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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 (S) 240.14a-11(c) or (S) 240.14a-12
COPY TELE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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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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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
COPYTELE, INC.
__________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 12, 2002
________________________________
TO THE STOCKHOLDERS OF COPYTELE, INC.
You are cordially invited to attend the Annual Meeting of Stockholders of
CopyTele, Inc., a Delaware corporation, to be held at the Fox Hollow, Woodbury,
New York, on Thursday, September 12, 2002, at 10:30 a.m., local time, for the
following purposes:
1. To elect six directors to serve until the next Annual Meeting of
Stockholders;
2. To amend the CopyTele, Inc. 2000 Share Incentive Plan to increase the
number of shares of Common Stock that may be issued thereunder;
3. To ratify the appointment of Grant Thornton LLP, independent public
accountants, as CopyTele's independent auditors for fiscal year 2002;
and
4. To transact such other business as may properly come before the Annual
Meeting and any adjournments or postponements thereof.
The Board of Directors of CopyTele has fixed the close of business on
August 5, 2002, as the record date for the Annual Meeting. This means that only
holders of record of Common Stock at the close of business on that date will be
entitled to notice of, and to vote at, the Annual Meeting or at any adjournment
or postponement of the Annual Meeting.
Whether or not you expect to attend the Annual Meeting, please read the
accompanying proxy statement and promptly complete, date, sign and mail the
enclosed proxy so that your shares may be represented at the Annual Meeting. If
you attend the Annual Meeting, you may vote in person even if you have
previously returned your proxy.
By Order of the Board of Directors
/s/ Anne Rotondo
Anne Rotondo
Secretary
Melville, New York
August 8, 2002
COPYTELE, INC.
900 Walt Whitman Road
Melville, NY 11747
__________________
PROXY STATEMENT
__________________
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 12, 2002
___________________
The Board of Directors of CopyTele, Inc. ("CopyTele", "we" or "us") is
furnishing you this Proxy Statement to solicit proxies on its behalf to be voted
at our Annual Meeting of Stockholders to be held on Thursday, September 12,
2002, at 10:30 a.m., local time, and at any adjournments or postponements
thereof. We are first sending this Proxy Statement and the accompanying form of
proxy to stockholders on or about August 12, 2002.
VOTING
General
The Board of Directors has fixed the close of business on August 5,
2002 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Annual Meeting. Each stockholder will be entitled to one
vote for each share of Common Stock held on all matters to come before the
Annual Meeting and may vote in person or by proxy authorized in writing. As of
August 5, 2002, there were 68,819,145 shares of Common Stock issued and
outstanding.
At the Annual Meeting, stockholders will be asked to consider and vote
upon:
. the election of six directors;
. the approval of an amendment to the CopyTele, Inc. 2000 Share
Incentive Plan (the "2000 Plan") to increase the number of shares of
Common Stock that may be issued thereunder; and
. the ratification of the appointment of Grant Thornton LLP as our
independent auditors for fiscal year 2002.
Stockholders may also consider and act upon such other matters as may
properly come before the Annual Meeting or any adjournment or adjournments
thereof.
Quorum and Required Votes
To carry on the business of the Annual Meeting, we must have a quorum.
This means that at least a majority of the outstanding shares eligible to vote
must be present at the Annual Meeting, either by proxy or in person. Shares of
Common Stock represented by a properly signed and returned proxy are considered
present at the Annual Meeting for purposes of determining a quorum. Abstentions
and broker non-votes are counted as present at the Annual Meeting for
determining whether we have a quorum. A broker non-vote occurs when a broker
returns a proxy but does not vote on a particular proposal because the broker
does not have discretionary voting power for that particular item and has not
received voting instructions from the beneficial owner.
1
Election of directors will be determined by a plurality vote of the
combined voting power of all shares of Common Stock present in person or by
proxy and voting at the Annual Meeting. Accordingly, votes "withheld" from
director-nominee(s), abstentions and broker non-votes will not count against the
election of such nominee(s).
Approval of the other proposals described in this Proxy Statement, or any
other matter that may come before the Annual Meeting, will be determined by the
vote of a majority of the shares of Common Stock present in person or by proxy
at the Annual Meeting and voting on such matters. With respect to an abstention,
the shares will be considered present and entitled to vote at the Annual Meeting
and they will have the same effect as votes against the matter. With respect to
broker non-votes, the shares will not be considered entitled to vote at the
Annual Meeting for such matter and the broker non-votes will have the practical
effect of reducing the number of affirmative votes required to achieve a
majority vote for such matter by reducing the total number of shares from which
the majority is calculated.
Voting and Revocation of Proxies
Your vote is important. We encourage you to promptly complete, date, sign
and return the accompanying form of proxy in the enclosed envelope. The way you
vote now does not limit your right to change your vote at the Annual Meeting if
you attend in person.
Common Stock represented by properly executed proxies received by us and
not revoked will be voted at the Annual Meeting in accordance with the
instructions contained therein. If instructions are not given, proxies will be
voted FOR the election of each nominee for election as a director named herein,
FOR the approval of the amendment to the 2000 Plan and FOR the ratification of
the appointment of Grant Thornton LLP as CopyTele's independent auditors for
fiscal year 2002. The Board of Directors has not received timely notice (and
does not know) of any matters that are to be brought before the Annual Meeting
other than as set forth in the Notice of Annual Meeting. If any other matters
properly come before the Annual Meeting, the persons named in the enclosed form
of proxy or their substitutes will vote in accordance with their best judgement
on such matters.
Any proxy signed and returned by a stockholder may be revoked at any time
before it is voted by filing with the Secretary of CopyTele written notice of
such revocation or a duly executed proxy bearing a later date or by attending
the Annual Meeting and voting in person. Attendance at the Annual Meeting will
not in and of itself constitute revocation of a proxy.
Proxy Solicitation
We will bear the costs of solicitations of proxies for the Annual Meeting.
In addition to solicitation by mail, our directors, officers and regular
employees may solicit proxies from stockholders by telephone, telegram, personal
interview or otherwise. Such directors, officers and employees will not receive
additional compensation, but may be reimbursed for out-of-pocket expenses in
connection with such solicitation. We have requested brokers, nominees,
fiduciaries and other custodians to forward soliciting material to the
beneficial owners of Common Stock held of record by them, and such custodians
will be reimbursed for their reasonable expenses.
2
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth certain information with respect to Common
Stock beneficially owned as of August 5, 2002 by: (a) each person who is known
by our management to be the beneficial owner of more than 5% of our outstanding
Common Stock; (b) each director, director nominee and executive officer of
CopyTele; and (c) all directors, director nominees and executive officers as a
group:
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership(1)(2) Percent of Class
------------------------------------ -------------------------- ----------------
Denis A. Krusos 6,800,150 9.4%
900 Walt Whitman Road
Melville, NY 11747
Frank J. DiSanto 3,897,505 5.4%
900 Walt Whitman Road
Melville, NY 11747
Henry P. Herms 250,000 *
900 Walt Whitman Road
Melville, NY 11747
George P. Larounis 362,500 *
900 Walt Whitman Road
Melville, NY 11747
Lewis H. Titterton 1,099,600 1.6%
900 Walt Whitman Road
Melville, NY 11747
Anthony Bowers 264,300 *
900 Walt Whitman Road
Melville, NY 11747
All Directors, Director Nominees and Executive Officers 12,674,055 16.6%
as a Group
(6 persons)
* Less than 1%.
(1) A beneficial owner of a security includes any person who directly or
indirectly has or shares voting power and/or investment power with
respect to such security or has the right to obtain such voting power
and/or investment power within sixty (60) days. Except as otherwise
noted, each designated beneficial owner in this Proxy Statement has
sole voting power and investment power with respect to the shares of
Common Stock beneficially owned by such person.
(2) Includes 3,576,290 shares, 3,254,290 shares, 250,000 shares, 362,500
shares, 60,000 shares, 90,000 shares and 7,593,080 shares as to which
Denis A. Krusos, Frank J. DiSanto, Henry P. Herms, George P. Larounis,
Lewis H. Titterton, Anthony Bowers, and all directors, director
nominees and executive officers as a group, respectively, have the
right to acquire within 60 days upon exercise of options granted
pursuant to the CopyTele, Inc. 1993 Stock Option Plan (the "1993
Plan") and the 2000 Plan.
3
ELECTION OF DIRECTORS
(Item 1)
Six directors are to be elected at the Annual Meeting by the holders of
Common Stock, each to serve until the next Annual Meeting of Stockholders and
until his successor shall be elected and shall qualify. All of the nominees at
present are available for election as members of the Board of Directors. If for
any reason a nominee becomes unavailable for election, the proxies solicited by
the Board of Directors will be voted for a substitute nominee selected by the
Board of Directors. Information regarding the nominees is as follows:
Name Position with the Company
- ------------------------------------- ----------------------------------------------------
Denis A. Krusos ..................... Director, Chairman of the Board and Chief
Executive Officer
Frank J. DiSanto .................... Director and President
Henry P. Herms ...................... Director, Chief Financial Officer and Vice President
- Finance
George P. Larounis .................. Director
Lewis H. Titterton .................. Director
Anthony Bowers ...................... Director
Mr. Krusos has served as one of our Directors and as our Chairman of the
Board and Chief Executive Officer since November 1982. He holds an M.S.E.E.
degree from Newark College of Engineering, a B.E.E. degree from City College of
New York and a J.D. degree from St. John's University and is a member of the New
York Bar.
Mr. DiSanto has served as one of our Directors and as our President since
November 1982. He holds a B.E.E. degree from Polytechnic Institute of Brooklyn
and an M.E.E. degree from New York University.
Mr. Herms has served as our Chief Financial Officer and Vice President -
Finance since November 2000 and as one of our Directors since August 2001. Prior
to joining CopyTele, Mr. Herms was employed by takeoutmusic.com Holding Corp. as
Chief Financial Officer, from May 2000 to November 2000. Prior to that, for
approximately 12 years, Mr. Herms was a Principal, Director and Chief Financial
Officer of a group of affiliated, privately held companies operating under the
Ultratan trade name. Mr. Herms was also CopyTele's Chief Financial Officer from
1982 to 1987. He is also a former audit manager with the firm of Arthur Andersen
LLP and a CPA. He holds a B.B.A. degree from Adelphi University.
Mr. Larounis has served as one of our Directors since September 1997, prior
to which he served as a consultant to us. Mr. Larounis is currently retired.
From 1960 to 1993, he held numerous positions as a senior international
executive of The Bendix Corporation and AlliedSignal Inc., which is now known as
Honeywell International, Inc. He has also served on the Boards of Directors of
numerous affiliates of AlliedSignal in Europe, Asia and Australia. He holds a
B.E.E. degree from the University of Michigan and a J.D. degree from New York
University.
Mr. Titterton has served as one of our Directors since July 1999. Mr.
Titterton is currently Chief Executive Officer of NYMED, Inc., a diversified
health services company. His background is in high technology with an emphasis
on health care and he has been with NYMED, Inc. since 1989. Mr. Titterton
founded MedE America, Inc. in 1986 and was Chief Executive Officer of Management
and Planning Services, Inc. from 1978 to 1986. He holds a M.B.A. from the State
University of New York at Albany, and a B.A. degree from Cornell University.
4
Mr. Bowers has served as one of our Directors since July 2000, prior to
which he served as a consultant to us. He has been a partner of OTA Limited
Partnership, a broker-dealer headquartered in Purchase, New York, since 1997. He
is responsible for marketing OTA's research to institutional investors. Mr.
Bowers was Director - Institutional Sales at Bear Stearns International from
1994 to 1996 and Director - Institutional Sales at Goldman Sachs International
from 1986 to 1994, each of which were located in London, England. From 1979 to
1982, Mr. Bowers was Manager - Investor Relations for American Express Company
in New York. Mr. Bowers holds a B.A. degree from Amherst College and a M.B.A.
degree from the Wharton School of Business.
The Board of Directors recommends a vote FOR each nominee as a Director to
hold office until the next Annual Meeting. Proxies received by the Board of
Directors will be so voted unless stockholders specify in their proxy a contrary
choice.
Board Committees, Functions and Attendance
Board Committees. The Board of Directors has established two committees --
the Audit Committee and the Stock Option Committee.
Audit Committee. The Audit Committee, consisting of Messrs. Bowers,
Larounis and Titterton, assists the Board of Directors in fulfilling its
responsibility to oversee management's conduct of our financial reporting
process, including the selection of our outside auditors and the review of the
financial reports and other financial information provided by us to any
governmental or regulatory body, the public or other users thereof, our systems
of internal accounting and financial controls, and the annual independent audit
of our financial statements.
Our Board of Directors adopted a written charter for the Audit Committee,
which was attached to the 2001 Proxy Statement. All members of the Audit
Committee are "independent" under the rules applicable to the Nasdaq Stock
Market.
Stock Option Committee. The Stock Option Committee, consisting of Messrs.
Larounis and Bowers, administers the 1993 Plan and the 2000 Plan. We have
discontinued granting options under the 1993 Plan.
We currently have no nominating, compensation, or other standing committees
of the Board of Directors.
Four meetings, exclusive of action by unanimous written consent, of the
Board of Directors, five meetings of the Audit Committee and 18 meetings of the
Stock Option Committee were held during fiscal year 2001. During such year, each
director attended at least 75% of the aggregate number of meetings of the Board
of Directors and committee on which he served while a member thereof.
The information contained in this proxy statement with respect to the Audit
Committee charter and the independence of the members of the Audit Committee
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission, nor shall such information be incorporated
by reference into any future filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to the
extent that we specifically incorporate it by reference in such filing.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers and ten percent stockholders to file initial
reports of ownership and reports of changes in ownership of Common Stock with
the Securities and Exchange Commission. Directors, executive officers and ten
percent stockholders are required to furnish us with copies of all Section 16(a)
forms that they file.
5
Based upon a review of these filings, we believe that all required Section 16(a)
fillings were made on a timely basis during fiscal year 2001.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Denis A. Krusos, Chairman of the Board, Chief Executive Officer and
Director, Frank J. DiSanto, President and Director and Henry P. Herms, Chief
Financial Officer, Vice President - Finance and Director, are our executive
officers. While there are no formal agreements, Messrs. Krusos and DiSanto
waived any and all rights to receive salary and related pension benefits for an
undetermined period of time commencing November 1, 1985. As a result, Messrs.
Krusos and DiSanto received no salary or bonus during the last three fiscal
years. No executive officer received a salary and bonus in excess of $100,000
during fiscal year 2001. The following is compensation information regarding Mr.
Krusos for fiscal years 2001, 2000, and 1999:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation Awards
Fiscal -------------------
Name and Year Annual Securities Underlying
Principal Position Ended Compensation Options (#)
------------------ ----- ------------ ------------------------
Denis A. Krusos, 10/31/01 - 500,000
Chairman of the Board, 10/31/00 - 250,000
Chief Executive Officer and Director 10/31/99 - 50,000
The following is information regarding stock options granted to Mr. Krusos
pursuant to the 2000 Plan during fiscal year 2001:
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Individual Grants Appreciation for Option
- ------------------------------------------------------------------------------------ ---------------------------
Number of
Securities Percent of Total
Underlying Options Granted
Options to Employees in Exercise Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 5% ($) 10$ ($)
---- ----------- ------------ --------- ---- ------ -------
Denis A. Krusos 250,000 (1) 5.98% $0.688 (2) 1/1/11 $108,170 $274,124
250,000 (1) 5.98% $0.400 (2) 9/19/11 $ 62,889 $159,374
(1) Options granted pursuant to the 2000 Plan, which are exercisable in
whole or in part commencing six months following the date of grant
unless otherwise accelerated. The options are not issued in tandem
with stock appreciation or similar rights and are not transferable
other than by will or the laws of descent and distribution. The
options terminate upon termination of employment, except that in the
case of death, disability or termination for reasons other than cause,
options may be exercised for certain periods of time thereafter as set
forth in the 2000 Plan.
(2) The exercise price of these options was equal to the fair market value
of the underlying common stock on the date of grant. These options are
nonqualified options.
6
The following is information regarding stock option exercises during
fiscal year 2001 by Mr. Krusos and the values of his options as of October 31,
2001:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal at Fiscal Year
Acquired on Value Year End (#) End ($)/(1)/
---------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Denis A. Krusos - - 3,326,290 250,000 - -
(1) Such value was determined by applying the net difference
between the last sales price of the stock on October 31, 2001
and the exercise price for the options to the number of
unexercised in-the-money options held.
There is no present arrangement for cash compensation of directors for
services in that capacity. Under the 2000 Plan, each non-employee director is
entitled to receive nonqualified stock options to purchase 20,000 shares of
Common Stock each year that such director is elected to the Board of Directors.
For further information with respect to non-employee director compensation under
the 2000 Plan, see "Approval of the Amendment to the 2000 Plan."
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
In view of the fact that CopyTele's executive officers, with the
exception of Henry P. Herms, had waived all salary and related pension benefits
for fiscal year 2001, the Board of Directors did not adopt any policy with
respect to the payment of cash compensation to the executive officers of
CopyTele for such period. At such time as Messrs. Krusos and DiSanto withdraw
their waivers, it is contemplated that the Board of Directors will develop and
adopt a compensation policy for its executive officers generally, including
CopyTele's Chief Executive Officer. Although a salary was paid to Mr. Herms in
fiscal year 2001, such compensation was not part of an overall compensation
policy, was determined solely by CopyTele's Chief Executive Officer, and was not
specifically related to corporate performance.
Generally, options previously granted under the 1993 Plan and currently
granted under the 2000 Plan are granted as an inducement in respect of future
performance. During fiscal year 2001, options were granted to Denis A. Krusos,
Frank J. DiSanto and Henry P. Herms for 500,000, 350,000 and 250,000 shares of
Common Stock, respectively, under the 2000 Plan. In granting such options, the
Stock Option Committee, which is comprised solely of non-employee directors of
CopyTele, did not take into account the number of shares of Common Stock owned
by such persons. Both plans also provide for the granting of stock appreciation
rights, although no stock appreciation rights have been granted under either
one. Additionally, the 2000 Plan provides for the granting of other benefits,
including stock awards, performance awards and stock units, although no such
benefits have been granted under that plan. The Board of Directors believes that
the 1993 Plan and the 2000 Plan have been effective in attracting and retaining
executives and employees.
With certain exceptions, Section 162(m) ("Section 162(m)") of the Code
denies a deduction to CopyTele for compensation paid to certain executive
officers in excess of $1 million per executive per taxable year (including any
deduction with respect to the exercise of a nonqualified option or right or the
disqualifying disposition of stock purchased pursuant to an incentive option).
CopyTele believes that options previously granted under the 1993 Plan and
options and rights granted under the 2000 Plan, by a qualifying committee of the
Board of Directors, should qualify for the performance-based compensation
exception to Section 162(m).
7
This Report has been prepared by the Board of Directors.
Denis A. Krusos Anthony Bowers
Frank J. DiSanto George P. Larounis
Henry P. Herms Lewis H. Titterton
AUDIT COMMITTEE REPORT
The following is the report of the CopyTele Audit Committee with
respect to our audited financial statements for fiscal year 2001.
Review with Management. The Audit Committee has reviewed and discussed
our audited financial statements with management.
Review and Discussions with Independent Auditors. The Audit Committee
has discussed with Arthur Andersen LLP, our independent auditors for the fiscal
year ended October 31, 2001, the matters required to be discussed by SAS 61
(Communications with Audit Committees) regarding the auditor's judgments about
the quality of our accounting principles as applied in its financial reporting.
The Audit Committee has also received written disclosures and the
letter from Arthur Andersen LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees) and has
discussed with Arthur Andersen LLP their independence.
Conclusion. Based on the review and discussions referred to above, the
Audit Committee recommended to the Board of Directors that our audited financial
statements be included in our Annual Report on Form 10-K for fiscal year 2001,
for filing with the Securities and Exchange Commission.
Members of The Audit Committee:
Anthony Bowers
Lewis H. Titterton
George P. Larounis
The information contained in the foregoing reports shall not be deemed
to be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that we specifically
incorporate them by reference in such filing.
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a graph showing the five-year cumulative total
return for: (i) our Common Stock; (ii) The NASDAQ Stock Market U.S. Index, a
broad market index covering shares of common stock of domestic companies that
are listed on NASDAQ; and (iii) The NASDAQ Electronic Components Stock Index, a
group of companies that are engaged in the manufacture of electronic components
and related accessories with a Standard Industrial Classification Code of 367
and listed on NASDAQ.
8
[GRAPHIC]
Fiscal Year Ended October 31
------------------------------------------------
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
CopyTele, Inc. $100 66 21 14 14 5
NASDAQ Stock Market U.S. (2) $100 132 147 248 280 141
NASDAQ Electronic Components (2) $100 137 141 290 440 167
- ---------------------
(1) The comparison of total return on investment for each fiscal year ended
October 31 assumes that $100 was invested on November 1, 1996 in each of
CopyTele, The NASDAQ Stock Market U.S. Index and The NASDAQ Electronic
Component Index with investment weighted on the basis of market
capitalization and all dividends reinvested.
(2) The total returns for each NASDAQ index are based on information provided
by NASDAQ, which had been prepared by the Center for Research in Securities
Prices at the University of Chicago.
9
The information contained in the foregoing graph shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that we specifically
incorporate it by reference in such filing.
APPROVAL OF THE AMENDMENT TO THE 2000 PLAN
(Item 2)
Background
We established the 2000 Plan in May, 2000, and it was approved by our
stockholders in July, 2000. Under an amendment to the 2000 Plan approved by our
stockholders in 2001, the maximum number of shares reserved for issuance under
the plan is 10,000,000 shares. As of August 5, 2002, there were 849,510 shares
of Common Stock available under the 2000 Plan for future option grants and other
awards.
The purpose of the 2000 Plan is to provide incentives that will
attract, retain and motivate highly competent persons as our (and our
subsidiaries' and affiliates') officers, non-employee directors, key employees
and consultants, by providing them with opportunities to acquire shares of
Common Stock or to receive monetary payments based on the value of such shares
pursuant to the Benefits described herein. In addition, the 2000 Plan is
intended to assist in further aligning the interests of our officers,
non-employee directors, key employees and consultants with those of its other
stockholders. In structuring the 2000 Plan, the Board of Directors sought to
provide for a variety of awards that could be flexibly administered to carry out
the purposes of the 2000 Plan. This authority will permit us to keep pace with
changing developments in management compensation and make us competitive with
those companies that offer creative incentives to attract and retain officers,
non-employee directors, key employees and consultants.
The Board of Directors has approved and is proposing for stockholder
approval an amendment to the 2000 Plan to increase the number of shares that may
be issued thereunder from 10,000,000 shares to 15,000,000 shares.
The following is a summary of the 2000 Plan, and is qualified in its
entirety by reference to the specific provisions of the 2000 Plan.
Shares Available
Currently, the maximum number of shares of Common Stock that may be
delivered to participants under the 2000 Plan, subject to certain adjustments,
is an aggregate of 10,000,000 shares. In addition, any shares of Common Stock
covered by a Benefit (defined below) granted under the 2000 Plan which for any
reason is cancelled, forfeited or expires or, in the case of a Benefit other
than a stock option, is settled in cash, shall again be available for Benefits
under the 2000 Plan. The maximum number of shares of Common Stock with respect
to which Benefits may be granted to any individual participant during any year
of the 2000 Plan shall not exceed 500,000, subject to certain adjustments.
Administration
The 2000 Plan provides for administration by our Board of Directors or
by a committee of the Board of Directors appointed from among its members (the
"Committee"), which is comprised, unless otherwise determined by the Board of
Directors, solely of not less than two members who shall be (1) "Non-Employee
Directors" within the meaning of Rule 16b-3(b)(3) (or any successor rule)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and (2) "outside directors"
10
within the meaning of Treasury Regulation section 1.162-27(e)(3) under Section
162(m). If the Board of Directors administers the 2000 Plan rather than a
committee, then all references to "Committee" in the Plan will be deemed to mean
a reference to the Board of Directors. The Committee is authorized, subject to
the provisions of the 2000 Plan, to establish such rules and regulations as it
deems necessary for the proper administration of the 2000 Plan and to make such
determinations and interpretations and to take such action in connection with
the 2000 Plan and any Benefits (as defined below) granted as it deems necessary
or advisable. Thus, among the Committee's powers are the authority to select
eligible persons to receive Benefits, and to determine the form, amount and
other terms and conditions of Benefits. The Committee also has the power to
modify or waive restrictions on Benefits, to amend Benefits and to grant
extensions and accelerations of Benefits.
Eligibility for Participation
Our (and our subsidiaries' and affiliates') officers, non-employee
directors, key employees and consultants are eligible to participate in the 2000
Plan. The selection of participants from eligible persons, other than
non-employee directors, is within the discretion of the Committee. The currently
estimated number of officers and key employees who are eligible to participate
in the 2000 Plan is approximately 26, and an estimate of the number of
consultants who are eligible to participate in the 2000 Plan has not been made.
Types of Benefits
The 2000 Plan provides for the grant of any or all of the following
types of benefits: (1) stock options, including incentive stock options and
non-qualified stock options ("Options"); (2) stock appreciation rights ("SARs");
(3) stock awards ("Stock Awards"); (4) performance awards; and (5) stock units
(collectively, "Benefits"). Benefits may be granted singly in combination, or in
tandem, as determined by the Committee. Stock awards, performance awards and
stock units may, as determined by the Committee in its discretion, constitute
Performance-Based Awards, as described below.
Stock Options
Under the 2000 Plan, the Committee may grant awards in the form of
options to purchase shares of Common Stock. Options may either be incentive
stock options, qualifying for special tax treatment, or non-qualified options.
The Committee will, with regard to each stock option, determine the number of
shares subject to the option, the manner and time of the option's exercise and
vesting, and the exercise price of the option. The exercise price will not be
less than 100% of the fair market value of the Common Stock on the date the
stock option is granted (the "Fair Market Value"). The exercise price may be
paid in cash or, in the discretion of the Committee, by the delivery of shares
of Common Stock then owned by the participant, by the withholding of shares of
Common Stock for which a stock option is exercisable, or by a combination of
these methods. In the discretion of the Committee, payment may also be made by
delivering a properly executed exercise notice to us together with a copy of
irrevocable instructions to a broker to deliver promptly to us the amount of
sale or loan proceeds to pay the exercise price. The Committee may prescribe any
other method of paying the exercise price that it determines to be consistent
with applicable law and the purpose of the 2000 Plan. In determining which
methods a participant may utilize to pay the exercise price, the Committee may
consider such factors as it determines are appropriate. No stock option is
exercisable later than ten years after the date it is granted.
11
Stock Appreciation Rights (SARs)
The 2000 Plan authorizes the Committee to grant a SAR, either in tandem
with a stock option or independent of a stock option. A SAR is a right to
receive a payment, in cash, Common Stock, or a combination thereof equal to the
excess of (x) the Fair Market Value, or other specified valuation, of a
specified number of shares of Common Stock on the date the right is exercised
over (y) the Fair Market Value, or other specified valuation (which shall not be
less than Fair Market Value), of such shares of Common Stock on the date the
right is granted, all as determined by the Committee. SARs granted under the
2000 Plan are subject to terms and conditions relating to exercisability that
are similar to those imposed on stock options, and each SAR is subject to such
terms and conditions as the Committee shall impose from time to time.
Stock Awards
The Committee may, in its discretion, grant Stock Awards (which may
include mandatory payment of bonus incentive compensation in stock) consisting
of Common Stock issued or transferred to participants with or without other
payments therefor. Stock Awards may be subject to such terms and conditions as
the Committee determines appropriate, including, without limitation,
restrictions on the sale or other disposition of such shares, the right of
CopyTele to reacquire such shares for no consideration upon termination of the
participant's employment within specified periods, and may constitute
Performance-Based Awards. The Stock Award will specify whether the participant
will have, with respect to the shares of Common Stock subject to a Stock Award,
all of the rights of a holder of shares of Common Stock, including the right to
receive dividends and to vote the shares.
Performance Awards
The 2000 Plan allows for the grant of performance awards which may take
the form of shares of Common Stock or Stock Units (defined below), or any
combination thereof and which may constitute Performance-Based Awards. Such
awards will be contingent upon the attainment, over a period to be determined by
the Committee, of certain performance goals. The length of the performance
period, the performance goals to be achieved and the measure of whether and to
what degree such goals have been achieved will be determined by the Committee.
Payment of earned performance awards will be made in accordance with terms and
conditions prescribed or authorized by the Committee. The participant may elect
to defer, or the Committee may require the deferral of, the receipt of
performance awards upon such terms as the Committee deems appropriate.
Stock Units
The Committee may, in its discretion, grant Stock Units to
participants, which may constitute Performance-Based Awards. A "Stock Unit"
means a notional account representing one share of Common Stock. The Committee
determines the criteria for the vesting of Stock Units and whether a participant
granted a Stock Unit shall be entitled to Dividend Equivalent Rights (as defined
in the 2000 Plan). Upon vesting of a Stock Unit, unless the Committee has
determined to defer payment with respect to such unit or a participant has
elected to defer payment, shares of Common Stock representing the Stock Units
will be distributed to the participant (unless the Committee, with the consent
of the participant, provides for the payment of the Stock Units in cash, or
partly in cash and partly in shares of Common Stock, equal to the value of the
shares of Common Stock which would otherwise be distributed to the participant).
Stock Units may constitute Performance-Based Awards.
Performance-Based Awards
Certain Benefits granted under the 2000 Plan may be granted in a manner
such that the Benefit qualifies for the performance-based compensation exemption
to Section 162(m) ("Performance-Based Awards"). As determined by the Committee
in its sole discretion, either the vesting or the exercise of such
12
Performance-Based Awards will be based upon achievement of hurdle rates and/or
growth in one or more of the following business criteria: (1) net sales; (2)
pretax income before allocation of corporate overhead and bonus; (3) budget; (4)
earnings per share; (5) net income; (6) division, group or corporate financial
goals; (7) return on stockholders' equity; (8) return on assets; (9) attainment
of strategic and operational initiatives; (10) appreciation in and/or
maintenance of the price of the Common Stock or any other of our publicly-traded
securities; (11) market share; (12) gross profits; (13) earnings before interest
and taxes; (14) earnings before interest, taxes, dividends and amortization;
(15) economic value-added models and comparisons with various stock market
indices; (16) reductions in costs; or (17) any combination of the foregoing. In
addition, Performance-Based Awards may include comparisons to the performance of
other companies, such performance to be measured by one or more of the foregoing
criteria. With respect to Performance-Based Awards, the Committee shall
establish in writing (x) the performance goals applicable to a given period, and
such performance goals shall state, in terms of an objective formula or
standard, the method for computing the amount of compensation payable to the
participant if such performance goals are obtained and (y) the individual
employees or class of employees to which such performance goals apply no later
than 90 days after the commencement of such period (but in no event after 25% of
such period has elapsed). No Performance-Based Award shall be payable to, or
vest with respect to, as the case may be, any participant for a given fiscal
period until the Committee certifies in writing that the objective performance
goals (and any other material terms) applicable to such period have been
satisfied.
Termination of Employment
Upon termination of employment of an employee or of the continuing
services of any consultant, any Option or SAR granted to such employee or
consultant pursuant to the 2000 Plan will, to the extent not theretofore
exercised, terminate and become null and void; provided, however, that (a) if
the employee or consultant dies (i) while in our employ (or the employ of any
subsidiary or parent), or (ii) within three months following the employee's
termination of employment or the consultant's termination of services by reason
of retirement or dismissal other than for cause (as defined in the 2000 Plan),
or (iii) within two years following the employee's termination of employment or
the consultant's termination of services by reason of disability, such
employee's or consultant's legal representatives (or such other person who
acquired the Option or SAR by bequest or inheritance or by reason of the death
of such employee) may, not later than two years from the date of his or her
death, exercise the Option or SAR in respect of any or all of the number of
shares of Common Stock which the employee or consultant would have been entitled
to purchase under the Option or SAR at the date of death; and (b) if the
termination of employment or the consulting services of any consultant is due to
such employee's or consultant's retirement, disability or dismissal other than
for cause, and such termination occurred while such employee or consultant was
entitled to exercise an Option or SAR granted under the 2000 Plan such employee,
consultant or such employee's or consultant's legal representative will have the
right to exercise the Option or SAR so granted in respect of any or all of the
shares of Common Stock which the employee or consultant would have been entitled
to purchase under the Option or SAR at the date of termination of employment or
services, at any time up to and including (i) three months after the date of
such termination of employment or services in the case of termination by reason
of retirement or dismissal other than for cause, and (ii) two years after the
date of termination of employment or services in the case of termination by
reason of disability.
If an employee or consultant voluntarily terminates his or her
employment or services, or is discharged for cause, any Option or SAR granted to
such employee or consultant pursuant to the 2000 Plan will, unless otherwise
specified by the Committee in the Option or SAR, to the extent not theretofore
exercised, terminate.
In the event of the complete liquidation or dissolution of a subsidiary
corporation, or if such corporation ceases to be a subsidiary corporation, any
unexercised Options or Rights theretofore granted to any person employed by or
rendering consulting services to such subsidiary corporation will be deemed
cancelled unless such person is employed by, or rendered consulting services to,
us or any parent corporation or another subsidiary corporation after the
occurrence of such event. If an Option or SAR is to be cancelled pursuant to the
provisions of the previous sentence, notice of such cancellation will be given
13
to each employee or consultant holding unexercised Options, and such holder will
have the right to exercise such Options or Rights in full during the thirty-day
period following notice of such cancellation.
In no event, however, shall any person be entitled to exercise any
Option or SAR after the expiration of the period of exercisability of such
Option or SAR as specified therein.
Director Participants
Each of our current non-employee directors (a "Director Participant")
will be granted NSOs (as defined below) to purchase 20,000 shares of Common
Stock at the Annual Meeting, and will be granted NSOs to purchase 20,000 shares
of Common Stock at the time of each subsequent annual meeting at which such
directors are elected to the Board of Directors. In addition, any future
Director Participants elected to the Board of Directors will receive NSOs to
purchase 20,000 shares of Common Stock upon such director's initial election to
the Board of Directors and NSOs to purchase 20,000 shares at each subsequent
annual meeting of our stockholders at which such director is elected to the
Board of Directors. The purchase price of the shares of Common Stock covered by
the NSOs will be the fair market value of the shares of Common Stock at the date
of the grant.
NSOs granted to Director Participants may not be exercised for the
twelve-month period immediately following the grant of the NSO. Thereafter, the
NSO will be exercisable for the period ending five years from the date of grant
subject to limitations or restrictions pursuant to the terms of the 2000 Plan.
Upon termination of a Director Participant's directorship, any NSO
granted to such Director Participant pursuant to the 2000 Plan will, to the
extent not theretofore exercised, terminate and become null and void; provided,
however, that (a) if the Director Participant dies (i) during his directorship,
or (ii) within three months following the Director Participant's termination of
his directorship by reason of voluntary retirement or our failure to retain or
nominate for re-election such Director Participant, unless due to any act of
fraud, intentional misrepresentation, or embezzlement or conversion of our (or
any direct or indirect subsidiary corporation's) assets or opportunities, or
(iii) within two years following the Director Participant's termination of his
directorship by reason of disability, such Director Participant's legal
representative (or such other person who acquired the NSO by bequest or
inheritance or by reason of the death of such Director Participant) may, not
later than two years from the date of his death, exercise such NSO in respect of
any or all of the number of shares of Common Stock which the Director
Participant would have been entitled to purchase under the NSO at the date of
death; and (b) if the termination of his directorship is due to such Director
Participant's voluntary retirement, disability, or our failure to retain or
nominate for re-election such Director Participant, unless due to any act of
fraud, intentional misrepresentation, or embezzlement or conversion of our (or
any direct or indirect subsidiary corporation's) assets or opportunities, and
such termination occurred while such Director Participant was entitled to
exercise a NSO granted under the 2000 Plan, such Director Participant or such
Director Participant's legal representative will have the right to exercise the
NSO so granted in respect of any or all of the shares of Common Stock which the
Director Participant would have been entitled to purchase under the NSO at the
date of termination of his directorship, at any time up to and including (i)
three months after the date of such termination of his directorship in the case
of termination by reason of voluntary retirement or our failure to retain or
nominate for re-election such Director Participant, unless due to any act of
fraud, intentional misrepresentation, or embezzlement or conversion of our (or
any direct or indirect subsidiary corporation's) assets or opportunities, and
(ii) two years after the date of termination of his directorship in the case of
termination by reason of disability.
In no event, however, shall any person be entitled to exercise a NSO
granted to a Director Participant after the expiration of the period of
exercisability of such NSO as specified therein.
The provisions of the 2000 Plan relating to NSOs granted to Director
Participants may not be amended more than one time in any six-month period,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974 ("ERISA"), or the rules promulgated thereunder.
14
Other Terms
The 2000 Plan provides that Benefits may be transferred by will or the
laws of descent and distribution. In addition to the foregoing, other than with
respect to incentive stock options, the Committee may permit the transferability
of a Benefit by a participant who is a director, officer or employee of CopyTele
with at least 15 years of service to certain members of such participant's
immediate family or trusts for the benefit of such persons or other entities
owned by such person.
Upon the grant of any Benefit under the 2000 Plan, the Committee may,
by way of an agreement with the participant, establish such other terms,
conditions, restrictions and/or limitations covering the grant of the Benefit as
are not inconsistent with the 2000 Plan. The 2000 Plan terminates on May 8,
2010, and no Benefit may be granted after May 8, 2010. The Committee reserves
the right to amend, suspend or terminate the 2000 Plan at any time. However, no
amendment may be made without approval of our stockholders if the amendment
will: (1) disqualify any incentive stock options granted under the Plan; (2)
increase the aggregate number of shares of Common Stock that may be delivered
through Options under the Plan; (3) increase the maximum amounts which can be
paid to an individual participant under the Plan; (4) change the types of
business criteria on which Performance-Based Awards are to be based under the
Plan; or (5) modify the requirements as to eligibility for participation in the
Plan.
The 2000 Plan contains provisions for equitable adjustment of Benefits
in the event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to our
stockholders. In addition, if there is a Change in Control (as defined in the
2000 Plan) of CopyTele, Benefits that have not vested or became exercisable at
the time of such Change in Control will immediately vest and become exercisable
and all performance targets relating to such Benefits will be deemed to have
been satisfied as of the time of such Change in Control. Furthermore, in the
discretion of the Committee, the excess of the Fair Market Value of shares of
Common Stock subject to stock options or SARs over the exercise price thereof
will be paid out in cash, and the Fair Market Value of shares of Common Stock
subject to a Stock Award or Stock Unit will be paid out in cash. The Committee
will also have the right to accelerate, in whole or in part, from time to time,
conditionally or unconditionally, rights to exercise any Option granted under
the 2000 Plan.
The Committee may grant Benefits to participants who are subject to the
tax laws of nations other than the United States, which Benefits may have terms
and conditions as determined by the Committee as necessary to comply with
applicable foreign laws. The Committee may take any action that it deems
advisable to obtain approval of such Benefits by the appropriate foreign
governmental entity; provided, however, that no such Benefits may be granted,
and no action may be taken which would violate the Exchange Act, the Code or any
other applicable law.
Certain Federal Income Tax Consequences
The statements in the following paragraphs of the principal U.S. federal
income tax consequences of Benefits under the 2000 Plan are based on statutory
authority and judicial and administrative interpretations, as of the date of
this Proxy Statement, which are subject to change at any time (possibly with
retroactive effect). The law is technical and complex, and the discussion below
represents only a general summary.
Incentive Stock Options. Incentive stock options ("ISOs") granted under
the 2000 Plan are intended to meet the definitional requirements of Section
422(b) of the Code for "incentive stock options." An employee who receives an
ISO does not recognize any taxable income upon the grant of such ISO. Similarly,
the exercise of an ISO generally does not give rise to federal income tax to the
employee, provided that (1) the federal "alternative minimum tax," which depends
on the employee's particular tax situation, does not apply and (2) the employee
is employed by us from the date of grant of the option until three months prior
to the exercise thereof, except where such employment terminates by reason of
15
disability (where the three-month period is extended to one year) or death
(where this requirement does not apply). If an employee exercises an ISO after
the requisite periods referred to in clause (2) above, the ISO will be treated
as a NSO and will be subject to the rules set forth below under the caption
"Non-Qualified Stock Options and Stock Appreciation Rights." Further, if after
exercising an ISO, an employee disposes of the Common Stock so acquired more
than two years from the date of grant and more than one year from the date of
transfer of the Common Stock pursuant to the exercise of such ISO (the
"applicable holding period"), the employee will generally recognize capital gain
or loss equal to the difference, if any, between the amount received for the
shares and the exercise price. If, however, an employee does not hold the shares
so acquired for the applicable holding period--thereby making a "disqualifying
disposition"--the employee would recognize ordinary income equal to the excess
of the fair market value of the shares at the time the ISO was exercised over
the exercise price and the balance, if any, would generally be treated as
capital gain. If the disqualifying disposition is a sale or exchange that would
permit a loss to be recognized under the Code (were a loss in fact to be
realized), and the sales proceeds are less than the fair market value of the
shares on the date of exercise, the employee's ordinary income therefrom would
be limited to the gain (if any) realized on the sale. An employee who exercises
an ISO by delivering Common Stock previously acquired pursuant to the exercise
of another ISO is treated as making a "disqualifying disposition" of such Common
Stock if such shares are delivered before the expiration of their applicable
holding period. Upon the exercise of an ISO with previously acquired shares as
to which no disqualifying disposition occurs, it appears that the employee would
not recognize gain or loss with respect to such previously acquired shares. We
will not be allowed a federal income tax deduction upon the grant or exercise of
an ISO or the disposition, after the applicable holding period, of the Common
Stock acquired upon exercise of an ISO. In the event of a disqualifying
disposition, we generally will be entitled to a deduction in an amount equal to
the ordinary income included by the employee, provided that such amount
constitutes an ordinary and necessary business expense to us and is reasonable
and the limitations of Sections 280G and 162(m) of the Code (discussed below) do
not apply.
Non-Qualified Stock Options and Stock Appreciation Rights.
Non-qualified stock options ("NSOs") granted under the 2000 Plan are options
that do not qualify as ISOs. An employee who receives a NSO or a SAR will not
recognize any taxable income upon the grant of such NSO or SAR. However, the
employee generally will recognize ordinary income upon exercise of a NSO in an
amount equal to the excess of the fair market value of the shares of Common
Stock at the time of exercise over the exercise price. Similarly, upon the
receipt of cash or shares pursuant to the exercise of a SAR, the individual
generally will recognize ordinary income in an amount equal to the sum of the
cash and the fair market value of the shares received. As a result of Section
16(b) of the Exchange Act, under certain circumstances, the timing of income
recognition may be deferred following the exercise of a NSO or SAR (the
"Deferral Period") for any individual who is our executive officer or director
or a beneficial owner of more than ten percent (10%) of any class of our equity
securities. Absent a Section 83(b) election (described below under "Other
Awards"), recognition of income by the individual will be deferred until the
expiration of the Deferral Period, if any. The ordinary income recognized with
respect to the receipt of shares or cash upon exercise of a NSO or a SAR will be
subject to both wage withholding and other employment taxes. In addition to the
customary methods of satisfying the withholding tax liabilities that arise upon
the exercise of a SAR for shares or upon the exercise of a NSO, we may satisfy
the liability in whole or in part by withholding shares of Common Stock from
those that otherwise would be issuable to the individual or by the employee
tendering other shares owned by him or her, valued at their fair market value as
of the date that the tax withholding obligation arises. A federal income tax
deduction generally will be allowed to us in an amount equal to the ordinary
income included by the individual with respect to his or her NSO or SAR,
provided that such amount constitutes an ordinary and necessary business expense
to us and is reasonable and the limitations of Sections 280G and 162(m) of the
Code do not apply. If an individual exercises a NSO by delivering shares of
Common Stock, other than shares previously acquired pursuant to the exercise of
an ISO which is treated as a "disqualifying disposition" as described above, the
individual will not recognize gain or loss with respect to the exchange of such
shares, even if their then fair market value is different from the individual's
tax basis. The individual, however, will be taxed as described above with
respect to the exercise of the NSO as if he or she had paid the exercise price
in cash, and we likewise generally will be entitled to an equivalent tax
deduction.
16
If the Committee permits an individual to transfer a NSO to a member or
members of the individual's immediate family or to a trust for the benefit of
such persons or other entity owned by such persons and such individual makes
such a transfer and such transfer constitutes a completed gift for gift tax
purposes (which determination may depend on a variety of factors including,
without limitation, whether the NSO or a portion thereof has vested) then such
transfer will be subject to federal gift tax except, generally, to the extent
protected by the individual's $10,000 per donee annual exclusion, by his or her
lifetime unified credit or by the marital deduction. The amount of the
individual's gift is the value of the NSO at the time of the gift. If the
transfer of the NSO constitutes a completed gift, the NSO generally will not be
included in his or her gross estate for federal estate tax purposes. The
transfer of the NSO will not cause the transferee to recognize taxable income at
the time of the transfer. If the transferee exercises the NSO while the
transferor is alive, the transferor will recognize ordinary income as described
above as if the transferor had exercised the NSO. If the transferee exercises
the NSO after the death of the transferor, it is uncertain which of the
transferor's estate or the transferee will recognize ordinary income for federal
income tax purposes.
Other Awards. With respect to other Benefits under the 2000 Plan that
are settled either in cash or in shares of Common Stock that are either
transferable or not subject to a substantial risk of forfeiture (as defined in
the Code and the regulations thereunder), employees generally will recognize
ordinary income equal to the amount of cash or the fair market value of the
Common Stock received. With respect to Benefits under the 2000 Plan that are
settled in shares of Common Stock that are restricted as to transferability and
subject to a substantial risk of forfeiture--absent a written election pursuant
to Section 83(b) of the Code filed with the Internal Revenue Service within 30
days after the date of transfer of such shares pursuant to the award (a "Section
83(b) election")--an individual will recognize ordinary income at the earlier of
the time at which (i) the shares become transferable or (ii) the restrictions
that impose a substantial risk of forfeiture of such shares lapse, in an amount
equal to the excess of the fair market value (on such date) of such shares over
the price paid for the award, if any. If a Section 83(b) election is made, the
individual will recognize ordinary income, as of the transfer date, in an amount
equal to the excess of the fair market value of the Common Stock as of that date
over the price paid for such award, if any. The ordinary income recognized with
respect to the receipt of cash, shares of Common Stock or other property under
the 2000 Plan will be subject to both wage withholding and other employment
taxes. We generally will be allowed a deduction for federal income tax purposes
in an amount equal to the ordinary income recognized by the employee, provided
that such amount constitutes an ordinary and necessary business expense and is
reasonable and the limitations of Sections 280G and 162(m) of the Code do not
apply.
Dividends and Dividend Equivalents. To the extent Benefits under the
2000 Plan earn dividends or dividend equivalents, whether paid currently or
credited to an account established under the 2000 Plan, an individual generally
will recognize ordinary income with respect to such dividends or dividend
equivalents.
Change in Control. In general, if the total amount of payments to an
individual that are contingent upon a "change in control" of CopyTele (as
defined in Section 280G of the Code), including payments under the 2000 Plan
that vest upon a "change in control," equals or exceeds three times the
individual's "base amount" (generally, such individual's average annual
compensation for the five calendar years preceding the change in control), then,
subject to certain exceptions, the payments may be treated as "parachute
payments" under the Code, in which case a portion of such payments would be
non-deductible to us and the individual would be subject to a 20% excise tax on
such portion of the payments.
Certain Limitations on Deductibility of Executive Compensation. With
certain exceptions, Section 162(m) denies a deduction to publicly held
corporations for compensation paid to certain executive officers in excess of $1
million per executive per taxable year (including any deduction with respect to
the exercise of a NSO or SAR or the disqualifying disposition of stock purchased
pursuant to an ISO). One such exception applies to certain performance-based
compensation provided that such compensation has been approved by stockholders
in a separate vote and certain other requirements are met. We believe that Stock
Options, SARs and Performance-Based Awards granted under the 2000 Plan by the
Committee, at a time when the Committee is comprised solely of not less than two
"outside directors" within the meaning of
17
Section 162(m) and the Treasury regulations promulgated thereunder, should
qualify for the performance-based compensation exception to Section 162(m).
Equity Compensation Plan Information
The following is information as of October 31, 2001 about shares of
Common Stock that may be issued upon the exercise of options, warrants and
rights under all equity compensation plans in effect as of that date, including
our 1987 Stock Option Plan, the 1993 Plan and the 2000 Plan. Descriptions of our
1987 Stock Option Plan and the 1993 Plan are set forth in Note 7 to the
financial statements included in our Annual Report for the year ended October
31, 2001.
Number of Number of securities
securities to be remaining available
issued upon under equity for future issuance
exercise of Weighted average under equity compensation
outstanding exercise price of plans (excluding
options, warrants outstanding options, securities reflected in
Plan category and rights warrants and rights column (a))
- ---------------------------- ------------------------ --------------------- -------------------------
(a) (b) (c)
Equity compensation plans 14,935,746 $5.40 3,156,555
approved by security
holders
Equity compensation plans 0 0 0
not approved by security
holders
Total 14,935,746 $5.40 3,156,555
Other Information
Approval of the amendment to the 2000 Plan requires the affirmative
vote of the holders of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote on such matter at the Annual Meeting.
If stockholders do not approve the amendment to the 2000 Plan, we will
reconsider the alternatives available with respect to the compensation of
officers and key employees of, and consultants to, CopyTele.
The Board of Directors believes that the amendment to the 2000 Plan is
in our and our stockholders' best interests and therefore recommends that the
stockholders vote FOR the approval of the amendment to the 2000 Plan. Proxies
received by the Board of Directors will be so voted unless stockholders
specified in their proxies a contrary choice.
NEW PLAN BENEFITS
No new plan benefit table for the 2000 Plan is included in this Proxy
Statement because the benefits or amounts that will be received or allocated
under the Plan to the persons for which disclosure is required by the Securities
and Exchange Commission are not determinable.
18
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Item 3)
On June 6, 2002, we dismissed Arthur Andersen LLP as our independent
certified public accountants and appointed Grant Thornton LLP to serve as our
independent certified public accountants for fiscal year 2002. The change was
approved by the Audit Committee.
Arthur Andersen LLP's reports on our consolidated financial statements for
the years ended October 31, 2001 and 2000 did not contain an adverse opinion or
disclaimer of opinion, nor were the reports qualified or modified as to
uncertainty, audit scope or accounting principles.
During the fiscal years ended October 31, 2001 and 2000 and the interim
period between October 31, 2001 and the date of the dismissal of Arthur Andersen
LLP, there were no disagreements between us and Arthur Andersen on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to Arthur Andersen LLP's satisfaction,
would have caused it to make reference to the subject matter of the disagreement
in connection with its report for such years; and there were no reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K.
During the two-year period ended October 31, 2001 and through the date of
the dismissal of Arthur Andersen LLP, neither us nor anyone acting on our behalf
consulted Grant Thornton LLP with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our consolidated financial
statements, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.
The following table sets forth the aggregate fees billed to us for fiscal
year 2001 by Arthur Andersen LLP:
Audit Fees .............................................................. $246,000
Financial Information Systems Design and Implementation Fees ............ $ 0
All Other Fees .......................................................... $ 29,300
The Audit Committee has considered whether the provision of the services
other than audit services referenced above is compatible with maintenance of the
principal accountant's independence.
One or more representatives of Grant Thornton LLP are expected to be
present at the Annual Meeting, will have an opportunity to make a statement if
he or she desires to do so and will be available to respond to appropriate
questions. We do not expect any representative of Arthur Andersen LLP to be
present at the Annual Meeting.
Ratification of the appointment of the independent auditors requires the
affirmative vote of the holders of a majority of the shares of Common Stock
present or represented by proxy and entitled to vote on such matter at the
Annual Meeting.
The Board of Directors recommends a vote FOR this proposal. Proxies
received by the Board of Directors will be so voted unless stockholders specify
in their proxy a contrary choice.
19
STOCKHOLDER PROPOSALS
All proposals from stockholders to be included in the proxy materials to be
distributed by us in connection with the next annual meeting must be received by
the Secretary of CopyTele, 900 Walt Whitman Road, Melville, New York 11747, not
later than the close of business on April 15, 2003.
In addition, in accordance with Article I, Section 10 of our Amended and
Restated By-laws, in order to be properly brought before the next annual
meeting, a matter must have been: (i) specified in a written notice of such
meeting (or any supplement thereto) given to the stockholders by or at the
direction of the Board of Directors (which would be accomplished if a
stockholder proposal were received by the Secretary of the CopyTele as set forth
in the preceding paragraph); (ii) brought before such meeting at the direction
of the Board of Directors or the Chairman of the meeting; or (iii) specified in
a written notice given by or on behalf of a stockholder of record on the record
date for such meeting, or a duly authorized proxy for such stockholder, which
conforms to the requirements of Article I, Section 10 of our Amended and
Restated By-laws and is delivered personally to, or mailed to and received by,
the Secretary of the CopyTele at the address set forth in the preceding
paragraph not less than 45 days prior to the first anniversary of the date of
the notice accompanying this Proxy Statement; provided however, that such notice
need not be given more than 75 days prior to the next annual meeting.
ANNUAL REPORT
A copy of our Annual Report, including financial statements for fiscal year
2001, accompanies this Proxy Statement.
By Order of the Board of Directors
/s/ Anne Rotondo
ANNE ROTONDO
Secretary
Melville, New York
August 8, 2002
20
COPYTELE, INC.
Annual Meeting of Stockholders
September 12, 2002 - 10:30 A.M.
To be held at:
FOX HOLLOW
7725 Jericho Turnpike
Woodbury, New York
(516) 921-1415
Long Island Expressway to Exit 44 North (which is Rt. 135 North) to Exit 14 East
(which is Woodbury 25 East)
Northern State Parkway to Exit 36B North (which is Rt. 135 North) to Exit 14
East (which is Woodbury 25 East)
Belt Parkway to Southern State Parkway to Exit 28A North (which is Rt. 135
North) to Exit 14 East (which is Woodbury 25 East)
At Exit 14 East, make right turn onto Jericho Turnpike (25 East). Fox Hollow is
on left after first traffic light.
\/ Please Detach and Mail in the Envelope Provided \/
- --------------------------------------------------------------------------------
A [X] Please mark your
votes as indicated
in this example.
FOR all nominees listed to the right WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary) nominees listed to the right
[ ] [ ]
1. ELECTION OF DIRECTORS [ ] [ ]
(Instruction: To withhold authority to
vote for any individual nominee, mark
FOR and write that nominee's name
below.)
- ---------------------------------------
Nominees: Denis A. Krusos
Frank J. DiSanto
Henry P. Herms
George P. Larounis
Lewis H. Titterton
Anthony Bowers
FOR AGAINST ABSTAIN
2. APPROVAL OF THE AMENDMENT [ ] [ ] [ ]
TO THE COPYTELE, INC.
2000 SHARE INCENTIVE
PLAN.
3. RATIFICATION OF THE [ ] [ ] [ ]
SELECTION OF GRANT
THORNTON LLP AS
INDEPENDENT AUDITORS OF
COPYTELE FOR THE FISCAL
YEAR ENDING OCTOBER 31,
2002.
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
Receipt is acknowledged of Notice of Annual Meeting, Proxy Statement and Annual
Report for the fiscal year ended October 31, 2001.
Please date, sign and return this Proxy Card using the enclosed envelope.
__________________________________________________________________________(Seal)
______________________________________________ (Seal) Dated:_____________, 2002
NOTE: Please sign here exactly as your name appears above. When signing as
attorney, executor, administrator, trustee or guardian, please give your title,
as such. Each joint owner or trustee should sign the proxy.
- --------------------------------------------------------------------------------
PROXY
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
COPYTELE, INC.
Annual Meeting of Stockholders - September 12, 2002
THE UNDERSIGNED stockholder of CopyTele, Inc., hereby appoints DENIS A.
KRUSOS and FRANK J. DiSANTO, or either of them, with full power of substitution,
as the proxy or proxies of the undersigned at the Annual Meeting of Stockholders
of CopyTele to be held at the Fox Hollow, Woodbury, New York, on September 12,
2002, at 10:30 a.m., and any adjournment(s) or postponement(s) thereof, and to
vote thereat all shares of Common Stock of CopyTele which the undersigned would
be entitled to vote if personally present in accordance with the instructions on
the reverse side of this Proxy.
The shares represented by this Proxy will be voted as specified on the
reverse side hereof, but if no specification is made, the proxies intend to vote
FOR the election of all nominees as directors, FOR approval of the amendment to
the CopyTele, Inc. 2000 Share Incentive Plan, FOR the ratification of the
selection of auditors and, in the discretion of such proxies, for or against
such other matters as may properly come before the Annual Meeting or any
adjournment(s) or postponement(s) thereof.
(continued - to be dated and signed on reverse side)