be eligible for such accounting treatment, such authority shall
be limited to the extent necessary so that such transaction would be
eligible for pooling-of-interests accounting.
(l) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan and any Award document
shall be determined in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of laws, and applicable
provisions of federal law.
(m) Awards to Participants Outside the United States. The Committee
may modify the terms of any Award under the Plan made to or held by a
Participant who is then resident or primarily employed outside of the
United States in any manner deemed by the Committee to be necessary or
appropriate in order that such Award shall conform to laws, regulations,
and customs of the country in which the Participant is then resident or
primarily employed, or so that the value and other benefits of the Award to
the Participant, as affected by foreign tax laws and other restrictions
applicable as a result of the Participant's residence or employment abroad
shall be comparable to the value of such an Award to a Participant who is
resident or primarily employed in the United States. An Award may be
modified under this Section 12(m) in a manner that is inconsistent with the
express terms of the Plan, so long as such modifications will not
contravene any applicable law or regulation or result in actual liability
under Section 16(b) for the Participant whose Award is modified.
(n) Limitation on Rights Conferred under Plan. Neither the Plan nor
any action taken hereunder shall be construed as (i) giving any Eligible
Person or Participant the right to continue as an Eligible Person or
Participant or in the employ or service of the Company or a subsidiary or
affiliate, (ii) interfering in any way with the right of the Company or a
subsidiary or affiliate to terminate any Eligible Person's or Participant's
employment or service at any time (subject to the terms and provisions of
any separate written agreements), (iii) giving an Eligible Person or
Participant any claim to be granted any Award under the Plan or to be
treated uniformly with other
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63
Participants and employees, or (iv) conferring on a Participant any of the
rights of a stockholder of the Company unless and until the Participant is
duly issued or transferred shares of Stock in accordance with the terms of
an Award or an Option is duly exercised. Except as expressly provided in
the Plan and an Award document, neither the Plan nor any Award document
shall confer on any person other than the Company and the Participant any
rights or remedies thereunder.
(o) Severability; Entire Agreement. If any of the provisions of this
Plan or any Award document is finally held to be invalid, illegal or
unenforceable (whether in whole or in part), such provision shall be deemed
modified to the extent, but only to the extent, of such invalidity,
illegality or unenforceability, and the remaining provisions shall not be
affected thereby; provided, that, if any of such provisions is finally held
to be invalid, illegal, or unenforceable because it exceeds the maximum
scope determined to be acceptable to permit such provision to be
enforceable, such provision shall be deemed to be modified to the minimum
extent necessary to modify such scope in order to make such provision
enforceable hereunder. The Plan and any Award documents contain the entire
agreement of the parties with respect to the subject matter thereof and
supersede all prior agreements, promises, covenants, arrangements,
communications, representations and warranties between them, whether
written or oral with respect to the subject matter thereof.
(p) Plan Effective Date and Termination. The Plan shall become
effective if, and at such time as, the stockholders of the Company have
approved it by the affirmative votes of the holders of a majority of the
voting securities of the Company present, or represented, and entitled to
vote on the subject matter at a duly held meeting of stockholders. Upon
such approval of the Plan by the stockholders of the Company, no further
awards shall be granted under the Preexisting Plans, but any outstanding
awards under the Preexisting Plans shall continue in accordance with their
terms. Any elections made by non-employee directors and their respective
Deferral Accounts established pursuant to the 1998 Directors' Stock Plan
shall continue as if made or established pursuant to the Plan until any
such election is changed by such Participant in accordance with the
provisions of this Plan. Unless earlier terminated by action of the Board
of Directors, the Plan will remain in effect until such time as no Stock
remains available for delivery under the Plan and the Company has no
further rights or obligations under the Plan with respect to outstanding
Awards under the Plan.
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64
ANNEX B
AMENDED AND RESTATED
AUDIT AND FINANCE COMMITTEE CHARTER
65
R.H. DONNELLEY CORPORATION
BOARD OF DIRECTORS
AMENDED AND RESTATED
AUDIT AND FINANCE COMMITTEE CHARTER
MEMBERSHIP AND MEETINGS
The Audit and Finance Committee (the "Committee") shall be composed of not
less than three members appointed by the Board of Directors. The members of the
Committee shall meet the independence, financial literacy and
experience/expertise requirements of the New York Stock Exchange ("NYSE").
The Committee will meet at least three times a year, with such additional
meetings as the Committee may deem necessary. Meetings of the Committee may also
be attended by representatives of the Company's principal independent auditors,
the Chief Financial Officer, the Controller, the Chief Legal Counsel and others
as appropriate.
FUNCTIONS
The Committee shall assist the Board of Directors in fulfilling its
responsibilities to shareholders relating to corporate accounting and financial
reporting, internal controls and the audit process. The Committee shall, on
behalf of the Board:
- Review the audit results;
- Review management's and the independent auditor's assessment of the
adequacy of the system of internal controls;
- Review management's and the independent auditor's assessment of the
adequacy of financial disclosures to shareholders;
- Review the Company's unaudited interim and annual audited financial
statements prior to filing or distribution;
- Prepare and sign the Committee Report required by the rules of the
Securities and Exchange Commission ("SEC") to be included in the
Company's annual proxy statement;
- Review and assess the adequacy of this Charter at least annually, submit
the Charter to the Board of Directors for approval and have the document
published in the Company's proxy statement at least every three years in
accordance with SEC regulations; and
- Review with management, and cause the Company to prepare and file, the
Annual Affirmation regarding this Committee required by the rules of the
NYSE.
Additionally, the Committee may perform such other oversight functions as
requested by the Board. The Committee shall report its activities to the Board
regularly.
AUTHORITY
The Committee shall have the authority to investigate any activity of the
Company and to retain persons having special expertise as necessary to assist
the Committee in fulfilling its responsibilities.
B-1
66
AUDIT FUNCTION
SPECIFIC DUTIES:
RELATIONSHIP WITH EXTERNAL AUDITORS
The Committee shall:
- Review annually the qualifications of, and recommend to the Board the
appointment of the independent auditor for the company, which firm is
ultimately accountable to the Committee and the Board;
- Receive periodic reports from the independent auditor regarding the
auditor's independence, discuss such reports with the auditor, and, if so
determined by the Committee, recommend that the Board take appropriate
action to satisfy itself of the independence of the auditor;
- Review annually the type and extent of non-audit services performed by
the independent auditor and consider the implications of such services on
their independence;
- Have unrestricted access to the independent auditor and vice versa;
- Review with the independent auditor the scope of their examination with
emphasis on accounting and financial areas where the Committee,
management or the auditors believe special attention should be directed;
and
- Review with the independent auditor:
- their evaluation of the adequacy of the system of internal control and
controls over the financial reporting process;
- significant accounting estimates and the reasonableness of the related
assumptions;
- results of their audit, including their opinion on the financial
statements; and
- significant disagreements, if any, with management.
RELATIONSHIP WITH INTERNAL AUDITORS
The Committee shall:
- Determine the necessity for and scope of the internal audit function of
the Company, and approve the retention or hiring of internal auditors to
perform such function;
- Have unrestricted access to the internal auditors and vice versa;
- Review the internal audit function's objectives and resources, its annual
audit plan, including its coordination with the audit performed by the
independent auditors, and its internal audit activity reports;
- Review officers' expenses and benefits for compliance with approved
policies and procedures; and
- Review the results of the internal audit function's activities for the
year, including their evaluation of the system of internal controls and
the adequacy of management's actions.
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67
FINANCE FUNCTION
SPECIFIC DUTIES:
- The Committee shall have responsibility for reviewing existing financing
arrangements and compliance with governing documents to the extent
applicable.
- The Committee will ascertain and make recommendations to the Board
regarding financing requirements for the Company and sources for such
financing.
Adopted by the Board of
Directors: July 25, 2000
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68
R.H. DONNELLEY CORPORATION
ANNUAL MEETING OF STOCKHOLDERS -- MAY 1, 2001
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Frank R. Noonan and Philip
C. Danford (collectively, the "Proxies"), and each of them, his, her or its true
and lawful agents and proxies with full power of substitution in each, to
represent the undersigned at the Annual Meeting of Stockholders (the "Meeting")
of R.H. Donnelley Corporation (the "Company"), to be held at The Crowne Plaza
White Plains Hotel, White Plains, New York, on May 1, 2001, at 9:00 a.m. local
time, and at any adjournments or postponements thereof, and to vote all the
shares of common stock of the Company which the undersigned may be entitled to
vote on all matters properly coming before the Meeting, and any adjournments or
postponements thereof.
The trustees of the Company's Profit Participation Plan and the DonTech
Profit Participation Plan (collectively the "Plans") have agreed that this proxy
will also serve as voting instructions from participants in those Plans who have
plan contributions for their respective accounts invested in the Company's
Common Stock. Proxies covering shares in the Plans must be received on or prior
to April 26, 2001. If a proxy covering shares in either of the Plans has not
been received on or prior to April 26, 2001 or if it is signed and returned
without specification marked in the instruction boxes, the trustee will vote
those Plan shares in the same proportion as the respective shares in such Plan
for which it has received instructions, except as otherwise required by law.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN HEREIN, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED (A) IN FAVOR OF THE ELECTION OF THE
NOMINEES FOR THE CLASS II MEMBERS OF THE BOARD OF DIRECTORS, (B) FOR ITEMS 2 and
3 AND (C) IN THE DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING, AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
PLEASE MARK YOUR DIRECTIONS BELOW, FILL IN THE DATE AND SIGN AND RETURN THIS
PROXY CARD PROMPTLY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS NECESSARY IF
MAILED IN THE UNITED STATES.
69
(1) Election of Class II Members of the Board of Directors
WITHHOLD AUTHORITY
Nominee VOTE FOR TO VOTE FOR
---------------------------------------------------------------
Kenneth G. Campbell [ ] [ ]
Carol J. Parry [ ] [ ]
Barry Lawson Williams [ ] [ ]
(2) Adoption of the 2001 Stock Award and Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) Ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for 2001.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) In their discretion, the Proxies are hereby authorized to vote upon such
other business as may properly come before the Meeting, and any
adjournments or postponements thereof.
Signatures: ____________________________________ Dated: __________, 2001
NOTE: Please sign exactly as your name or names appear hereon. Joint
owners should each sign personally. When signing as executor, administrator,
corporation, officer, attorney, agent, trustee or guardian, etc., please add
your full title following your signature.