SCHEDULE 14A (Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14-a6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
IDT Corporation
-------------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
Payment of filing fee (Check the appropriate box):
|X| No fee required. |_| Fee computed on table below per Exchange Act
Rule 14a-6(i)(1), and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed pursuant to
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calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
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(4) Date filed:
IDT CORPORATION
520 Broad Street
Newark, New Jersey 07102
(973) 438-1000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
December 13, 2001
TO THE STOCKHOLDERS OF IDT CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders (the
"Annual Meeting") of IDT CORPORATION, a Delaware corporation (the "Company"),
will be held on Thursday, December 13, 2001 at 12:00 p.m. The Annual Meeting
will be held at the Company's headquarters located at 520 Broad Street,
Newark, New Jersey, to consider and vote upon the following matters:
1. ELECTION OF DIRECTORS. The election of five Class III directors for a
term of three years, which shall expire at the Company's annual meeting of
stockholders in 2004 or until such time as their respective successors are
duly elected and qualified or until the director's earlier resignation or
removal. The Board of Directors (the "Board") intends at this time to present
the following nominees:
Howard S. Jonas
Joyce J. Mason
Geoffrey Rochwarger
Dr. Saul K. Fenster
Michael J. Levitt
2. APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1996 STOCK OPTION AND
INCENTIVE PLAN, AS AMENDED AND RESTATED. The Company's stockholders are being
asked to approve an amendment to the Company's 1996 Stock Option and Incentive
Plan, as amended and restated (the "Plan"), that will increase the number of
shares of the Company's Class B Common Stock available for the grant of awards
thereunder by an additional 3,000,000 shares.
3. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS. The
ratification of the appointment of Ernst & Young LLP as the independent
auditors for the Company for the fiscal year ending July 31, 2002.
4. OTHER BUSINESS. Such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
These matters are more fully described in the Proxy Statement accompanying
this Notice.
Only stockholders of record at the close of business on October 24, 2001 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are invited to attend the Annual Meeting in person.
However, if you do not expect to be present at the Annual Meeting and wish
your shares to be voted, you should complete, sign and date the attached form
of proxy and return it by mail in the enclosed envelope as promptly as
possible. Any stockholder attending the Annual Meeting may vote in person even
if such stockholder has returned a proxy or already otherwise voted.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Howard S. Jonas
---------------------------------------
Howard S. Jonas
Chairman of the Board
Newark, New Jersey
November 7, 2001
IDT CORPORATION
520 Broad Street
Newark, New Jersey 07102
(973) 438-1000
PROXY STATEMENT
General Information
This Proxy Statement is furnished to the stockholders of IDT Corporation, a
Delaware corporation (the "Company"), in connection with the solicitation by
the Company's Board of Directors (the "Board") of proxies in the form enclosed
herewith for use in voting at the Company's Annual Meeting of Stockholders
(the "Annual Meeting"). The Annual Meeting will be held on Thursday, December
13, 2001 at 12:00 p.m., local time, at 520 Broad Street, Newark, New Jersey
07102. The shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), Class A common stock, par value $0.01 per share (the
"Class A Common Stock"), and Class B common stock, par value $0.01 per share
(the "Class B Common Stock"), represented by the proxies received, properly
marked, dated, executed, and not revoked will be voted at the Annual Meeting.
This Proxy Statement is being mailed to the Company's stockholders on or about
November 7, 2001.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by delivering to the Company (to
the attention of Joyce J. Mason, Senior Vice President, General Counsel and
Secretary) a written notice of revocation or a duly executed proxy bearing a
later date, or by attending the Annual Meeting and voting in person.
Solicitation and Voting Procedures
This solicitation of proxies is being made by the Company. The solicitation
is being conducted by mail, and the Company will bear all attendant costs.
These costs will include the expense of preparing and mailing proxy materials
for the Annual Meeting and any reimbursements paid to brokerage firms and
others for their expenses incurred in forwarding the solicitation materials
regarding the Annual Meeting to the beneficial owners of the Common Stock,
Class A Common Stock and Class B Common Stock. The Company may conduct further
solicitation personally, by telephone or by facsimile through its officers,
directors and employees, none of whom will receive additional compensation for
assisting with the solicitation.
The close of business on Wednesday, October 24, 2001 has been fixed as the
record date (the "Record Date") for determining the holders of shares of
Common Stock, Class A Common and Class B Common Stock entitled to notice of
and to vote at the Annual Meeting. As of the close of business on the Record
Date, the Company had 80,293,030 shares outstanding, of which 70,883,804
shares are entitled to vote at the Annual Meeting, consisting of 17,822,590
shares of Common Stock, 9,816,988 shares of Class A Common Stock and
43,244,226 shares of Class B Common Stock. The remaining 9,409,226 shares
outstanding, consisting of 5,390,163 shares of Common Stock and 4,019,063
shares of Class B Common Stock, are beneficially owned by IDT Telecom, Inc., a
wholly-owned subsidiary of the Company, and pursuant to applicable Delaware
law are not entitled to vote nor be counted for quorum purposes.
Each holder of Common Stock is entitled to one vote per share, each holder
of Class A Common Stock is entitled to three votes per share and each holder
of Class B Common Stock is entitled to one-tenth of a vote per share. The
holders of Common Stock, Class A Common Stock and Class B Common Stock will
vote as a single body on all matters presented to the stockholders. The
presence at the Annual Meeting of a majority of the shares of Common Stock,
Class A Common Stock and Class B Common Stock (voting together), either in
person or by proxy, will constitute a quorum for the transaction of business
at the Annual Meeting.
A plurality of the votes cast at the Annual Meeting will be required for the
election of each candidate to the Board and a majority of the votes cast at
the Annual Meeting will be required for the approval of all other matters
submitted to the vote of the Company's stockholders.
With respect to Proposal Nos. 1 and 3, abstentions and broker non-votes will
be included in the determination of the number of shares present at the Annual
Meeting, but will not be counted for or against any of the proposals to be
voted upon. With respect to Proposal No. 2, pursuant to applicable New York
Stock Exchange rules, abstentions will be included, but broker non-votes will
not be included, in determining whether a quorum is present.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (and Class A Common Stock, assuming
conversion of all shares of Class A Common Stock into Common Stock) and Class
B Common Stock as of October 24, 2001 by (i) each person known by the Company
to be the beneficial owner of more than 5% of the outstanding shares of each
of Common Stock (and Class A Common Stock, on an as-converted basis) and Class
B Common Stock, (ii) each of the Company's directors and the Named Executive
Officers (as defined below), and (iii) all directors and executive officers of
the Company as a group. Unless otherwise noted in the footnotes to the table,
the persons named in the table have sole voting and investing power with
respect to all shares of Common Stock, Class A Common Stock or Class B Common
Stock indicated as being beneficially owned by them. Each holder of Common
Stock is entitled to one vote per share, each holder of Class A Common Stock
is entitled to three votes per share and each holder of Class B Common Stock
is entitled to one-tenth of a vote per share. The number of shares of Class B
Common Stock has been adjusted to reflect the stock dividend effected by the
Company on May 31, 2001 of one share of Class B Common Stock for every share
of Common Stock, Class A Common Stock and Class B Common Stock held of record
on May 14, 2001 (the "Class B Dividend").
Percentage of
Number of Percentage of Number of Ownership of
5% Stockholders and Named Shares of Ownership of Shares of Class B Class B
Executive Officers and Directors Common Stock Common Stock Common Stock Common Stock
- -------------------------------- ------------ ------------ ------------ ------------
Howard S. Jonas(1) ........................................... 9,816,988 29.7% 9,616,988 20.3%
520 Broad Street
Newark, New Jersey 07102
Liberty Media Group(2) ....................................... -- -- 7,539,214 16.0%
9197 South Peoria Street
Englewood, Colorado 80112
AT&T Corporation(3) .......................................... -- -- 4,081,634 8.6%
32 Avenue of the Americas
New York, New York 10013-2412
James A. Courter(4) .......................................... 792,500 2.4% 842,700 1.8%
Michael Fischberger(5) ....................................... 10,500 * 130,500 *
Stephen R. Brown(6) .......................................... 70,000 * 190,000 *
Moshe Kaganoff(7) ............................................ 10,500 * 92,500 *
Joyce J. Mason(8) ............................................ 102,970 * 153,170 *
Marc E. Knoller(9) ........................................... 95,000 * 145,200 *
Geoffrey Rochwarger(10) ...................................... 68,541 * 188,541 *
Morris Lichtenstein(11) ...................................... 18,000 * 268,000 *
Meyer A. Berman(12) .......................................... 74,760 * 94,760 *
J. Warren Blaker(13) ......................................... 37,000 * 57,000 *
Denis A. Bovin(14) ........................................... 140,500 * 160,500 *
Saul K. Fenster(15) .......................................... 10,500 * 30,500 *
William A. Owens(16) ......................................... 10,500 * 30,500 *
William F. Weld(17) .......................................... 10,000 * 30,000 *
Paul Reichmann(18) ........................................... -- -- 20,000 *
Michael J. Levitt(19) ........................................ -- -- 20,000 *
All directors and executive officers
as a group (20 persons) ..................................... 11,546,900 35.0% 12,508,000 26.5%
- ---------------
* Less than 1%.
2
(1) Includes an aggregate of 9,816,988 shares of Class A Common Stock and
9,616,988 shares of Class B Common Stock, consisting of (a) 5,073,620
shares of Class A Common Stock and 5,073,620 shares of Class B Common
Stock held by Mr. Jonas directly, (b) 19,570 shares of Class A Common
Stock and 19,570 shares of Class B Common Stock beneficially owned by The
Jonas Family Limited Partnership, (c) an aggregate of 1,703,088 shares of
Class A Common Stock and 1,703,088 shares of Class B Common Stock
beneficially owned by the eight separate Trusts under Article Four of the
Howard S. Jonas 1996 Annuity Trust Agreement for the benefit of each of:
Samuel Jonas, David Jonas, Michael Jonas, Leora Jonas,
Jonathan Jonas, Rachel Jonas, Joseph Jonas and Tamar Jonas in equal
amounts of 212,886 shares of Class A Common Stock and 212,886 shares of
Class B Common Stock, (d) 605,139 shares of Class A Common Stock and
605,139 shares of Class B Common Stock beneficially owned by the Howard S.
Jonas 1998 Annuity Trust, and (e) 2,415,571 shares of Class A Common Stock
and 2,215,571 shares of Class B Common Stock beneficially owned by the
Jonas Foundation. Mr. Jonas is the General Partner of The Jonas Family
Limited Partnership and the Trustee of the Howard S. Jonas 1998 Annuity
Trust and, together with Deborah Jonas, is a Trustee of each of The Jonas
Foundation and the eight separate trusts under Article Four of the Howard
S. Jonas 1996 Annuity Trust Agreement F/B/O Samuel Jonas, David Jonas,
Michael Jonas, Leora Jonas, Jonathan Jonas, Rachel Jonas, Joseph Jonas and
Tamar Jonas. By virtue of ownership of Class A Common Stock and Class B
Common Stock, Mr. Jonas controls approximately 58.9% of the combined
voting power of all outstanding shares of capital stock of the Company.
(2) Prior to the Class B Dividend, Liberty Media Group held 3,728,949 shares
of Common Stock. As a result of the Class B Dividend, Liberty Media Group
received one share of Class B Common Stock for each share of Common Stock
held by it, or an aggregate of 3,728,949 shares of Class B Common Stock.
In addition, pursuant to a Lock-Up, Registration Rights and Exchange
Agreement, dated June 6, 2000, between the Company and Liberty Media
Corporation, on October 11, 2001, the Company issued to Liberty IDTC, Inc.
3,810,265 shares of Class B Common Stock in exchange for 3,728,949 shares
of Common Stock. Pursuant to such agreement, the exchange rate was based
upon the relative average market prices for the Class B Common Stock and
the Common Stock during a specified 30 trading day period.
(3) In March 2001, AT&T acquired 2,040,817 shares of Class B Common Stock.
(4) Includes (a) 142,500 shares of Common Stock and 142,500 shares of Class B
Common Stock held by Mr. Courter directly, (b) 15,000 shares of Common
Stock and 15,000 shares of Class B Common Stock owned by Mr. Courter's
wife and (c) 635,000 shares of Common Stock and 685,200 shares of Class B
Common Stock issuable upon the exercise of stock options exercisable
within 60 days.
(5) Includes 10,500 shares of Common Stock as well as 130,500 shares of Class
B Common Stock issuable upon the exercise of stock options exercisable
within 60 days.
(6) Includes 10,000 shares of Common Stock and 10,000 shares of Class B Common
Stock held by Mr. Brown directly as well as 60,000 shares of Common Stock
and 180,000 shares of Class B Common Stock issuable upon the exercise of
stock options exercisable within 60 days.
(7) Includes 10,500 shares of Common Stock and 92,500 shares of Class B Common
Stock issuable upon the exercise of stock options exercisable within 60
days.
(8) Includes (a) 10,380 shares of Common Stock and 10,380 shares of Class B
Common Stock held by Ms. Mason directly, (b) an aggregate of 5,640 shares
of Common Stock and 5,640 shares of Class B Common Stock owned by Ms.
Mason's husband, son and daughter and (c) 86,950 shares of Common Stock
and 137,150 shares of Class B Common Stock issuable upon the exercise of
stock options exercisable within 60 days.
(9) Includes 95,000 shares of Common Stock and 145,200 shares of Class B
Common Stock issuable upon the exercise of stock options exercisable
within 60 days.
(10)Includes 41 shares of Common Stock and 41 shares of Class B Common Stock
as well as 68,500 shares of Common Stock and 188,500 shares of Class B
Common Stock issuable upon the exercise of stock options exercisable
within 60 days.
(11)Includes 18,000 shares of Common Stock and 268,000 shares of Class B
Common Stock issuable upon the exercise of stock options exercisable
within 60 days.
(12)Includes (a) 46,600 shares of Common Stock and 46,600 shares of Class B
Common Stock held by Mr. Berman directly, (b) 14,160 shares of Common
Stock and 14,160 shares of Class B Common Stock held by a limited
partnership of which Mr. Berman is a partner, (c) 4,000 shares of Common
Stock and 4,000 shares of Class B Common Stock held by Mr. Berman's wife
and (d) 10,000 shares of Common Stock and 30,000 shares of Class B Common
Stock issuable upon the exercise of stock options exercisable within 60
days.
(footnotes continued on next page)
3
(footnotes continued from previous page)
(13)Includes 37,000 shares of Common Stock and 57,000 shares of Class B Common
Stock issuable upon the exercise of stock options exercisable within 60
days.
(14)Includes 500 shares of Common Stock and 500 shares of Class B Common Stock
held by Mr. Bovin directly as well as 140,000 shares of Common Stock and
160,000 shares of Class B Common Stock issuable upon the exercise of stock
options exercisable within 60 days.
(15)Includes 500 shares of Common Stock and 500 shares of Class B Common Stock
owned by Mr. Fenster's wife as well as 10,000 shares of Common Stock and
30,000 shares of Class B Common Stock issuable upon the exercise of stock
options exercisable within 60 days.
(16)Includes 500 shares of Common Stock and 500 shares of Class B Common Stock
held by Admiral Owens directly as well as 10,000 shares of Common Stock and
30,000 shares of Class B Common Stock issuable upon the exercise of stock
options exercisable within 60 days.
(17)Includes 10,000 shares of Common Stock and 30,000 shares of Class B Common
Stock issuable upon the exercise of stock options exercisable within 60
days.
(18)Includes 20,000 shares of Class B Common Stock issuable upon the exercise
of stock options exercisable within 60 days.
(19)Includes 20,000 shares of Class B Common Stock issuable upon the exercise of
stock options exercisable within 60 days.
4
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Pursuant to the Company's Restated Certificate of Incorporation, the
authorized number of directors was set at twelve. In December 1999, the Board
approved an amendment to the Company's Restated Certificate of Incorporation
increasing the authorized number of directors to fifteen. In April 2000, the
Board approved an amendment to the Company's Restated Certificate of
Incorporation increasing the authorized number of directors to seventeen. In
March 2001, the Board of Directors elected Paul Reichmann as a Class II
director. In June 2001, a vacancy was created on the Board by the resignation
of Hal Brecher. In the same month, the Board of Directors elected Michael
Fischberger to fill such vacancy on the Board as a Class II director. In
September 2001, the Board of Directors elected Michael J. Levitt as a Class
III director. Each of Messrs. Reichmann, Fischberger and Levitt assumed office
at the time of his election. As a result of these actions, there are currently
sixteen directors on the Board.
Each director holds office until such director's successor has been duly
elected and qualified. The Company's Board is divided into three classes, with
Messrs. Blaker, Courter, Knoller, Brown and Weld constituting Class I, Messrs.
Berman, Kaganoff, Fischberger, Reichmann and Admiral Owens constituting Class
II and Ms. Mason and Messrs. Jonas, Rochwarger, Bovin, Fenster and Levitt
constituting Class III. Upon the expiration of the term of each class,
directors comprising such class of directors are eligible to be elected for a
three-year term at the next succeeding annual meeting of stockholders. The
terms of the Class III directors expire at the Annual Meeting and the terms of
the Class I and Class II directors expire at the annual meeting of the
stockholders to be held in 2002 and 2003, respectively.
As Mr. Bovin is not standing for re-election, a total of five Class III
directors are standing for re-election at the Annual Meeting to serve for a term
of three years until the 2004 Annual Meeting of Stockholders, or until their
successors are duly elected and qualified or until their earlier resignation or
removal. As provided by the By-Laws of the Company, a plurality of the votes
cast at the Annual Meeting shall elect each director.
Upon the election of five Class III directors at the Annual Meeting, there
will be two vacancies on the Company's Board. The enclosed proxy may not be
voted for a greater number of persons than five, which is the number of nominees
identified herein.
The nominees Howard S. Jonas, Geoffrey Rochwarger, Dr. Saul K. Fenster,
Michael J. Levitt and Joyce J. Mason are all incumbent directors and have
consented to be named in this proxy statement and to serve if elected. Certain
information about the nominees for Class III directors is furnished below.
Effective August 1, 2001, the Company was restructured (the "Restructuring")
so that its holdings were segregated along the lines of its principal
businesses-its telecom business and its ventures and investments. Following
the Restructuring, the Company has been comprised principally of the following
two wholly-owned subsidiaries: IDT Telecom, Inc. and IDT Ventures, Inc. While
the Restructuring did not result in any changes in the membership of the
Board, certain changes to the Company's management structure were implemented
as described below.
Howard S. Jonas founded IDT in August 1990 and has served as Chairman of the
Board and treasurer since its inception. Mr. Jonas served as Chief Executive
Officer of the Company from December 1991 until the Restructuring and as
President of the Company from December 1991 through September 1996. Since the
Restructuring, Mr. Jonas has also served as the Chairman of the Boards of
Directors of IDT Telecom, Inc. and IDT Ventures, Inc. Mr. Jonas is also the
founder and has been President of Jonas Publishing Corp. ("Jonas Publishing"),
a publisher of trade directories, since its inception in 1979. Mr. Jonas
became the Chairman of the Board of Directors of Net2Phone, Inc. in October
2001. Mr. Jonas received a B.A. in Economics from Harvard University.
5
Joyce J. Mason has served as our Senior Vice President since December 1998
and as General Counsel, Secretary and a director of the Company since its
inception and as a director of the Company's predecessor since its inception
to March 1996. Prior to joining the Company, Ms. Mason had been in private
legal practice. Ms. Mason became a director of Net2Phone, Inc. in October 2001.
Ms. Mason received a B.A. from the City University of New York and a J.D. from
New York Law School.
Geoffrey Rochwarger has served as our Executive Vice President of
Telecommunications since 1996 and has been a director of the Company since
July 1999. Prior to his current position, he served IDT as the President of
Genie, an online service company and a subsidiary of IDT, from 1995 until
1996. Since the Restructuring, Mr. Rochwarger has also served as the Chief
Operating Officer and a director of IDT Telecom, Inc. Prior to joining IDT,
Mr. Rochwarger was the Operations Manager at Galaxy Freight Service LTD. Mr.
Rochwarger holds a B.A. Degree in Economics from Yeshiva University.
Saul K. Fenster has served as a director of the Company since February 2000.
Dr. Fenster has been the President of New Jersey Institute of Technology since
September 1978. Dr. Fenster serves as a director for each of the following
Prudential Insurance Company funds: Prudential Mutual Fund Cluster 1 and 4,
Prudential VCA Funds, Prudential Gibraltar Fund and Prudential Series Funds.
Dr. Fenster received a B.M.E. from the City College of New York, an M.S. from
Columbia University and a Ph.D. from the University of Michigan.
Michael J. Levitt has served as a director of the Company since September
2001. Mr. Levitt is currently the Chairman of Ilios Capital, LLP. Prior to his
current position, Mr. Levitt was a partner with Hicks, Muse, Tate & Furst
Incorporated from 1996 until 2001. Mr. Levitt served as Managing Director and
Deputy Head of Investment Banking with Smith Barney, Inc. from 1993 through
1995. From 1986 through 1993, Mr. Levitt was a Managing Director with Morgan
Stanley & Co. Mr. Levitt received his undergraduate and Juris Doctor degrees
from the University of Michigan. He serves on the University of Michigan
Business School Corporate Advisory Board and on the University of Michigan
Investment Board.
The Board has no reason to believe that any of the persons named above will
be unable or unwilling to serve as a director, if elected.
THE BOARD RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEES NAMED ABOVE.
6
Directors and Executive Officers
The current directors and executive officers of the Company are as follows:
Name+ Age Position
- ----- --- --------
Howard S. Jonas .................. 45 Treasurer and Chairman of the Board
James A. Courter(1) .............. 60 Chief Executive Officer and Vice Chairman of the Board
Ira A. Greenstein ............... 41 President
Michael Fischberger .............. 32 Chief Operating Officer and Director
Stephen R. Brown ................. 45 Chief Financial Officer and Director
Joyce J. Mason.................... 42 Senior Vice President, General Counsel, Secretary and Director
Marc E. Knoller................... 40 Senior Vice President and Director
Moshe Kaganoff(4)................. 30 Executive Vice President of Strategic Planning and Director
Geoffrey Rochwarger .............. 31 Executive Vice President of Telecommunications and Director
Morris Lichtenstein............... 37 Executive Vice President of Business Development
Charles Garner ................... 38 Executive Vice President of New Ventures
Jonathan Levy .................... 30 Executive Vice President of Corporate Development
Meyer A. Berman(1)(2)(3).......... 67 Director
J. Warren Blaker(1)(2)(3)(4)...... 67 Director
Saul K. Fenster(2)(4)............. 68 Director
Admiral William Owens............. 61 Director
William F. Weld .................. 56 Director
Paul Reichmann ................... 71 Director
Michael J. Levitt................. 42 Director
- ---------------
+ Excludes Denis Bovin, a current director, who is not standing for
re-election.
(1) Member of the Treasury Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Compensation Committee of the Board of Directors.
(4) Member of the Technology Committee of the Board of Directors.
Set forth below is biographical information with respect to the Company's
directors and executive officers, other than the Company's Class III
directors:
James A. Courter joined the Company in October 1996 and served as President
of the Company from October 1996 until the Restructuring. Since the
Restructuring, Mr. Courter has served as the Chief Executive Officer of the
Company. Mr. Courter has also been a director of the Company since March 1996
and has been Vice Chairman of the Board of Directors of the Company since
March 1999. In addition, since the Restructuring, Mr. Courter has served as a
director of IDT Telecom, Inc. and as the treasurer and a director of IDT
Ventures, Inc. Mr. Courter has been a senior partner in the New Jersey law
firm of Courter, Kobert, Laufer & Cohen since 1972. He was also a partner in
the Washington, D.C. law firm of Verner, Liipfert, Bernhard, McPherson & Hand
from January 1994 to September 1996. Mr. Courter was a member of the U.S.
House of Representatives for 12 years, retiring in January 1991. From 1991 to
1994, Mr. Courter was Chairman of the President's Defense Base Closure and
Realignment Commission. Mr. Courter also serves as a director of Net2Phone,
Inc. and The Berkeley School. He received a B.A. from Colgate University and a
J.D. from Duke University Law School.
7
Ira A. Greenstein joined the Company in January 2000 and served as Counsel
to the Chairman until the Restructuring. Since the Restructuring, Mr.
Greenstein has served as the President of the Company. Prior to joining the
Company, Mr. Greenstein was a partner in the law firm of Morrison & Foerster
LLP from February 1997 to November 1999 where he served as the Chair of that
firm's New York Office Business Department. Concurrently, Mr. Greenstein
served as General Counsel and Secretary of Net2Phone from January 1999 to
November 1999. Prior to 1997, Mr. Greenstein was an associate in the New York
and Toronto offices of Skadden, Arps, Slate, Meagher & Flom LLP. Mr.
Greenstein also served on the Securities Advisory Committee to the Ontario
Securities Commission from 1992 to 1996. From 1991 to 1992, Mr. Greenstein
also served as counsel to the Ontario Securities Commission. Mr. Greenstein
serves on the Board of Overseers of Touro College. Mr. Greenstein received a
B.S. from Cornell University and a J.D. from Columbia University Law School.
Michael Fischberger has served as Chief Operating Officer and has been a
director of the Company since June 2001. Prior to his current position, Mr.
Fischberger served as the Executive Vice President of Operations for the
Company from January 2000 to June 2001. Mr. Fischberger also served as the
Company's Senior Vice President of Domestic Telecommunications and Internet
Services from 1993 to 2000. Since the Restructuring, Mr. Fischberger has also
served as Executive Vice President of Operations for IDT Telecom, Inc. Mr.
Fischberger is a director of Net2Phone, Inc.
Stephen R. Brown joined the Company as its Chief Financial Officer in May
1995 and has been a director of the Company since February 2000. From 1985 to
May 1995, Mr. Brown operated his own public accounting practice servicing
medium-sized corporations as well as high net worth individuals. Mr. Brown
became a director of Net2Phone, Inc. in October 2001. Mr. Brown received a
B.A. in Economics from Yeshiva University and a B.B.A. in Business and
Accounting from Baruch College.
Marc E. Knoller has been a director of the Company since March 1996 and
Senior Vice President since December 1998. Mr. Knoller joined the Company as a
Vice President in March 1991 and also served as a director of its predecessor
since such time. From 1988 until March 1991, Mr. Knoller was director of
national sales for Jonas Publishing. Mr. Knoller has served as Vice President
of Jonas Publishing from 1991 until the present. Mr. Knoller received a B.B.A.
from Baruch College.
Moshe Kaganoff has served as the Company's Executive Vice President of
Strategic Planning since January 2000 and has been a director of the Company
since March 1999. From April 1994 through July 1998, Mr. Kaganoff served as
our Manager of Operations. Since the Restructuring, Mr. Kaganoff has also
served as Executive Vice President of Strategic Planning for each of IDT
Telecom, Inc. and IDT Ventures, Inc. Mr. Kaganoff holds a B.A. in Economics
from Yeshiva University.
Morris Lichtenstein has served as the Executive Vice President of Business
Development since January 2000. From January 1999 to December 1999, Mr.
Lichtenstein served as Controller for the Company. Since the Restructuring,
Mr. Lichtenstein has also served as the Vice Chairman of the Board of
Directors and Chief Executive Officer of IDT Telecom, Inc. During the period
from 1988 to 1998, Mr. Lichtenstein served as the Controller of Mademoiselle
Knitwear, Inc. Mr. Lichtenstein received his B.A. from Touro College.
Charles Garner has served as the Executive Vice President of New Ventures
since December 2000. From joining the Company in February 2000 until December
2000, Mr. Garner served as Senior Vice President of Business Development.
Since the Restructuring, Mr. Garner has also served as the Chief Executive
Officer of IDT Ventures, Inc. Mr. Garner was also President of IDT's
subsidiary, Brix Communications, from February 2000 until May 2000. Prior to
joining IDT, Mr. Garner was a partner in the law firm of Simpson Thacher &
Bartlett from 1996 through 1999 and an associate of Simpson Thacher & Bartlett
from 1987. Mr. Garner received his B.A. from the University of Pennsylvania in
1984 and his law degree from New York University Law School in 1987.
8
Jonathan Levy has served as Executive Vice President of Corporate
Development since November 2000. Mr. Levy also served as the Director of IDT's
Fiber division from June 1998 through November 2000. From October 1995 through
June 1998, Mr. Levy served as Senior Vice President of Telecom for IDT. Since
the Restructuring, Mr. Levy has also served as the President of Carrier
Services and a director of IDT Telecom, Inc. Prior to joining IDT, Mr. Levy
was Operations Manager for B&H Photo, Inc. Mr. Levy holds a B.A. Degree in
Finance from Touro College.
Meyer A. Berman has been a director of the Company since March 1996. Mr.
Berman founded M.A. Berman Co. in 1981, a broker-dealer that services high net
worth individuals and institutions, and has served as its President from its
inception. Prior to such time, Mr. Berman held various positions in the stock
brokerage business. Mr. Berman is Chairman of the Board of Directors of
BioSterile Technology, Inc., a leading company using Russian scientific
technology. Mr. Berman has a B.A. degree from the University of Connecticut
and has done graduate work at the University of Illinois and at City College
of New York.
J. Warren Blaker has been a director of the Company since March 1996. Dr.
Blaker has been Professor of Physics and Director of the Center for Lightwave
Science and Technology at Fairleigh Dickinson University since 1987. Prior to
such time he worked in various capacities in the optics industry, including
serving as Chief Executive Officer of University Optical Products, Inc., a
wholly-owned subsidiary of University Patents, Inc., from 1982 to 1985. Dr.
Blaker received a B.S. from Wilkes University and a Ph.D. from the Massachusetts
Institute of Technology.
Admiral William Owens has served as a director of the Company since March
2000. Admiral Owens has served as Vice Chairman of the Board and Co-Chief
Executive Officer of Teledesic LLC since August 1998. Prior to his current
position, Admiral Owens was the President, Chief Operating Officer and Vice
Chairman of the Board of Directors of Science Applications International
Corporation from June 1996 to August 1998. In addition, Admiral Owens served
as the Vice Chairman of the Joint Chiefs of Staff from 1994 to 1996. Admiral
Owens received his B.S. from the United States Naval Academy, a B.A. and M.A.
from Oxford University and an M.B.A. from George Washington University.
Admiral Owens also serves as a director of Symantec, Polycom, Microvision,
ViaSat and Biolase.
William F. Weld has served as a director of the Company since February 2000.
Mr. Weld has been a principal at Leeds Weld & Co., a private equity investment
firm, since January 2001. From 1997 to January 2001, Mr. Weld was a partner in
the law firm of McDermott, Will & Emery and has served as Of Counsel to such
firm since such date. From 1991 to 1997, Mr. Weld served as Governor of
Massachusetts. Prior to becoming Governor, Mr. Weld served as Assistant U.S.
Attorney General in charge of the Criminal Division of the United States
Department of Justice in Washington, D.C. from 1986 to 1988. Mr. Weld also
served as the United States Attorney for Massachusetts from 1981 to 1986. Mr.
Weld also serves as a director of Affiliated Managers Group and Edison
Schools, Inc. Mr. Weld received his B.A. from Harvard University, a diploma in
international economics from Oxford University and his J.D. from Harvard Law
School.
Paul Reichmann has been a director of the Company since March 2001. Mr.
Reichmann has been involved in commercial real estate development for the last
40 years, originating many major commercial development projects and managing
their construction, leasing and financing. Mr. Reichmann is the Executive
Chairman of Canary Wharf Group plc, a publicly listed company on the London
Stock Exchange, Chief Executive of the Reichmann Group of Companies which
includes Reichmann International Development Corporation and International
Property Corporation. Mr. Reichmann is also a Trustee of CPL Long Term Care
Real Estate Investment Trust and Retirement Residences Real Estate Investment
Trust.
9
Relationships among Directors or Executive Officers
Mr. Howard S. Jonas and Ms. Joyce J. Mason are brother and sister. There are
no other family relationships among any of the directors or executive officers
of the Company.
Certain Relationships and Related Transactions
The Company currently leases one of its facilities in Hackensack, New Jersey
from a corporation which is wholly-owned by Howard S. Jonas. Aggregate lease
payments under such lease were $29,000 for Fiscal 2001, $24,000 for Fiscal
2000, $26,000 for Fiscal 1999 and $24,000 for each of Fiscal 1998, 1997, 1996
and 1995.
In Fiscal 2001, the Company extended loans bearing interest at a rate of 6%
per annum in the original principal amounts of $2,350,000, $1,000,000 and
$275,000 to Morris Lichtenstein, the Company's Executive Vice President of
Business Development, Stephen Brown, the Company's Chief Financial Officer,
and Jonathan Levy, the Company's Executive Vice President of Corporate
Development, respectively. The entire amounts of these loans are currently
outstanding. Mr. Lichtenstein's loan will mature on December 31, 2004 with
respect to $225,000, and the balance of such loan is payable on demand. The
entirety of each of Messrs. Brown's and Levy's loans is payable on demand.
In Fiscal 2001, the Company also extended loans to several other executive
officers of the Company and its principal subsidiaries, each of which bears
interest at a rate of 8% per annum. Marc Knoller, the Company's Senior Vice
President, obtained a loan in the principal amount of $346,441; the entirety
of his loan, which is currently outstanding, is due on demand. Michael
Fischberger, the Company's Chief Operating Officer, obtained a loan in the
principal amount of $300,000. Mr. Fischberger's loan is currently outstanding
and is due on December 31, 2004. During Fiscal 2001, each of the following
four executive officers of the Company also procured a loan from the Company
in the principal amount of $150,000 that bears interest at the rate of 8% per
annum: Geoffrey Rochwarger, the Executive Vice President of Telecommunications
of the Company; Charles Garner, the Company's Executive Vice President of New
Ventures; Moshe Kaganoff, the Company's Executive Vice President of Strategic
Planning; and Jonathan Levy, the Company's Executive Vice President of Corporate
Development. The entire amount of each of these loans is currently outstanding
and is due on December 31, 2004.
In addition, the Company made two loans to Hal Brecher, the former Chief
Operating Officer of the Company, in the principal amounts of $3,000,000 and
$150,000 during Fiscal 2001. The $150,000 loan bears interest at a rate of 8%
per annum. Pursuant to a separation agreement between the Company and Mr.
Brecher, the interest rate on the $3,000,000 loan was reduced to 5 3/4%, and
the Company agreed, upon the occurrence of certain events (which have not yet
occurred), to forgive both loans. See "Employment and Severance Agreements"
below.
In Fiscal 2000, the Company extended a loan bearing interest at a rate of 6%
per annum to Morris Lichtenstein, the Company's Executive Vice President of
Business Development, in the principal amount of $300,000. The entire amount
is still outstanding.
In Fiscal 1999, the Company extended loans bearing interest at a rate of 6%
per annum to Hal Brecher, the Company's former Chief Operating Officer, and
Geoffrey Rochwarger, the Company's Executive Vice President of
Telecommunications, in the principal amounts of $300,000 and $100,000,
respectively, in connection with each respective officer's relocation to a new
home. During the fiscal year ended July 31, 2001, the entire amount of Mr.
Rochwarger's loan was repaid. In addition, in connection with Mr. Brecher's
separation from the Company (see "Employment and Separation Agreements"
below), the Company agreed, upon the occurrence of certain events (which have
not yet occurred), to forgive $100,000 of such loan. Accordingly, the entire
amount of Mr. Brecher's loan is currently outstanding.
In connection with the Initial Public Offering of Net2Phone, Inc., in July
1999, each of Stephen Brown, Moshe Kaganoff, Geoffrey Rochwarger, Michael
Fischberger and David Barth, borrowed $117,600 from the Company. All of the
proceeds of these loans were used to purchase shares of Net2Phone common stock
upon the exercise of stock options. As a condition to receiving these loans,
these officers agreed to surrender 240 immediately exercisable Net2Phone, Inc.
options. The loans bear interest at the rate of 7.0% per annum and were
amended during the fiscal year ended July 31, 2001 to be payable on demand.
10
James Courter, the Chief Executive Officer and a director of the Company, is
a partner in the law firm of Courter, Kobert, Laufer & Cohen, P.C., which has
served as counsel to the Company since July 1996. Fees paid to the firm by the
Company were less than 5% of the firm's gross revenues for each fiscal year in
which the firm represented the Company.
William F. Weld, a director of the Company, is Of Counsel to the law firm of
McDermott, Will & Emery, which has served as counsel to the Company since
November 1999. Fees paid to the firm by the Company were less than 5% of the
firm's gross revenues for each fiscal year in which the firm represented the
Company.
The Company obtained various insurance policies during Fiscal 2001 which
were placed through a company affiliated with Jonathan Mason, the husband of
Joyce Mason, the Senior Vice President, General Counsel, Secretary and a
director of the Company (and the brother-in-law of Howard Jonas, the Chairman
of the Board). The aggregate premiums paid by the Company with respect to such
policies (for which Mr. Mason obtains a brokerage commission) was
approximately $3,100,000 during Fiscal 2001.
In April 2001, in connection with the Company's investment in Teligent,
Inc., Howard S. Jonas and Morris Lichtenstein were elected to the Board of
Directors of Teligent, Inc. Subsequently, in April 2001, Howard S. Jonas was
appointed as the Chairman of the Board of Directors of Teligent, Inc. In May
2001, Teligent, Inc. filed for bankruptcy in the United States Bankruptcy
Court for the Southern District of New York. Also in May 2001, Howard S. Jonas
resigned his position as a director and as Chairman of the Board of Directors
of Teligent, Inc. In June 2001, Michael Fischberger was elected to the Board
of Directors of Teligent, Inc. and Morris Lichtenstein was appointed as the
Chairman of the Board of Directors of Teligent, Inc. In July 2001, Morris
Lichtenstein and Michael Fischberger each resigned from the Board of Directors
of Teligent, Inc.
Committees of the Board of Directors
The Board of Directors has established a Compensation Committee, an Audit
Committee, a Treasury Committee and a Technology Committee.
The Compensation Committee is responsible for reviewing and approving all
compensation arrangements for the officers of the Company and is responsible
for administration of the Company's 1996 Stock Option and Incentive Plan, as
Amended and Restated. The Compensation Committee held four meetings during the
last fiscal year. The Compensation Committee currently consists of Messrs.
Berman and Blaker.
The Audit Committee is responsible for recommending the independent auditors
of the Company and reviewing with the independent auditors (i) the scope and
results of the audits and the internal accounting controls of the Company,
(ii) the audit practices and professional services furnished by the
independent auditors and (iii) reporting to the Board of Directors with
respect to any and all of the above. The management of the Company has the
primary responsibility for the Company's financial statements and reporting
process including the systems of internal controls. The Audit Committee
operates under a written Audit Committee charter adopted by the Board of
Directors, a copy of which is attached hereto as Exhibit B. The Audit
Committee held three meetings during the last fiscal year. From August 2000
until October 2000, the Audit Committee consisted of Messrs. Berman and
Blaker, and since October 2000, the Audit Committee has consisted of Messrs.
Berman, Blaker and Fenster. The Board of Directors has determined that all of
the members of the Audit Committee are "independent" as defined by the rules
of the New York Stock Exchange.
In September 2000, the Board of Directors established a Treasury Committee
consisting of Messrs. Berman, Blaker and Courter. The Treasury Committee is
responsible for reviewing the Company's investment policies and corporate
compliance. The Treasury Committee held one meeting during the last fiscal
year.
11
In September 2000, the Board of Directors also established a Technology
Committee consisting of Messrs. Blaker, Fenster and Kaganoff. The Technology
Committee is responsible for reviewing, analyzing and reporting to the Board
of Directors on (i) present and future technology-related projects, (ii) the
state of the Company's present technology infrastructure and its existing and
planned research and development efforts, (iii) future means of maximizing the
Company's technological advances in the marketplace, and (iv) further means of
maximizing the Company's strategic investment in intellectual property for
competitive advances. The Technology Committee held two meetings during the
last fiscal year.
During the fiscal year ended July 31, 2001, there were twelve meetings of
the Board of Directors. During this period, each of the Company's directors
attended or participated in 75% or more of the aggregate of (i) the total
number of meetings of the Board of Directors (held during the period for which
each such director has been a director) and (ii) the total number of meetings
held by all committees of the Board of Directors on which each such director
served (during the periods that such director served) except for Paul
Reichmann and William F. Weld.
Compensation of Directors and Executive Officers
Compensation of Directors
Each non-employee director initially elected to the Board prior to March 15,
1996 (the date of the Company's initial public offering) received as of March
15, 1996 options to purchase 10,000 shares of Common Stock, and each non-
employee director initially elected to the Board after such date but before May
31, 2001 received options to purchase 10,000 shares of Common Stock or Class B
Common Stock upon his or her election (other than Mr. Bovin who received an
option to purchase 70,000 shares of Common Stock upon his initial election to
the Board during Fiscal 1998 and who subsequently received an option to purchase
50,000 shares of Common Stock). Each non-employee director of the Company and
its majority-owned subsidiaries initially elected to the Board or the board of
directors of such subsidiary after May 31, 2001 received options to purchase
20,000 shares of Class B Common Stock upon his or her election (or, in the case
of certain non-employee directors of majority-owned subsidiaries of the Company,
as of October 22, 2001). Accordingly, Mr. Levitt received options to purchase
20,000 shares of Class B Common Stock upon his initial election to the Board on
September 24, 2001. Each of Mr. Levitt's options has an exercise price per share
equal to the fair market value of a share of Class B Common Stock as of the date
of Mr. Levitt's initial election to the Board and is immediately exercisable. In
addition, each continuing non-employee director of the Company and any of its
majority-owned subsidiaries will annually receive separate and additional grants
of options to purchase 20,000 shares of Class B Common Stock for being a
non-employee director of the Company and each such subsidiary.
12
Executive Compensation
The following table sets forth certain information for the Company's last
three completed fiscal years concerning the compensation of the Company's
Chief Executive Officer and the Company's four most highly compensated
executive officers, other than the Chief Executive Officer, who were serving
as executive officers as of July 31, 2001 (collectively, the "Named Executive
Officers"). Except as described below, the Company does not have any executive
long-term compensation or incentive plans.
Summary Compensation Table
Annual Long-Term
Compensation Compensation
---------------------------------------- -------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#)(1) Compensation($)
- --------------------------- ---- --------- -------- --------------- ------------- ---------------
Howard S. Jonas ............................. 2001 212,127 -- -- -- --
Chairman of the Board, Chief 2000 201,868 -- -- -- --
Executive Officer, and Treasurer(2) 1999 200,818 -- -- -- --
James A. Courter ............................ 2001 211,263 862,500 -- 200,000 --
Vice Chairman of the 2000 200,000 -- -- 100,000 --
Board and President(2) 1999 200,000 -- -- 600,000 --
Michael Fischberger ......................... 2001 211,804 862,500 -- 100,000 --
Chief Operating Officer 2000 202,493 -- -- 250,000 --
and Director(2) 1999 138,173 -- -- 50,000 --
Geoffrey Rochwarger ......................... 2001 211,578 1,262,500 -- 100,000 --
Executive Vice President 2000 202,370 -- -- 240,000 --
of Telecommunications 1999 149,704 50,000 -- 100,000 --
and Director(2)
Stephen R. Brown ............................ 2001 211,263 862,500 -- 100,000 --
Chief Financial Officer 2000 202,353 50,000 -- 240,000 --
and Director 1999 160,907 -- -- 50,000 --
- ---------------
(1) All of such options granted during the fiscal year ended July 31, 1999
were initially exercisable for shares of Common Stock and all of such
options granted during the fiscal years ended July 31, 2000 and 2001 were
exercisable for shares of Class B Common Stock (except with respect to an
option initially exercisable for 5,000 shares of Common Stock granted to
Mr. Fischberger during the fiscal year ended July 31, 2000). The number of
"Securities Underlying Options" has been adjusted to reflect the Class B
Dividend. As a result of the Class B Dividend, any options exercisable for
shares of Common Stock or Class B Common Stock that were granted prior to
(but not yet exercised as of) May 31, 2001 entitle the holders thereof to
receive (in addition to the issuance of shares of Common Stock or Class B
Common Stock, as applicable, called for by such options) one additional
share of Class B Common Stock for each share of Common Stock or Class B
Common Stock, as applicable, issuable in connection with such options. The
foregoing table does not reflect any option exercises prior to or after
May 31, 2001.
(2) As discussed above, effective as of the Restructuring, certain changes to
the Company's management structure were implemented.
13
Stock Options Granted in Last Fiscal Year
Percent of Rates of Stock
Number of Total Options Price Appreciation
Shares Granted to For Option Term
Underlying Employees in Exercise Date of ---------------
Name Options(#)(1)(2) Fiscal Year(%)(1)(2) Price($)(1)(3) Expiration 5%($) 10%($)
- ---- ---------------- -------------------- -------------- ---------- ----- ------
Howard S. Jonas ................ -- -- -- -- -- --
James A. Courter(4) ............ 200,000 4.3% 8.8515 04/04/11 1,332,680 3,057,060
Michael Fischberger(5) ......... 100,000 2.2% 8.8515 04/04/11 666,340 1,528,530
Geoffrey Rochwarger(6) ......... 100,000 2.2% 8.8515 04/04/11 666,340 1,528,530
Stephen R. Brown(7) ............ 100,000 2.2% 8.8515 04/04/11 666,340 1,528,530
- ---------------
(1) The number of shares of Class B Common Stock and all exercise prices have
been adjusted to reflect the Class B Dividend.
(2) All of such options are exercisable for shares of Class B Common Stock.
Options to purchase 4,630,000 shares of Class B Common Stock were granted
to employees in Fiscal 2001. No options to purchase shares of Common Stock
were granted to employees in Fiscal 2001. Each option is transferable by
the applicable grantee as a gift to such grantee's family members without
the prior approval of the Compensation Committee of the Board; provided
that written evidence of such transfer is provided to the Committee and
such grantee receives no consideration for such transfer.
(3) Represents the fair market value of the underlying shares of Class B
Common Stock on the date of grant.
(4) Of Mr. Courter's options, 70,000 options will become exercisable on April
1, 2003, 70,000 options will become exercisable on April 1, 2004 and the
remaining 60,000 options will become exercisable on April 1, 2005.
(5) Of Mr. Fischberger's options, 34,000 options will become exercisable on
April 1, 2003, 34,000 options will become exercisable on April 1, 2004 and
the remaining 32,000 options will become exercisable on April 1, 2005.
(6) Of Mr. Rochwarger's options, 34,000 options will become exercisable on
April 1, 2003, 34,000 options will become exercisable on April 1, 2004 and
the remaining 32,000 options will become exercisable on April 1, 2005.
(7) Of Mr. Brown's options, 34,000 options will become exercisable on April 1,
2003, 34,000 options will become exercisable on April 1, 2004 and the
remaining 32,000 options will become exercisable on April 1, 2005.
14
Option Exercises in Last Fiscal Year and Fiscal Year-End Values
The following table provides certain information concerning the number of
shares of Common Stock and Class B Common Stock underlying unexercised stock
options held by each of the Named Executive Officers, and the value of such
stock options at July 31, 2001. Stock options exercisable for 43,000 shares of
Common Stock and 43,000 shares of Class B Common Stock were exercised by the
Named Executive Officers during Fiscal 2001.
Number of Securities
Number of Securities Underlying Unexercised
Underlying Unexercised Class B Common Stock Value of Unexercised
Shares Common Stock Options at Options at In-the-Money Options at
Acquired Fiscal Year-End(#) Fiscal Year-End(#) Fiscal Year-End($)(1)
on Value --------------------------- --------------------------- ---------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- ------------- ----------- -------------
Howard
S. Jonas.... 0 0 0 0 0 0 0 0
James A.
Courter..... 0 0 510,000 125,000 543,600 391,400 7,974,528 2,480,755
Michael
Fischberger. 26,000 104,000 2,500 8,000 82,500 268,000 133,450 639,810
Geoffrey
Rochwarger.. 60,000 550,477 60,500 17,000 140,500 277,000 850,985 742,365
Stephen
R. Brown.... 0 0 52,000 8,000 132,000 268,000 868,190 639,810
- ---------------
(1) The closing price of the Common Stock on July 31, 2001, as reported by the
New York Stock Exchange, was $12.04 per share. The closing price of the
Class B Common Stock on July 31, 2001, as reported by the New York Stock
Exchange, was $11.98 per share.
15
Employment and Separation Agreements
The Company has entered into employment agreements with Messrs. Jonas and
Courter. Mr. Jonas's employment agreement, dated as of April 1, 1999, provides
for a minimum base salary of $200,000, which may be increased, but not
decreased, during the term of the agreement. The Company may terminate Mr.
Jonas's employment only for cause (as defined in the agreement). If the
agreement is terminated without cause, the Company is obligated to pay to Mr.
Jonas an amount equal to twice his base salary as then in effect. The
agreement has a three year term, but is automatically extendable for
additional one year periods unless the Board of Directors or Mr. Jonas
notifies the other, within ninety days of the anniversary of such period, that
the agreement will not be extended. Pursuant to the agreement, Mr. Jonas has
agreed not to compete with the Company for a period of one year following the
termination of the agreement.
During the fiscal year ended July 31 2001, Mr. Courter was employed as the
President of the Company pursuant to an employment agreement, dated as of
April 1, 1999. Mr. Courter is currently employed as the Chief Executive
Officer of the Company pursuant to an amendment to the employment agreement,
dated as of August 1, 2001. Such employment agreement was further amended as
of October 2001, to provide for a minimum base salary of $250,000, which may
be increased, but not decreased, during the term of the agreement. The Company
may terminate Mr. Courter's employment only for "cause" (as defined in the
agreement). In the event of termination without "cause" or in the event Mr.
Courter terminates his employment for "good reason" (as defined in the
employment agreement), any and all unvested options shall automatically vest
and Mr. Courter shall be permitted to exercise any and all options which are
outstanding as of the date of his termination within two (2) years from such
date. If the agreement is terminated without "cause," the Company is obligated
to pay to Mr. Courter all due and unpaid amounts to which Mr. Courter was then
entitled and Mr. Courter's minimum base salary for the remainder of the
employment term but in no event less than twelve months. The amended agreement
has a five year term commencing from October 2001, and is automatically
extendable for additional one-year periods unless the Board of Directors or
Mr. Courter notifies the other, within ninety days of the anniversary of such
period, that the agreement will not be extended. Pursuant to the agreement,
Mr. Courter has agreed not to compete with the Company for a period of one
year following the termination of the agreement. In addition, Mr. Courter was
granted options to purchase 300,000 shares of Class B Common Stock which vest
over a three-year period under the original terms of the agreement and,
pursuant to the October 2001 amendment, was granted options to purchase an
additional 1,000,000 shares of Class B Common Stock which will vest over a
five-year period.
In June 2001, Hal Brecher resigned as Chief Operating Officer and a director
of the Company. In connection with such resignation, Mr. Brecher entered into
an agreement with the Company, pursuant to which the Company agreed to forgive
outstanding loans to Mr. Brecher in an aggregate amount of $3,250,000, subject
to and upon the exercise by Mr. Brecher of certain stock options held by him,
and the payment by Mr. Brecher of all applicable taxes relating to the
forgiveness of such loans. Such payments have not been made, and accordingly,
such loans remain outstanding as of October 26, 2001. In connection with such
separation agreement, the Compensation Committee accelerated the vesting of
certain of Mr. Brecher's outstanding options exercisable for shares of Common
Stock and Class B Common Stock and also extended the post-termination exercise
period of such options. In the event that the net proceeds from sales of the
shares underlying such options amounts to less than $3,000,000, the Company
has agreed to make a cash payment to Mr. Brecher in an amount equal to the
difference between the proceeds of such sales and $3,000,000, up to a maximum
amount of $1,000,000.
Employee Stock Option Program
The Company previously maintained an informal stock option program whereby
selected key employees were granted options to purchase shares of Common
Stock. The primary purpose of this program was to provide long-term incentives
to the Company's key employees and to further align their interests with those
of the Company. Options granted under such program have a term of ten years
and are subject to all other reasonable terms and conditions as the Company
deems necessary and appropriate. The selection of the participants and the
determination of the number of options to be granted to each participant were
made by the Compensation Committee of the Board. Under such program, options
to purchase an aggregate of 299,566 shares of Common Stock and 299,566 shares
of Class B Common Stock were outstanding as of October 26, 2001. The Company
does not anticipate that any additional options will be granted under this
program. In addition to this program, the
16
Company also has adopted the 1996 Stock Option and Incentive Plan, as Amended
and Restated, which is described further in Proposal No. 2 below.
The IDT Charitable Foundation
The IDT Charitable Foundation (the "Foundation") was established on May 8,
2001 with the purpose of obtaining money or property to be contributed from
time to time to eligible charitable organizations. The Foundation was
initially funded by a cash contribution of $100,000 from the Company on July
31, 2001. In addition, on July 31, 2001, the Company lent $4,900,000 to the
Foundation under a promissory note. This loan is non-interest bearing, has a
five-year term, and is pre-payable at any time in the discretion of the
Foundation. In July 2001, the Company contributed 2,200,000 shares of Class B
Common Stock to the Foundation. We expect that over time the loan will be
repaid with proceeds from the sale by the Foundation of the contributed shares
of Class B Common Stock.
In addition to making charitable contributions from time to time to eligible
organizations, the Foundation administers a matching gifts program available
to our directors, officers, employees and retirees. Under the program, the
Foundation will match a participant's gifts to eligible organizations,
including educational institutions, educational associations, educational
funds, cultural institutions, social service community organizations, hospital
organizations and environmental organizations. The Foundation provides the
gifts directly to the institution.
Compensation Committee Interlocks and Insider Participation
During Fiscal 2001, the Compensation Committee was comprised of Messrs.
Berman and Blaker. None of the members of the Compensation Committee were
employees of the Company during such period.
Report of the Compensation Committee of the Board of Directors
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended (the "Act"), or
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
might incorporate future filings, including this Proxy Statement, in whole or
in part, the following report and the Performance Graph set forth below shall
not be incorporated by reference into any such filings, nor shall they be
deemed to be soliciting material or deemed filed with the Securities and
Exchange Commission under the Act or under the Exchange Act.
The Compensation Committee determines the compensation levels of the various
officers of the Company with a view to attract, retain, motivate and reward
key employees who possess exceptional leadership and management skills through
a competitive base salary, bonus payments (when appropriate), long-term
incentives such as awards of stock options, and various other benefits.
The policies of the Compensation Committee are intended to combine
competitive levels of compensation with rewards for commendable performance,
and to align each officer's relative compensation with the Company's
achievement of key business objectives, optimal satisfaction of customers and
maximization of stockholder value. The Compensation Committee believes that
stock ownership by management is beneficial in aligning the interests of the
Company's management with the interests of the Company's stockholders.
Base Salaries. Salaries for the Company's executive officers are determined
primarily on the basis of each executive officer's responsibility, the general
salary practices of companies with which the Company competes and each
officer's individual qualifications and experience. The base salaries are
reviewed by the Compensation Committee in accordance with a variety of
criteria, including individual performance, the functions charged to each
officer, the scope of the officer's duties, trends in the compensation peer
group in which the Company competes for executive talent, and the Company's
financial performance generally. The weight given such factors by the
Compensation Committee may vary with respect to each of the Company's
officers, and from year to year, as the Compensation Committee may deem
necessary.
Stock Option Grants. Stock options are currently granted to executive
officers and other employees under the Company's 1996 Stock Option and
Incentive Plan, as Amended and Restated. In the past, stock options were
granted under the Company's employee stock option program. The Compensation
Committee believes that the
17
appreciation of stock value underlying stock options provides a strong
incentive for recipients of awards to manage the Company in accordance with
the interests of the Company's stockholders. Stock option grants and awards
are given in order to focus the grantee's attention on the long-term
performance of the Company, as well as to provide an incentive for the grantee
to maintain a long-term relationship with the Company. The number of options
or awards granted and other option terms, such as vesting, are determined by
the Compensation Committee based on the grantee's level of responsibility,
prior performance, and other compensation. Neither the 1996 Stock Option and
Incentive Plan nor the Employee Stock Option Program provides for specific
quantitative criteria for weighing these factors. Rather, a decision to grant
an option or award is primarily based upon an evaluation of the past as well
as the future anticipated performance and responsibilities of the grantee.
401(k) Plan. The Company established a plan in September 1996, pursuant to
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "401(k)
Plan"), for the benefit of employees. The Company's executive officers are
permitted to participate on the same basis as other employees of the Company.
Chief Executive Officer Compensation. The Company has entered into an
employment agreement with Mr. Howard S. Jonas, dated as of April 1, 1999,
providing for a minimum annual base salary of $200,000 which may be increased,
but not decreased, during the term of the agreement. Mr. Jonas's compensation
for Fiscal 2001 was $212,127. Mr. Jonas's base salary was established in part
by comparing the base salaries of chief executive officers at other companies
of similar size. Mr. Jonas's compensation is also based on his position and
responsibilities, his past and expected contribution to the Company's future
success and on the financial performance of the Company. Mr. Jonas did not
receive a bonus or any grants or awards of stock options in Fiscal 2001. As
discussed above, effective as of the Restructuring, Mr. Courter replaced Mr.
Jonas as the Chief Executive Officer of the Company.
THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Meyer A. Berman
J. Warren Blaker
18
Report of the Audit Committee of the Board of Directors
We have received and discussed with management the Company's audited
financial statements as of and for the year ended July 31, 2001.
We have discussed with Ernst & Young LLP the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants. Also, we have received and reviewed
the written disclosures and the letter from Ernst & Young LLP required by
Independence Standard No. 1 (Independence Discussions with Audit Committees),
as amended, by the Independence Standards Board, and have discussed with the
auditors the auditors' independence.
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10-K for the year ended July 31, 2001.
We have also considered whether the provision of services by Ernst & Young
LLP not related to the audit of the financial statements referred to above and
to the reviews of the interim financial statements included in the Company's
Forms 10-Q for the quarters ended October 31, 2000, January 31, 2001 and April
30, 2001 is compatible with maintaining Ernst & Young LLP's independence.
THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
Meyer A. Berman
J. Warren Blaker
Saul K. Fenster
The foregoing Report of the Audit Committee shall not be deemed to be
incorporated by reference in any previous or future documents filed by the
Company with the Securities and Exchange Commission under the Act or the
Exchange Act, except to the extent that the Company specifically incorporates
the Report by reference in any such document.
19
Performance Graph of Stock
The following chart sets forth the cumulative total stockholder return
(assuming reinvestment of dividends, if any) on the Common Stock from July 31,
1996 through July 31, 2001, as well as the cumulative total return on (i) the
Nasdaq National Market Composite Index, (ii) Standard & Poor's SmallCap 600
Index and (iii) the Nasdaq Telecommunications Index during such five-year
period. The chart also sets forth the cumulative total stockholder return
(assuming reinvestment of dividends, if any) on the Class B Common Stock from
June 1, 2001 (the first date on which the Class B Common Stock was publicly
traded) through July 31, 2001. The stock price performance of the graph below
is not necessarily indicative of future performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG IDT CORPORATION COMMON STOCK AND CLASS B COMMON
STOCK, THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE S&P SMALLCAP 600 INDEX AND THE NASDAQ
TELECOMMUNICATIONS INDEX
[LINE GRAPH]
Cumulative Total Return
---------------------------------------------------------------------------------
3/15/96 7/96 7/97 7/98 7/99 7/00
IDT CORPORATION 100.00 106.98 77.91 225.58 183.72 334.31
NASDAQ STOCK MARKET (U.S.) 100.00 98.85 145.86 171.65 245.32 349.26
S & P SMALLCAP 600 100.00 100.07 138.99 150.16 157.44 177.23
NASDAQ TELECOMMUNICATIONS 100.00 99.47 132.71 219.84 337.93 344.19
* $100 INVESTED ON 7/31/96 IN STOCK OR INDEX (EXCEPT, WITH RESPECT TO CLASS B
COMMON STOCK AS NOTED ABOVE) INCLUDING REINVESTMETN OF DIVIDENDS. FISCAL YEAR
ENDING JULY 31.
20
PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
1996 STOCK OPTION AND INCENTIVE PLAN,
AS AMENDED AND RESTATED
The Company's stockholders are being asked to approve an amendment to the
Company's 1996 Stock Option and Incentive Plan, as amended and restated (the
"Plan"), that will increase the number of shares of Class B Common Stock
available for award grants thereunder by 3,000,000 shares. The Board of
Directors adopted the proposed amendment on or about October 22, 2001, subject
to stockholder approval at the Annual Meeting.
The Board of Directors believes that the proposed amendment is necessary in
order to provide the Company with a sufficient reserve of shares of Class B
Common Stock for future award grants needed to attract and retain the services
of key employees, directors and consultants of the Company essential to the
Company's long-term success.
The proposed amendment is being submitted for a stockholder vote in order to
enable the Company to grant options which are incentive stock options ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and because such approval may be required or advisable
in connection with (i) the provisions set forth in Section 162(m) of the Code
relating to the deductibility of certain compensation and (ii) the rules and
regulations applicable to New York Stock Exchange-listed companies.
The following description of the Plan, as proposed to be amended by this
Proposal, is a summary, does not purport to be complete and is qualified in
its entirety by the full text of the Plan, as proposed to be amended. A copy
of the Plan, as proposed to be amended, is attached hereto as Exhibit A.
DESCRIPTION OF THE PLAN
Pursuant to the Plan, key employees, directors and consultants of the
Company and any of its majority-owned subsidiaries are eligible to receive
awards of stock options, stock appreciation rights, limited stock appreciation
rights and restricted stock. Options granted under the Plan may be ISOs, or
non-qualified stock options ("NQSOs"). Stock appreciation rights ("SARs") and
limited stock appreciation rights ("LSARs") may be granted either alone or
simultaneously with the grant of an option. Restricted stock may be granted in
addition to or in lieu of any other award made under the Plan.
As of October 26, 2001, 12 executive officers, approximately 1,600 other
employees, 8 consultants, 8 non-employee directors of the Company and 10 non-
employee directors of the Company's subsidiaries were eligible to participate
in the Plan.
The maximum number of shares of Common Stock and Class B Common Stock
reserved for the grant of awards under the Plan, as adjusted for the Class B
Dividend, is 6,300,000 and 9,600,000 (including the 3,000,000 shares of Class
B Common Stock reserved subject to approval by the stockholders of this
Proposal), respectively. Such share reserves are subject to further adjustment
in the event of specified changes to the capital structure of the Company. The
shares may be made available either from the Company's authorized but unissued
capital stock or from capital stock reacquired by the Company.
As of October 26, 2001, options covering all of the shares of Common Stock
reserved for issuance under the Plan had been granted. As of such date,
options covering 6,351,004 shares of Class B Common Stock were outstanding
under the Plan and 3,248,996 shares of Class B Common Stock remained available
for future award grants assuming (with respect to 3,000,000 of such shares)
approval by the stockholders of this Proposal.
The Plan is administered by the Compensation Committee of the Board. Subject
to the provisions of the Plan, the Compensation Committee will determine the
type of awards, when and to whom awards will be granted, the number of shares
covered by each award and the terms, provisions and kind of consideration
payable (if any), with respect to awards. The Compensation Committee may
interpret the Plan and may at any time adopt such rules and regulations for
the Plan as it deems advisable. In determining the persons to whom awards
shall be granted and the number of shares covered by each award, the
Compensation Committee takes into account the
21
duties of the respective persons, their present and potential contributions to
the success of the Company and such other factors as the Compensation
Committee deems relevant.
An option may be granted on such terms and conditions as the Compensation
Committee may approve, and generally may be exercised for a period of up to
ten years from the date of grant. Generally, ISOs will be granted with an
exercise price equal to the "Fair Market Value" (as defined in the Plan) on
the date of grant. In the case of ISOs, certain limitations will apply with
respect to the aggregate value of option shares which can become exercisable
for the first time during any one calendar year, and certain additional
limitations will apply to ISOs granted to "Ten Percent Stockholders" of the
Company (as defined in the Plan). The Compensation Committee may provide for
the payment of the option price in cash, by delivery of Common Stock or Class
B Common Stock having a Fair Market Value equal to such option price, by a
combination thereof or by any other method. Options granted under the Plan
will become exercisable at such times and under such conditions as the
Compensation Committee shall determine, subject to acceleration of the
exercisability of options in the event of, among other things, a "Change in
Control," a "Corporate Transaction" or a "Related Entity Disposition" (in each
case, as defined in the Plan).
The Plan provides for automatic formula option grants to eligible non-
employee directors of the Company and its majority-owned subsidiaries. Options
to purchase 10,000 shares of Common Stock were granted to each non-employee
director upon the consummation of the Company's initial public offering in
March 1996 or upon such later date of a non-employee director's initial
election to the Board and, effective May 31, 2001, subject to certain
exceptions, options to purchase 20,000 shares of Class B Common Stock will be
granted to each new non-employee director upon such director's initial
election and qualification for the Board or the board of directors of any of
the Company's majority-owned subsidiaries. In addition, options to purchase
20,000 shares of Class B Common Stock will be granted annually to each non-
employee director on the anniversary date of each such director's election to
the Board. Each such option will have an exercise price equal to (or in
certain cases, no less than) the Fair Market Value of a share of Class B
Common Stock on the date of grant and will be immediately exercisable. All
options held by non-employee directors, to the extent not exercised, unless
otherwise agreed to by the Company, expire on the earliest of (i) the tenth
anniversary of the date of grant, (ii) the first anniversary of the non-
employee director's termination of directorship other than for "Cause" (as
defined in the Plan) or (iii) three months following the non-employee
director's termination of directorship for Cause.
The Plan also permits the Compensation Committee to grant SARs and/or LSARs.
Generally, SARs may be exercised at such time or times and only to the extent
determined by the Compensation Committee and LSARs may be exercised only (i)
during the 90 days immediately following a Change in Control or (ii)
immediately prior to the effective date of a Corporate Transaction (as defined
in the Plan). LSARs will be exercisable at such time or times and only to the
extent determined by the Compensation Committee. A LSAR granted in connection
with an ISO is exercisable only if the Fair Market Value per share of Common
Stock or Class B Common Stock, as applicable, on the date of grant exceeds the
purchase price specified in the related ISO.
Upon exercise of an SAR, a grantee will receive for each share for which an
SAR is exercised, an amount in cash, Common Stock or Class B Common Stock, as
determined by the Compensation Committee, equal to the excess, if any, of (i)
the Fair Market Value of a share of Common Stock or Class B Common Stock, as
applicable, on the date the SAR is exercised over (ii) the exercise or other
base price of the SAR or, if applicable, the exercise price per share of the
option to which the SAR relates.
Upon exercise of an LSAR, a grantee will receive for each share for which an
LSAR is exercised, an amount in cash equal to the excess, if any, of (i) the
greater of (x) the highest Fair Market Value of a share of Common Stock or
Class B Common Stock, as applicable, during the 90-day period ending on the
date the LSAR is exercised, and (y) whichever of the following is applicable:
(1) the highest per share price paid in any tender or exchange offer which is
in effect at any time during the 90 days ending on the date of exercise of the
LSAR; (2) the fixed or formula price for the acquisition of shares of Common
Stock or Class B Common Stock, as applicable, in a merger in which the Company
will not continue as the surviving corporation, or upon a consolidation, or a
sale, exchange or disposition of all or substantially all of the Company's
assets, approved by the Company's stockholders (if such price is determinable
on the date of exercise); and (3) the highest price per share of Common Stock
or Class B Common Stock, as applicable, shown on Schedule 13D, or any
amendment thereto, filed by the holder of the specified percentage of Common
Stock or Class B Common Stock, as
22
applicable, the acquisition of which gives rise to the exercisability of the
LSAR over (ii) the exercise or other base price of the LSAR or, if applicable,
the exercise price per share of the option to which the LSAR relates. In no
event, however, may the holder of an LSAR granted in connection with an ISO
receive an amount in excess of the maximum amount which will enable the option
to continue to qualify as an ISO.
When an SAR or LSAR is exercised, the option to which it relates, if any,
will cease to be exercisable to the extent of the number of shares with
respect to which the SAR or LSAR is exercised, but will be deemed to have been
exercised for purposes of determining the number of shares available for the
future grant of awards under the Plan.
The Plan further provides for the granting of restricted stock awards, which
are awards of Common Stock or Class B Common Stock which may not be disposed
of, except by will or the laws of descent and distribution, for such period as
the Compensation Committee determines (the "restricted period"). The
Compensation Committee may also impose such other conditions and restrictions,
if any, on the shares as it deems appropriate, including the satisfaction of
performance criteria. All restrictions affecting the awarded shares lapse in
the event of a Change in Control, a Corporate Transaction or a Related Entity
Disposition.
During the restricted period, the grantee will be entitled to receive
dividends with respect to, and to vote the shares awarded to him or her. If,
during the restricted period, the grantee's service with the Company
terminates for any reason, any shares remaining subject to restrictions will
be forfeited. The Compensation Committee has the authority to cancel any or
all outstanding restrictions prior to the end of the restricted period,
including cancellation of restrictions in connection with certain types of
termination of service.
During any one calendar year, no grantee may be granted options to acquire
more than an aggregate of 2,000,000 shares of Common Stock and Class B Common
Stock or be awarded more than 2,000,000 shares of restricted stock (in each
case as adjusted for the Class B Dividend and subject to further adjustment as
provided in the Plan).
The Board may at any time and from time to time suspend, amend, modify or
terminate the Plan; provided, however, that, to the extent required by any
other law, regulation or stock exchange rule, no such change shall be
effective without the requisite approval of the Company's stockholders. In
addition, no such change may adversely affect an award previously granted,
except with the written consent of the grantee.
No awards may be granted under the Plan after the tenth anniversary of its
initial adoption.
ISOs (and any related SARs) are not assignable or transferable except by the
laws of descent and distribution. Non-qualified stock options (and any SARs or
LSARs related thereto) may be transferred to the extent permitted by the
Compensation Committee. Holders of NQSOs (and any SARs or LSARs related
thereto) granted after October 31, 2000 are permitted to transfer such NQSOs
for no consideration to such holder's "family members" (as defined in Form S-
8) without the prior approval of the Compensation Committee.
23
Options and Awards under the Plan. Except as set forth in the table below,
the Company cannot now determine the number of options or other awards to be
granted in the future under the Plan to officers, directors and employees.
NEW PLAN BENEFITS
Number of Shares of
Number of Shares of Class B
Common Stock Common Stock
Name and Principal Position Underlying Options Underlying Options
- --------------------------- ------------------ ------------------
Howard S. Jonas .......................................... 0 0
Chairman of the Board, Chief Executive
Officer and Treasurer
James A. Courter ......................................... 0 0
Vice Chairman of the Board and President
Michael Fischberger ...................................... 0 0
Chief Operating Officer and Director
Geoffrey Rochwarger ...................................... 0 0
Executive Vice President of
Telecommunications and Director
Stephen R. Brown ......................................... 0 0
Chief Financial Officer and Director
Executive Group .......................................... 0 0
Non-Executive Director Group ............................. 0 340,000(1)
Non-Executive Officer Employee Group ..................... 0 0
- ---------------
(1) Options to purchase 20,000 shares of Class B Common Stock will be
automatically granted annually to each non-employee director of the Company
and its majority-owned subsidiaries in accordance with the terms of the
Plan.
Federal Income Tax Consequences of Awards Granted under the Plan
The Company believes that, under present law, the following are the U.S.
federal income tax consequences generally arising with respect to awards under
the Plan.
Incentive Stock Options. ISOs granted under the Plan are intended to meet
the definitional requirements of Section 422(b) of the Code for "incentive
stock options." A participant 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 taxable income to the participant,
provided that (i) the federal "alternative minimum tax," which depends on the
participant's particular tax situation, does not apply and (ii) the
participant is employed by the Company from the date of grant of the option
until three months prior to the exercise thereof, except where such employment
or service terminates by reason of disability or death (where the three month
period is extended to one year).
Further, if after exercising an ISO, a participant disposes of the Common
Stock or Class B 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 or
Class B Common Stock pursuant to the exercise of such ISO (the "applicable
holding period"), the participant will normally recognize a long-term capital
gain or loss equal to the difference, if any, between the amount received for
the shares and the exercise price. If, however, the participant does not hold
the shares so acquired for the applicable holding period - thereby making a
"disqualifying disposition" - the participant would realize ordinary income on
the excess of the fair market value of the shares at the time the ISO was
exercised over the exercise price, and the balance of income, if any, would be
long-term capital gain (provided the holding period for the shares exceeded
one year and the participant held such shares as a capital asset at such
time).
24
A participant who exercises an ISO by delivering Common Stock or Class B
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, the participant would not recognize gain or
loss with respect to such previously acquired shares.
The Company 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 or Class B Common Stock acquired upon exercise of
an ISO. In the event of a disqualifying disposition, the Company generally
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the participant, provided that such amount constitutes an
ordinary and necessary business expense to the Company 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 granted under the Plan are options that do not qualify as ISOs.
A participant who receives an NQSO or an SAR (including an LSAR) will not
recognize any taxable income upon the grant of such NQSO or SAR. However, the
participant generally will recognize ordinary income upon exercise of an NQSO
in an amount equal to the excess of (i) the fair market value of the shares of
Common Stock or Class B Common Stock at the time of exercise over (ii) the
exercise price. Similarly, upon the receipt of cash or shares pursuant to the
exercise of an 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.
The ordinary income recognized with respect to the receipt of shares or cash
upon exercise of a NQSO or an 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 an SAR for shares
or upon the exercise of a NQSO, the Company may satisfy the liability in whole
or in part by withholding shares of Common Stock or Class B Common Stock from
those that otherwise would be issuable to the participant or by the
participant 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 the Company in
an amount equal to the ordinary income recognized by the individual with
respect to his or her NQSO or SAR, provided that such amount constitutes an
ordinary and necessary business expense to the Company and is reasonable and
the limitations of Sections 280G and 162(m) of the Code do not apply.
If a participant exercises an NQSO by delivering shares of Common Stock or
Class B Common Stock to the Company, other than shares previously acquired
pursuant to the exercise of an ISO which is treated as a "disqualifying
disposition" as described above, the participant 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 participant's tax basis. The participant,
however, will be taxed as described above with respect to the exercise of the
NQSO as if he or she had paid the exercise price in cash, and the Company
likewise generally will he entitled to an equivalent tax deduction.
Other Awards. With respect to other awards under the Plan that are settled
either in cash or in shares of Common Stock or Class B Common Stock that are
either transferable or not subject to a substantial risk of forfeiture (as
defined in the Code and the regulations thereunder), participants generally
will recognize ordinary income equal to the amount of cash or the fair market
value of the Common Stock or Class B Common Stock received.
With respect to awards under the Plan that are settled in shares of Common
Stock or Class B Common Stock that are restricted 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") - a participant 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
(the "Restrictions") 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 participant will recognize
ordinary income, as of the transfer date, in an amount equal to the excess of
25
the fair market value of the Common Stock or Class B Common Stock, as
applicable, 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, Class B Common Stock or other property under the Plan will be
subject to both wage withholding and other employment taxes.
The Company generally will be allowed a deduction for federal income tax
purposes in an amount equal to the ordinary income recognized by the
participant, 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.
Change in Control. In general, if the total amount of payments to a
participant that are contingent upon a "change of control" of the Company (as
defined in Section 280G of the Code), including awards under the Plan that
vest upon a "change in control," equals or exceeds three times the
individual's "base amount" (generally, such participant'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 the Company and the participant 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) of the Code 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 an NQSO 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. The Company believes that Stock Options, SARs and LSARs
granted under the Plan should qualify for the performance-based compensation
exception to Section 162(m).
On October 26, 2001, the last reported sale price of the Common Stock and
Class B Common Stock on the New York Stock Exchange was $10.80 and $9.35 per
share, respectively.
THE BOARD RECOMMENDS A VOTE FOR
APPROVAL OF THE AMENDMENT TO THE PLAN AS DESCRIBED ABOVE.
26
PROPOSAL NO. 3
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS
The stockholders will be asked to ratify the Board's appointment of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
July 31, 2002.
In the event that the ratification of this selection of auditors is not
approved by a majority of the shares of Common Stock, Class A Common Stock and
Class B Common Stock voting at the Annual Meeting in person or by proxy,
management will review its future selection of auditors.
Ernst & Young LLP has served as the Company's independent auditors since
1993. A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting and will have an opportunity to make a statement if he or she
desires to do so. It is also expected that such representative will be
available to respond to appropriate questions.
Audit Fees
Ernst & Young LLP has billed the Company $429,000, in the aggregate, for
professional services rendered by Ernst & Young LLP for the audit of the
Company's annual financial statements for the Company's 2001 fiscal year and
the reviews of the interim financial statements included in the Company's
Quarterly Reports on Form 10-Q for the Company's 2001 fiscal year.
Financial Information Systems Design and Implementation Fees
During the Company's 2001 fiscal year, Ernst & Young LLP did not render any
professional services to the Company related to financial information systems
design and implementation as described in Paragraph (c)(4)(ii) of Rule 2-01 of
Regulation S-X.
All Other Fees
Ernst & Young LLP has billed the Company $512,000, in the aggregate, for
professional services rendered by Ernst & Young LLP for all services other
than those services covered in the sections captioned "Audit Fees" and
"Financial Information Systems Design and Implementation Fees" for the
Company's 2001 fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING JULY 31, 2002.
27
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than 10 percent of a
registered class of the Company's equity securities are required to file
reports of ownership and changes in ownership, on a timely basis, with the
Securities and Exchange Commission and the New York Stock Exchange. Based on
material provided to the Company, the Company believes that all such required
reports were filed on a timely basis in Fiscal 2001.
Submission of Proposals for the 2002 Meeting of Stockholders
Stockholders who wish to present proposals for inclusion in the Company's
proxy materials in connection with the 2002 Annual Meeting of Stockholders
must submit such proposals in writing to the General Counsel and Secretary of
the Company at 520 Broad Street, Newark, New Jersey 07102, which proposal must
be received at such address no later than July 10, 2002. In addition, any
stockholder proposal submitted with respect to the Company's 2002 Annual
Meeting of Stockholders, which proposal is submitted outside the requirements
of Rule 14a-8 under the Securities Exchange Act of 1934, will be considered
untimely for purposes of Rule 14a-4 and 14a-5 if written notice thereof is
received by the Company's General Counsel and Secretary not less than 45 days
prior to the day on which notice of the date of the annual meeting was mailed.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented at
the Annual Meeting. If any other business is properly brought before the
Annual Meeting, it is intended that proxies in the enclosed form will be voted
in respect thereof in accordance with the judgments of the persons voting the
proxies.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to fill in, sign and promptly return
the accompanying form in the enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
November 7, 2001
/s/ Joyce J. Mason
------------------
Joyce J. Mason
General Counsel and Secretary
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Exhibit A
IDT CORPORATION
1996 STOCK OPTION AND INCENTIVE PLAN
(As Amended and Restated as of October 2001)
1. Purpose; Types of Awards; Construction.
The purpose of the IDT Corporation 1996 Stock Option and Incentive Plan (the
"Plan") is to provide incentives to executive officers, other key employees,
directors and consultants of IDT Corporation (the "Company"), or any
subsidiary of the Company which now exists or hereafter is organized or
acquired by the Company, to acquire a proprietary interest in the Company, to
continue as officers, employees, directors or consultants, to increase their
efforts on behalf of the Company and to promote the success of the Company's
business. The provisions of the Plan are intended to satisfy the requirements
of Section 16(b) of the Securities Exchange Act of 1934, as amended, and of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and shall be
interpreted in a manner consistent with the requirements thereof.
2. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Agreement" shall mean a written agreement entered into between the
Company and a Grantee in connection with an award under the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Change in Control" means a change in ownership or control of the
Company effected through either of the following:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than (A) the Company, (B) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, (C) any
corporation or other entity owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of Common Stock, or (D) any person who, immediately prior to the
Initial Public Offering, owned more than 25% of the combined voting power of
the Company's then outstanding voting securities), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities acquired
directly from the Company or any of its affiliates other than in connection
with the acquisition by the Company or its affiliates of a business)
representing 25% or more of the combined voting power of the Company's then
outstanding voting securities; or
(ii) during any period of not more than two consecutive years, not
including any period prior to the initial adoption of this Plan by the
Board, individuals who at the beginning of such period constitute the Board,
and any new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election contest,
including, but not limited to a consent solicitation, relating to the
election of directors of the Company) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority thereof.
(d) "Class A Common Stock" shall mean shares of Class A common stock, par
value $.01 per share, of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" shall mean the Compensation Committee of the Board or such
other committee as the Board may designate from time to time to administer the
Plan.
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(g) "Common Stock" shall mean shares of common stock, par value $.01 per
share, of the Company, or, if determined by the Committee and set forth in an
Agreement, shares of class B common stock, par value $.01 per share, of the
Company.
(h) "Company" shall mean IDT Corporation, a corporation organized under the
laws of the State of Delaware, or any successor corporation.
(i) "Continuous Service" means that the provision of services to the
Company or a Related Entity in any capacity of officer, employee, director or
consultant is not interrupted or terminated. Continuous Service shall not be
considered interrupted in the case of (i) any approved leave of absence, (ii)
transfers between locations of the Company or among the Company, any Related
Entity or any successor in any capacity of officer, employee, director or
consultant, or (iii) any change in status as long as the individual remains in
the service of the Company or a Related Entity in any capacity of officer,
employee, director or consultant (except as otherwise provided in the
applicable Agreement). An approved leave of absence shall include sick leave,
maternity leave, military leave or any other authorized personal leave. For
purposes of Incentive Stock Options, no such leave may exceed ninety (90) days
unless reemployment upon expiration of such leave is guaranteed by statute or
contract.
(j) "Corporate Transaction" means any of the following transactions:
(i) a merger or consolidation of the Company with any other corporation
or other entity, other than (A) a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity) 80% or
more of the combined voting power of the voting securities of the Company or
such surviving or parent entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
"person" (as defined in the Exchange Act) acquired 25% or more of the
combined voting power of the Company's then outstanding securities; or
(ii) a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially all of its
assets (or any transaction having a similar effect).
(k) "Disability" shall mean a Grantee's inability to perform his or her
duties with the Company or any of its affiliates by reason of any medically
determinable physical or mental impairment, as determined by a physician
selected by the Grantee and acceptable to the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(m) "Fair Market Value" per share as of a particular date shall mean (i)
the closing sale price per share of Common Stock on the national securities
exchange on which the Common Stock is principally traded for the last
preceding date on which there was a sale of such Common Stock on such
exchange, or (ii) if the shares of Common Stock are then traded in an over-
the-counter market, the average of the closing bid and asked prices for the
shares of Common Stock in such over-the-counter market for the last preceding
date on which there was a sale of such Common Stock in such market, or (iii)
if the shares of Common Stock are not then listed on a national securities
exchange or traded in an over-the-counter market, such value as the Committee,
in its sole discretion, shall determine; provided, however, that the Fair
Market Value per share on the date of the Initial Public Offering will equal
the Initial Public Offering price per share or such other price that the
Committee determines in its sole discretion.
(n) "Grantee" shall mean a person who receives a grant of Options, Stock
Appreciation Rights, Limited Rights or Restricted Stock under the Plan.
(o) "Incentive Stock Option" shall mean any option intended to be, and
designated as, an incentive stock option within the meaning of Section 422 of
the Code.
(p) "Initial Public Offering" shall mean the underwritten initial public
offering of shares of Common Stock, which occurred in March 1996.
(q) "Insider" shall mean a Grantee who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
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(r) "Limited Right" shall mean a limited stock appreciation right granted
pursuant to Section 10.
(s) "Non-Employee Director" means a member of the Board or the board of
directors of any Subsidiary who is not an employee of the Company or any
Subsidiary."
(t) "Nonqualified Stock Option" shall mean any option not designated as an
Incentive Stock Option.
(u) "Option" or "Options" shall mean a grant to a Grantee of an option or
options to purchase shares of Common Stock.
(v) "Option Agreement" shall have the meaning set forth in Section 6.
(w) "Option Price" shall mean the exercise price of the shares of Common
Stock covered by an Option.
(x) "Parent" shall mean any company (other than the Company) in an unbroken
chain of companies ending with the Company if, at the time of granting an
Option, each of the companies other than the Company owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other companies in such chain.
(y) "Plan" means this IDT Corporation 1996 Stock Option and Incentive Plan,
as amended from time to time.
(z) "Related Entity" means any Parent, Subsidiary or any business,
corporation, partnership, limited liability company or other entity in which
the Company, a Parent or a Subsidiary holds a substantial ownership interest,
directly or indirectly.
(aa) "Related Entity Disposition" means the sale, distribution or other
disposition by the Company of all or substantially all of the Company's
interest in any Related Entity effected by a sale, merger or consolidation or
other transaction involving such Related Entity or the sale of all or
substantially all of the assets of such Related Entity.
(bb) "Restricted Period" shall have the meaning set forth in Section 11.
(cc) "Restricted Stock" means shares of Common Stock issued under the Plan
to a Grantee for such consideration, if any, and subject to such restrictions
on transfer, rights of refusal, repurchase provisions, forfeiture provisions
and other terms and conditions as shall be determined by the Committee.
(dd) "Retirement" shall mean a Grantee's retirement in accordance with the
terms of any tax-qualified retirement plan maintained by the Company or any of
its affiliates in which the Grantee participates.
(ee) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in effect,
promulgated under the Exchange Act, including any successor to such Rule.
(ff) "Stock Appreciation Right" shall mean the right, granted to a Grantee
under Section 9, to be paid an amount measured by the appreciation in the Fair
Market Value of a share of Common Stock from the date of grant to the date of
exercise of the right, with payment to be made in cash or Common Stock as
specified in the award or determined by the Committee.
(gg) "Subsidiary" shall mean any company (other than the Company) in an
unbroken chain of companies beginning with the Company if, at the time of
granting an Option, each of the companies other than the last company in the
unbroken chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other companies in
such chain.
(hh) "Tax Event" shall have the meaning set forth in Section 17.
(ii) "Ten Percent Stockholder" shall mean a Grantee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary.
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3. Administration.
(a) The Plan shall be administered by the Committee, the members of which
may be composed of (i) "non-employee directors" under Rule 16b-3 and "outside
directors" under Section 162(m) of the Code, or (ii) any other members of the
Board.
(b) The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer
the Plan and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the administration
of the Plan, including, without limitation, the authority to grant Options,
Stock Appreciation Rights, Limited Rights and Restricted Stock; to determine
which options shall constitute Incentive Stock Options and which Options shall
constitute Nonqualified Stock Options; to determine which Options (if any)
shall be accompanied by Limited Rights; to determine the purchase price of the
shares of Common Stock covered by each Option; to determine the persons to
whom, and the time or times at which awards shall be granted; to determine the
number of shares to be covered by each award; to interpret the Plan and any
award under the Plan; to reconcile any inconsistent terms in the Plan or any
award under the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Agreements
(which need not be identical) and to cancel or suspend awards, as necessary;
and to make all other determinations deemed necessary or advisable for the
administration of the Plan.
(c) All decisions, determination and interpretations of the Committee shall
be final and binding on all Grantees of any awards under this Plan. No member
of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any award granted
hereunder.
(d) The Board may delegate to the Chairman of the Company the authority to
(i) grant awards under the Plan to employees of the Company and its
Subsidiaries who are not officers or directors of the Company, and (ii)
execute and deliver documents or take such other ministerial actions on behalf
of the Committee with respect to awards. The grant of authority in this
Section 3(d) shall be subject to such conditions and limitations as may be
determined by the Committee. If the Committee delegates authority to the
Chairman of the Company pursuant to this Section 3(d), and the Chairman grants
awards pursuant to such delegated authority, references in this Plan to the
"Committee" as they relate to such awards shall be deemed to refer to the
Chairman.
4. Eligibility.
Awards may be granted to executive officers, other key employees, directors
and consultants of the Company or of any Subsidiary. In addition to any other
awards granted to Non-Employee Directors hereunder, awards shall be granted to
Non-Employee Directors pursuant to Section 14 hereof. In determining the
persons to whom awards shall be granted and the number of shares to be covered
by each award, the Committee shall take into account the duties of the
respective persons, their present and potential contributions to the success
of the Company and such other factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the Plan.
5. Stock.
(a) The maximum number of shares of Common Stock reserved for the grant of
awards under the Plan, as adjusted for the Class B common stock dividend
effected in May 2001, shall be 15,900,000, of which 6,300,000 shall be shares
of common stock and 9,600,000 shall be shares of Class B common stock, in each
case subject to adjustment as provided in Section 12 hereof.
(b) If any outstanding award under the Plan should, for any reason expire,
be canceled or be forfeited (other than in connection with the exercise of a
Stock Appreciation Right or a Limited Right), without having been exercised in
full, the shares of Common Stock allocable to the unexercised, canceled or
terminated portion of such award shall (unless the Plan shall have been
terminated) become available for subsequent grants of awards under the Plan.
(c) In no event may a Grantee be granted during any calendar year Options
to acquire more than 2,000,000 shares of Common Stock or more than 2,000,000
shares of Restricted Stock, in each case subject to adjustment as provided in
Section 12 hereof.
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6. Terms and Conditions of Options.
(a) OPTION AGREEMENT. Each Option granted pursuant to the Plan shall be
evidenced by a written agreement between the Company and the Grantee (the
"Option Agreement"), in such form and containing such A-4 terms and conditions
as the Committee shall from time to time approve, which Option Agreement shall
comply with and be subject to the following terms and conditions, unless
otherwise specifically provided in such Option Agreement. For purposes of
interpreting this Section 6, a director's service as a member of the Board
shall be deemed to be employment with the Company.
(b) NUMBER OF SHARES. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
(c) TYPE OF OPTION. Each Option Agreement shall specifically state that the
Option constitutes an Incentive Stock Option or a Nonqualified Stock Option.
In the absence of such designation, the Option will be deemed to be a
Nonqualified Stock Option.
(d) OPTION PRICE. Each Option Agreement shall state the Option Price,
which, in the case of an Incentive Stock Option, shall not be less than one
hundred percent (100%) of the Fair Market Value of the shares of Common Stock
covered by the Option on the date of grant. The Option Price shall be subject
to adjustment as provided in Section 12 hereof.
(e) MEDIUM AND TIME OF PAYMENT. The Option Price shall be paid in full, at
the time of exercise, in cash or in shares of Common Stock (whether then owned
by the Grantee or issuable upon exercise of the Option) having a Fair Market
Value equal to such Option Price or in a combination of cash and Common Stock,
including a cashless exercise procedure through a broker-dealer; provided,
however, that in the case of an Incentive Stock Option, the medium of payment
shall be determined at the time of grant and set forth in the applicable
Option Agreement.
(f) TERM AND EXERCISABILITY OF OPTIONS. Each Option Agreement shall provide
the exercise schedule for the Option as determined by the Committee, provided,
that, the Committee shall have the authority to accelerate the exercisability
of any outstanding option at such time and under such circumstances as it, in
its sole discretion, deems appropriate. The exercise period will be ten (10)
years from the date of the grant of the option unless otherwise determined by
the Committee; provided, however, that in the case of an Incentive Stock
Option, such exercise period shall not exceed ten (10) years from the date of
grant of such Option. The exercise period shall be subject to earlier
termination as provided in Sections 6(g) and 6(h) hereof. An Option may be
exercised, as to any or all full shares of Common Stock as to which the Option
has become exercisable, by written notice delivered in person or by mail to
the Company's transfer agent or other administrator designated by the Company,
specifying the number of shares of Common Stock with respect to which the
Option is being exercised.
(g) TERMINATION. Except as provided in this Section 6(g) and in Section
6(h) hereof, an Option may not be exercised unless the Grantee is then in the
employ of or maintaining a director or consultant relationship with the
Company or a Subsidiary thereof (or a company or a Parent or Subsidiary of
such company issuing or assuming the Option in a transaction to which Section
424(a) of the Code applies), and unless the Grantee has remained continuously
so employed or in the director or consultant relationship since the date of
grant of the Option. In the event that the employment or consultant
relationship of a Grantee shall terminate (other than by reason of death,
Disability or Retirement), all Options of such Grantee that are exercisable at
the time of Grantee's termination may, unless earlier terminated in accordance
with their terms, be exercised within thirty (30) days after the date of such
termination (or such different period as the Committee shall prescribe);
provided, however, that Options granted after November 17, 1998 and on or
prior to October 22, 2001 may be exercised within three (3) months after the
date of termination (or such different period as the Committee shall
prescribe), and Options granted after October 22, 2001 may be exercised within
180 days after the date of termination (or such different period as the
Committee shall prescribe).
(h) DEATH, DISABILITY OR RETIREMENT OF GRANTEE. If a Grantee shall die
while employed by, or maintaining a director or consultant relationship with,
the Company or a Subsidiary thereof, or within thirty (30) days after the date
of termination of such Grantee's employment, director or consultant
relationship (or within such different period as the Committee may have
provided pursuant to Section 6(g) hereof), or if the
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Grantee's employment, director or consultant relationship shall terminate by
reason of Disability, all Options theretofore granted to such Grantee (to the
extent otherwise exercisable) may, unless earlier terminated in accordance
with their terms, be exercised by the Grantee or by the Grantee's estate or by
a person who acquired the right to exercise such Options by bequest or
inheritance or otherwise by result of death or Disability of the Grantee, at
any time within 180 days after the death or Disability of the Grantee (or such
different period as the Committee shall prescribe). In the event that an
Option granted hereunder shall be exercised by the legal representatives of a
deceased or former Grantee, written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof of
the right of such legal representative to exercise such Option. In the event
that the employment or consultant relationship of a Grantee shall terminate on
account of such Grantee's Retirement, all Options of such Grantee that are
exercisable at the time of such Retirement may, unless earlier terminated in
accordance with their terms, be exercised at any time within one hundred
eighty (180) days after the date of such Retirement (or such different period
as the Committee shall prescribe).
(i) OTHER PROVISIONS. The Option Agreements evidencing awards under the
Plan shall contain such other terms and conditions not inconsistent with the
Plan as the Committee may determine.
7. Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 6 hereof.
8. Incentive Stock Options.
Options granted pursuant to this Section 8 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms
and conditions, in addition to the general terms and conditions specified in
Section 6 hereof:
(a) LIMITATION ON VALUE OF SHARES. To the extent that the aggregate Fair
Market Value of shares of Common Stock subject to Options designated as
Incentive Stock Options which become exercisable for the first time by a
Grantee during any calendar year (under all plans of the Company or any
Subsidiary) exceeds $100,000, such excess Options, to the extent of the shares
covered thereby in excess of the foregoing limitation, shall be treated as
Nonqualified Stock Options. For this purpose, Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair
Market Value of the shares of Common Stock shall be determined as of the date
that the Option with respect to such shares was granted.
(b) TEN PERCENT STOCKHOLDER. In the case of an Incentive Stock Option
granted to a Ten Percent Stockholder, (i) the Option Price shall not be less
than one hundred ten percent (110%) of the Fair Market Value of the shares of
Common Stock on the date of grant of such Incentive Stock Option, and (ii) the
exercise period shall not exceed five (5) years from the date of grant of such
Incentive Stock Option.
9. Stock Appreciation Rights.
The Committee shall have authority to grant a Stock Appreciation Right,
either alone or in tandem with any Option. A Stock Appreciation Right granted
in tandem with an Option shall, except as provided in this Section 9 or as may
be determined by the Committee, be subject to the same terms and conditions as
the related Option. Each Stock Appreciation Right granted pursuant to the Plan
shall be evidenced by a written Agreement between the Company and the Grantee
in such form as the Committee shall from time to time approve, which Agreement
shall comply with and be subject to the following terms and conditions, unless
otherwise specifically provided in such Agreement:
(a) TIME OF GRANT. A Stock Appreciation Right may be granted at such time
or times as may be determined by the Committee.
(b) PAYMENT. A Stock Appreciation Right shall entitle the holder thereof,
upon exercise of the Stock Appreciation Right or any portion thereof, to
receive payment of an amount computed pursuant to Section 9(d).
(c) EXERCISE. A Stock Appreciation Right shall be exercisable at such time
or times and only to the extent determined by the Committee, and will not be
transferable except to the extent any related Option is
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transferable or as otherwise determined by the Committee. A Stock Appreciation
Right granted in connection with an Incentive Stock Option shall be
exercisable only if the Fair Market Value of a share of Common Stock on the
date of exercise exceeds the purchase price specified in the related Incentive
Stock Option. Unless otherwise approved by the Committee, no Grantee shall be
permitted to exercise any Stock Appreciation Right during the period beginning
two weeks prior to the end of each of the Company's fiscal quarters and ending
on the second business day following the day on which the Company releases to
the public a summary of its fiscal results for such period.
(d) AMOUNT PAYABLE. Upon the exercise of a Stock Appreciation Right, the
Optionee shall be entitled to receive an amount determined by multiplying (i)
the excess of the Fair Market Value of a share of Common Stock on the date of
exercise of such Stock Appreciation Right over the exercise or other base
price of the Stock Appreciation Right or, if applicable, the Option Price of
the related Option, by (ii) the number of shares of Common Stock as to which
such Stock Appreciation Right is being exercised.
(e) TREATMENT OF RELATED OPTIONS AND STOCK APPRECIATION RIGHTS UPON
EXERCISE. Upon the exercise of a Stock Appreciation Right, the related Option
shall be canceled to the extent of the number of shares of Common Stock as to
which the Stock Appreciation Right is exercised. Upon the exercise or
surrender of an option granted in connection with a Stock Appreciation Right,
the Stock Appreciation Right shall be canceled to the extent of the number of
shares of Common Stock as to which the Option is exercised or surrendered.
(f) METHOD OF EXERCISE. Stock Appreciation Rights shall be exercised by a
Grantee only by a written notice delivered to the Company in accordance with
procedures specified by the Company from time to time. Such notice shall state
the number of shares of Common Stock with respect to which the Stock
Appreciation Right is being exercised. A Grantee may also be required to
deliver to the Company the underlying Agreement evidencing the Stock
Appreciation Right being exercised and any related Option Agreement so that a
notation of such exercise may be made thereon, and such Agreements shall then
be returned to the Grantee.
(g) FORM OF PAYMENT. Payment of the amount determined under Section 9(d)
may be made solely in whole shares of Common Stock in a number based upon
their Fair Market Value on the date of exercise of the Stock Appreciation
Right or, alternatively, at the sole discretion of the Committee, solely in
cash, or in a combination of cash and shares of Common Stock as the Committee
deems advisable. If the Committee decides to make full payment in shares of
Common Stock, and the amount payable results in a fractional share, payment
for the fractional share will be made in cash.
10. Limited Stock Appreciation Rights.
The Committee shall have authority to grant a Limited Right, either alone or
in tandem with any Option. Each Limited Right granted pursuant to the Plan
shall be evidenced by a written Agreement between the Company and the Grantee
in such form as the Committee shall from time to time approve, which Agreement
shall comply with and be subject to the following terms and conditions, unless
otherwise specifically provided in such Agreement:
(a) TIME OF GRANT. A Limited Right may be granted at such time or times as
may be determined by the Committee.
(b) EXERCISE. A Limited Right may be exercised only (i) during the ninety-
day period following the occurrence of a Change in Control or (ii) immediately
prior to the effective date of a Corporate Transaction. A Limited Right shall
be exercisable at such time or times and only to the extent determined by the
Committee, and will not be transferable except to the extent any related
Option is transferable or as otherwise determined by the Committee. A Limited
Right granted in connection with an Incentive Stock Option shall be
exercisable only if the Fair Market Value of a share of Common Stock on the
date of exercise exceeds the purchase price specified in the related Incentive
Stock Option.
(c) AMOUNT PAYABLE. Upon the exercise of a Limited Right, the Grantee
thereof shall receive in cash whichever of the following amounts is
applicable:
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(i) in the case of the realization of Limited Rights by reason of an
acquisition of Common Stock described in clause (i) of the definition of
"Change in Control" (Section 2(c) above), an amount equal to the Acquisition
Spread as defined in Section 10(d)(ii) below; or
(ii) in the case of the realization of Limited Rights by reason of
stockholder approval of an agreement or plan described in clause (i) of the
definition of "Corporate Transaction" (Section 2(j) above), an amount equal
to the Merger Spread as defined in Section 10(d)(iv) below; or
(iii) in the case of the realization of Limited Rights by reason of the
change in composition of the Board described in clause (ii) of the
definition of "Change in Control" or stockholder approval of a plan or
agreement described in clause (ii) of the definition of Corporate
Transaction, an amount equal to the Spread as defined in Section 10(d)(v)
below.
Notwithstanding the foregoing provisions of this Section 10(c) (or unless
otherwise approved by the Committee), in the case of a Limited Right granted
in respect of an Incentive Stock Option, the Grantee may not receive an amount
in excess of the maximum amount that will enable such option to continue to
qualify under the Code as an Incentive Stock Option.
(d) DETERMINATION OF AMOUNTS PAYABLE. The amounts to be paid to a Grantee
pursuant to Section 10(c) shall be determined as follows:
(i) The term "Acquisition Price per Share" as used herein shall mean,
with respect to the exercise of any Limited Right by reason of an
acquisition of Common Stock described in clause (i) of the definition of
Change in Control, the greatest of (A) the highest price per share shown on
the Statement on Schedule 13D or amendment thereto filed by the holder of
25% or more of the voting power of the Company that gives rise to the
exercise of such Limited Right, (B) the highest price paid in any tender or
exchange offer which is in effect at any time during the ninety-day period
ending on the date of exercise of the Limited Right, or (C) the highest Fair
Market Value per share of Common Stock during the ninety day period ending
on the date the Limited Right is exercised.
(ii) The term "Acquisition Spread" as used herein shall mean an amount
equal to the product computed by multiplying (A) the excess of (1) the
Acquisition Price per Share over (2) the exercise or other base price of the
Limited Right or, if applicable, the Option Price per share of Common Stock
at which the related Option is exercisable, by (B) the number of shares of
Common Stock with respect to which such Limited Right is being exercised.
(iii) The term "Merger Price per Share" as used herein shall mean, with
respect to the exercise of any Limited Right by reason of stockholder
approval of an agreement described in clause (i) of the definition of
Corporate Transaction, the greatest of (A) the fixed or formula price for
the acquisition of shares of Common Stock specified in such agreement, if
such fixed or formula price is determinable on the date on which such
Limited Right is exercised, (B) the highest price paid in any tender or
exchange offer which is in effect at any time during the ninety-day period
ending on the date of exercise of the Limited Right, (C) the highest Fair
Market Value per share of Common Stock during the ninety-day period ending
on the date on which such Limited Right is exercised.
(iv) The term "Merger Spread" as used herein shall mean an amount equal
to the product computed by multiplying (A) the excess of (1) the Merger
Price per Share over (2) the exercise or other base price of the Limited
Right or, if applicable, the Option Price per share of Common Stock at which
the related Option is exercisable, by (B) the number of shares of Common
Stock with respect to which such Limited Right is being exercised.
(v) The term "Spread" as used herein shall mean, with respect to the
exercise of any Limited Right by reason of a change in the composition of
the Board described in clause (ii) of the definition of Change in Control or
stockholder approval of a plan or agreement described in clause (ii) of the
definition of Corporate Transaction, an amount equal to the product computed
by multiplying (i) the excess of (A) the greater of (1) the highest price
paid in any tender or exchange offer which is in effect at any time during
the ninety-day period ending on the date of exercise of the Limited Right or
(2) the highest Fair Market Value per share of Common Stock during the
ninety day period ending on the date the Limited Right is exercised over (B)
the
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exercise or other base price of the Limited Right or, if applicable, the
Option Price per share of Common Stock at which the related Option is
exercisable, by (ii) the number of shares of Common Stock with respect to
which the Limited Right is being exercised.
(e) TREATMENT OF RELATED OPTIONS AND LIMITED RIGHTS UPON EXERCISE. Upon the
exercise of a Limited Right, the related Option, if any, shall cease to be
exercisable to the extent of the shares of Common Stock with respect to which
such Limited Right is exercised but shall be considered to have been exercised
to that extent for purposes of determining the number of shares of Common
Stock available for the grant of future awards pursuant to this Plan. Upon the
exercise or termination of a related Option, the Limited Right with respect to
such related Option shall terminate to the extent of the shares of Common
Stock with respect to which the related Option was exercised or terminated.
(f) METHOD OF EXERCISE. To exercise a Limited Right, the Grantee shall (i)
deliver written notice to the Company specifying the number of shares of
Common Stock with respect to which the Limited Right is being exercised, and
(ii) if requested by the Committee, deliver to the Company the Agreement
evidencing the Limited Rights being exercised and, if applicable, the Option
Agreement evidencing the related Option; the Company shall endorse thereon a
notation of such exercise and return such Agreements to the Grantee. The date
of exercise of a Limited Right that is validly exercised shall be deemed to be
the date on which there shall have been delivered the instruments referred to
in the first sentence of this paragraph (f).
11. Restricted Stock.
The Committee may award shares of Restricted Stock to any eligible employee
or consultant. Each award of Restricted Stock under the Plan shall be
evidenced by a written Agreement between the Company and the Grantee, in such
form as the Committee shall from time to time approve, which Agreement shall
comply with and be subject to the following terms and conditions, unless
otherwise specifically provided in such Agreement:
(a) NUMBER OF SHARES. Each Agreement shall state the number of shares of
Restricted Stock to be subject to an award.
(b) RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution, for such period as the Committee shall
determine from the date on which the award is granted (the "Restricted
Period"). The Committee may also impose such additional or alternative
restrictions and conditions on the shares as it deems appropriate including
the satisfaction of performance criteria. Such performance criteria may
include sales, earnings before interest and taxes, return on investment,
earnings per share, any combination of the foregoing or rate of growth of any
of the foregoing, as determined by the Committee. Certificates for shares of
stock issued pursuant to Restricted Stock awards shall bear an appropriate
legend referring to such restrictions, and any attempt to dispose of any such
shares of stock in contravention of such restrictions shall be null and void
and without effect. During the Restricted Period, such certificates shall be
held in escrow by an escrow agent appointed by the Committee. In determining
the Restricted Period of an award, the Committee may provide that the
foregoing restrictions shall lapse with respect to specified percentages of
the awarded shares on successive anniversaries of the date of such award.
(c) FORFEITURE. Subject to such exceptions as may be determined by the
Committee, if the Grantee's continuous employment or consultant relationship
with the Company or any Subsidiary shall terminate for any reason prior to the
expiration of the Restricted Period of an award, any shares remaining subject
to restrictions (after taking into account the provisions of Subsection (e) of
this Section 11) shall thereupon be forfeited by the Grantee and transferred
to, and retired by, the Company without cost to the Company or such
Subsidiary.
(d) OWNERSHIP. During the Restricted Period the Grantee shall possess all
incidents of ownership of such shares, subject to Subsection (b) of this
Section 11, including the right to receive dividends with respect to such
shares and to vote such shares.
(e) ACCELERATED LAPSE OF RESTRICTIONS. Upon the occurrence of any of the
events specified in Section 13 (and subject to the conditions set forth
therein), all restrictions then outstanding on any shares of Restricted Stock
awarded under the Plan shall lapse as of the applicable date set forth in
Section 13. The Committee shall have the authority (and the Agreement may so
provide) to cancel all or any portion of any
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outstanding restrictions prior to the expiration of the Restricted Period with
respect to any or all of the shares of Restricted Stock awarded on such terms
and conditions as the Committee shall deem appropriate.
12. Effect of Certain Changes.
(a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
extraordinary dividend, stock dividend, recapitalization, merger,
consolidation, stock split, warrant or rights issuance, or combination or
exchange of such shares, or other similar transactions, the Committee shall
equitably adjust (i) the maximum number of Options or shares of Restricted
Stock that may be awarded to a Grantee in any calendar year (as provided in
Section 5 hereof), (ii) the number of shares of Common Stock available for
awards under the Plan, (iii) the number and/or kind of shares covered by
outstanding awards and (iv) the price per share of Options or the applicable
market value of Stock Appreciation Rights or Limited Rights, in each such case
so as to reflect such event and preserve the value of such awards; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated.
(b) CHANGE IN COMMON STOCK. In the event of a change in the Common Stock of
the Company as presently constituted that is limited to a change of all of its
authorized shares of Common Stock into the same number of shares with a
different par value or without par value, the shares resulting from any such
change shall be deemed to be the Common Stock within the meaning of the Plan.
13. Corporate Transaction; Change in Control; Related Entity Disposition.
(a) CORPORATE TRANSACTION. In the event of a Corporate Transaction, each
award which is at the time outstanding under the Plan shall automatically
become fully vested and exercisable and, in the case of an award of Restricted
Stock, shall be released from any restrictions on transfer and repurchase or
forfeiture rights, immediately prior to the specified effective date of such
Corporate Transaction. Effective upon the consummation of the Corporate
Transaction, all outstanding awards of Options, Stock Appreciation Rights and
Limited Rights under the Plan shall terminate. However, all such awards shall
not terminate if the awards are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof.
(b) CHANGE IN CONTROL. In the event of a Change in Control (other than a
Change in Control which is also a Corporate Transaction), each award which is
at the time outstanding under the Plan automatically shall become fully vested
and exercisable and, in the case of an award of Restricted Stock, shall be
released from any restrictions on transfer and repurchase or forfeiture
rights, immediately prior to the specified effective date of such Change in
Control.
(c) RELATED ENTITY DISPOSITION. With respect only to awards granted under
the Plan after November 17, 1998, the Continuous Service of each Grantee (who
is primarily engaged in service to a Related Entity at the time it is involved
in a Related Entity Disposition) shall terminate effective upon the
consummation of such Related Entity Disposition, and each outstanding award of
such Grantee under the Plan shall become fully vested and exercisable and, in
the case of an award of Restricted Stock, shall be released from any
restrictions on transfer; provided, however, that no such award shall vest
pursuant to this Section 13(c) in connection with a Related Entity Disposition
consummated prior to November 17, 2000 if such vesting would defeat the
ability to account for such transaction as a "pooling" under generally
accepted accounting principles. The Continuous Service of a Grantee shall not
be deemed to terminate (and each outstanding award of such Grantee under the
Pan shall not become fully vested and exercisable and, in the case of an award
of Restricted Stock, shall not be released from any restrictions on transfer)
if (i) a Related Entity Disposition involves the spin-off of a Related Entity,
for so long as such Grantee continues to remain in the service of such entity
that constituted the Related Entity immediately prior to the consummation of
such Related Entity Disposition ("SpinCo") in any capacity of officer,
employee, director or consultant or (ii) an outstanding award is assumed by
the surviving corporation (whether SpinCo or otherwise) or its parent entity
in connection with a Related Entity Disposition.
(d) SUBSTITUTE AWARDS. The Committee may grant awards under the Plan in
substitution of stock-based incentive awards held by employees of another
entity who become employees of the Company or any Subsidiary by reason of a
merger or consolidation of the employing entity with the Company or any
Subsidiary, or the acquisition by the Company or a Subsidiary of property or
equity of the employing entity, upon such terms
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and conditions as the Committee may determine, and such awards shall not count
against the share limitation set forth in Section 5 hereof.
14. Non-Employee Director Options.
The provisions of this Section 14 shall apply only to certain grants of
Options to Non-Employee Directors, as provided below. Except as set forth in
this Section 14, the other provisions of the Plan shall apply to grants of
Options to Non-Employee Directors to the extent not inconsistent with this
Section. For purposes of interpreting Section 6 of the Plan, a Non-Employee
Director's service as a member of the Board or the board of directors of any
Subsidiary shall be deemed to be employment with the Company.
(a) GENERAL. Non-Employee Directors shall receive Nonqualified Stock Options
in accordance with this Section 14. The Option Price per share of Common Stock
purchasable under Options granted to Non-Employee Directors shall be the Fair
Market Value of a share on the date of grant. Options granted pursuant to this
Section 14 shall be subject to the terms of such section and shall not be
subject to discretionary acceleration of exercisability by the Committee. Non-
Employee Directors shall receive separate and additional grants hereunder for
being a Non-Employee Director of the Company and each Subsidiary.
(b) INITIAL GRANTS. On the date of the Initial Public Offering, each Non-
Employee Director will be granted automatically, without action by the
Committee, an Option to purchase 10,000 shares of Common Stock. The Option
Price shall equal the offering price of the Common Stock in connection with
the Initial Public Offering.
(c) SUBSEQUENT GRANTS. Each person who, after the Initial Public Offering,
becomes a Non-Employee Director for the first time, will at the time such
director is elected and duly qualified, be granted automatically, without
action by the Committee, an Option to purchase 10,000 shares of Class B Common
Stock; provided, however, that (i) each person who first becomes a Non-
Employee Director of the Company after May 31, 2001 and before October 22,
2001 shall be granted an additional Option to purchase 10,000 shares of Class
B Common Stock as of their date of election and qualification (for a total of
20,000 shares), (ii) each person who first becomes a Non-Employee Director of
a Subsidiary after May 31, 2001 and before October 22, 2001 shall receive an
Option to purchase 20,000 shares of Class B Common Stock as of October 22,
2001 (in lieu of an Option for 10,000 shares), and (iii) each person who first
becomes a Non-Employee Director on or after October 22, 2001 shall be granted
an Option to purchase 20,000 shares of Class B Common Stock as of their date
of election and qualification. The Option Price shall equal the Fair Market
Value of the Class B Common Stock as of the date of grant.
(d) ANNUAL GRANTS. Each Non-Employee Director who was initially elected to
the Board prior to the Initial Public Offering shall automatically be granted
an Option to purchase 20,000 shares of Class B Common Stock on each
anniversary date of the Initial Public Offering. Each Non-Employee Director
who was initially elected to the Board or the board of directors of any
Subsidiary after the Initial Public Offering shall automatically be granted an
Option to purchase 20,000 shares of Class B Common Stock on each anniversary
of their election to the Board or the board of directors of such Subsidiary,
as applicable. The Options granted under this paragraph shall be granted
without action by the Committee. The Option Price shall equal the Fair Market
Value of the Class B Common Stock as of the date of grant.
(e) VESTING. Each option granted under this Section 14 shall be fully
exercisable on the date of grant. Sections 6(f), 6(g) and 6(h) hereof shall
not apply to Options granted to Non-Employee Directors.
(f) DURATION. Each Option granted to a Non-Employee Director shall expire
on the first to occur of (i) the tenth anniversary of the date of grant of the
Option, (ii) the first anniversary of the Non-Employee Director's termination
of service as a member of the Board or the board of directors of any
Subsidiary, as applicable, other than for Cause or (iii) three months
following the Non-Employee Director's removal from the Board or the board of
directors of any Subsidiary, as applicable, for Cause. The Committee may not
provide for an extended exercise period beyond the periods set forth in this
Section 14.
(g) DEFINITION OF "CAUSE." For purposes of this Section 14, "cause" shall
mean the termination of service as a member of the Board or the board of
directors of any Subsidiary, as applicable, by a Non-Employee
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Director due to any act of (i) fraud or intentional misrepresentation, or (ii)
embezzlement, misappropriation or conversion of assets or opportunities of the
Company or any Subsidiary.
15. Period During which Awards May Be Granted.
Awards may be granted pursuant to the Plan from time to time within a period
of ten (10) years from February 7, 1996, the date the Plan was initially
adopted by the Board.
16. Transferability of Awards.
(a) Incentive Stock Options (and any Stock Appreciation Rights related
thereto) may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by the laws of descent and distribution
and may be exercised, during the lifetime of the Grantee, only by the Grantee
or his or her guardian or legal representative.
(b) Nonqualified Stock Options (together with any Stock Appreciation Rights
or Limited Rights related thereto) shall be transferable in the manner and to
the extent acceptable to the Committee, as evidenced by a writing signed by
the Company and the Grantee. Nonqualified Stock Options (together with any
Stock Appreciation Rights or Limited Rights related thereto) granted after
October 31, 2000 shall be transferable by a Grantee as a gift to the Grantee's
"family members" (as defined in Form S-8) without prior approval of the
Committee; provided that written evidence of such assignment is provided to
the Committee and the Grantee receives no consideration for the transfer.
Notwithstanding the transfer by a Grantee of a Nonqualified Stock Option, the
transferred Nonqualified Stock Option shall continue to be subject to the same
terms and conditions as were applicable to the Nonqualified Stock Option
immediately before the transfer and the Grantee will continue to remain
subject to the withholding tax requirements set forth in Section 17 hereof.
(c) The terms of any award granted under the Plan, including the
transferability of any such award, shall be binding upon the executors,
administrators, heirs and successors of the Grantee.
17. Agreement by Grantee regarding Withholding Taxes.
If the Committee shall so require, as a condition of exercise of an Option,
Stock Appreciation Right or Limited Right or the expiration of a Restricted
Period (each, a "Tax Event"), each Grantee shall agree that no later than the
date of the Tax Event, the Grantee will pay to the Company or make
arrangements satisfactory to the Committee regarding payment of any federal,
state or local taxes of any kind required by law to be withheld upon the Tax
Event. Alternatively, the Committee may provide that a Grantee may elect, to
the extent permitted or required by law, to have the Company deduct federal,
state and local taxes of any kind required by law to be withheld upon the Tax
Event from any payment of any kind due to the Grantee. The withholding
obligation may be satisfied by the withholding or delivery of Common Stock.
18. Rights as a Stockholder.
Except as provided in Section 11(d) hereof, a Grantee or a transferee of an
award shall have no rights as a stockholder with respect to any shares covered
by the award until the date of the issuance of a stock certificate to him or
her for such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution
of other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 12(a) hereof.
19. No Rights to Employment; Forfeiture of Option Gains.
Nothing in the Plan or in any award granted or Agreement entered into
pursuant hereto shall confer upon any Grantee the right to continue in the
employ of, or in a consultant relationship with, the Company or any Subsidiary
or to be entitled to any remuneration or benefits not set forth in the Plan or
such Agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary to terminate such Grantee's employment. Awards
granted under the Plan shall not be affected by any change in duties or
position of a Grantee as long as such Grantee continues to be employed by, or
in a consultant relationship with, the Company or any Subsidiary. The
Agreement for any award under the Plan may require the Grantee to pay to the
Company any
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financial gain realized from the prior exercise or vesting of the award in the
event that the Grantee engages in conduct that violates any non-compete, non-
solicitation or non-disclosure obligation of the Grantee under any agreement
with the Company or any Subsidiary, including, without limitation, any such
obligations provided in the Agreement.
20. Beneficiary.
A Grantee may file with the Committee a written designation of a beneficiary
on such form as may be prescribed by the Committee and may, from time to time,
amend or revoke such designation. If no designated beneficiary survives the
Grantee, the executor or administrator of the Grantee's estate shall be deemed
to be the Grantee's beneficiary.
21. Stockholder Approval; Amendment and Termination of the Plan.
(a) STOCKHOLDER APPROVAL. The Plan initially became effective when adopted
by the Board on February 7, 1996 and shall terminate on the tenth anniversary
of such date. The Plan was ratified by the Company's stockholders on February
27, 1997. In December 1997, the Board submitted to the Company's stockholders
for approval an amendment authorizing an additional 1,000,000 shares for
awards under the Plan, making a total of 3,300,000 shares authorized for
awards. On September 28, 1998, the Board authorized an additional 1,000,000
shares for awards under the Plan, on November 20, 1998, the Board approved the
Plan, as amended and restated herein, and on November 23, 1998 the Executive
Committee approved the further increase of 500,000 shares, bringing the total
number of shares authorized for issuance under the Plan to 4,800,000 shares.
The Company's stockholders approved the September and November 1998 increases
in December 1998 and an additional increase of 1,500,000 shares of Common
Stock in December 1999. On May 24, 2000, the Board authorized 300,000 shares
of the Company's Class B Common Stock for awards under the Plan, subject to
stockholder approval. On September 12, 2000, the Board authorized an
additional 3,000,000 shares of the Company's Class B Common Stock for awards
under the Plan, subject to stockholder approval.
(b) AMENDMENT AND TERMINATION OF THE PLAN. The Board at any time and from
time to time may suspend, terminate, modify or amend the Plan; however, unless
otherwise determined by the Board, an amendment that requires stockholder
approval in order for the Plan to continue to comply with any law, regulation
or stock exchange (or Nasdaq) requirement shall not be effective unless
approved by the requisite vote of stockholders. Except as provided in Section
12(a) hereof, no suspension, termination, modification or amendment of the
Plan may adversely affect any award previously granted, unless the written
consent of the Grantee is obtained. The amendment of Section 6(g) (extending
the post-termination exercise period of Options from thirty (30) days to three
(3) months) and the addition of Section 13(c) in respect of Related Entity
Dispositions shall apply prospectively only to Options granted after November
17, 1998, the date that the Plan, as amended and restated herein, was adopted
by the Board.
22. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto shall
be governed by the laws of the State of Delaware.
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Exhibit B
CHARTER OF THE AUDIT COMMITTEE OF THE
BOARD OF DIRECTORS OF
IDT CORPORATION (As Revised)
I. Composition of the Audit Committee: The Audit Committee shall be
comprised of at least three directors, each of whom shall have no relationship
to the Company that may interfere with the exercise of their independence from
management and the Company and shall otherwise satisfy the applicable
membership requirements under the rules of the New York Stock Exchange, Inc.,
as such requirements are interpreted by the Board of Directors in its business
judgment.
II. Purposes of the Audit Committee: The purposes of the Audit Committee
are to assist the Board of Directors:
1. in its oversight of the Company's accounting and financial reporting
principles and policies and internal audit controls and procedures;
2. in its oversight of the Company's financial statements and the
independent audit thereof;
3. in selecting (or nominating the outside auditors to be proposed for
shareholder approval in any proxy statement), evaluating and, where deemed
appropriate, replacing the outside auditors (or nominating the outside
auditors to be proposed for shareholder approval in any proxy statement);
and
4. in evaluating the independence of the outside auditors.
The function of the Audit Committee is oversight. The management of the
Company is responsible for the preparation, presentation and integrity of the
Company's financial statements. Management and the internal auditing
department are responsible for maintaining appropriate accounting and
financial reporting principles and policies and internal controls and
procedures designed to assure compliance with accounting standards and
applicable laws and regulations. The outside auditors are responsible for
planning and carrying out a proper audit and reviews, including of the
Company's annual financial statements, reviews of the Company's quarterly
financial statements prior to the filing of each quarterly report on Form 10-
Q, and other procedures. In fulfilling their responsibilities hereunder, it is
recognized that members of the Audit Committee are not full-time employees of
the Company and are not, and do not represent themselves to be, accountants or
auditors by profession or experts in the fields of accounting or auditing
including in respect of auditor independence. As such, it is not the duty or
responsibility of the Audit Committee or its members to conduct "field work"
or other types of auditing or accounting reviews or procedures or to set
auditor independence standards, and each member of the Audit Committee shall
be entitled to rely on (i) the integrity of those persons and organizations
within and outside the Company from which it receives information from and,
(ii) the accuracy of the financial and other information provided to the Audit
Committee by such persons or organizations absent actual knowledge to the
contrary (which shall be promptly reported to the Board of Directors) and
(iii) representations made by management as to any information technology,
internal audit and other non-audit services provided by the auditors to the
Company.
The outside auditors for the Company are ultimately accountable to the Board
of Directors (as assisted by the Audit Committee). The Board of Directors,
with the assistance of the Audit Committee, has the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the outside
auditors (or to nominate the outside auditors to be proposed for shareholder
approval in the proxy statement).
The outside auditors shall submit to the Company annually a formal written
statement delineating all relationships between the outside auditors and the
Company ("Statement as to Independence"), addressing at least each non-audit
service provided to the Company and the matters set forth in Independence
Standards Board No. 1.
The outside auditors shall submit to the Company annually a formal written
statement of the fees billed for each of the following categories of services
rendered by the outside auditors: (i) the audit of the Company's annual
financial statements for the most recent fiscal year and the reviews of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for that fiscal year; (ii) information technology consulting
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services for the most recent fiscal year, in the aggregate and by each service
(and separately identifying fees for such services relating to financial
information systems design and implementation); and (iii) all other services
rendered by the outside auditors for the most recent fiscal year, in the
aggregate and by each service.
III. Meetings of the Audit Committee: The Audit Committee shall meet four
times annually, or more frequently if circumstances dictate, to discuss with
management the annual audited financial statements and quarterly financial
statements. In addition to such meetings of the Audit Committee as may be
required to discuss the matters set forth in Article IV, the Audit Committee
should meet separately at least annually with management, the director of the
internal auditing department and the outside auditors to discuss any matters
that the Audit Committee or any of these persons or firms believe should be
discussed privately. The Audit Committee may request any officer or employee
of the Company or the Company's outside counsel or outside auditors to attend
a meeting of the Audit Committee or to meet with any members of, or
consultants to, the Audit Committee. Members of the Audit Committee may
participate in a meeting of the Audit Committee by means of conference call or
similar communications equipment by means of which all persons participating
in the meeting can hear each other.
IV. Duties and Powers of the Audit Committee: To carry out its purposes,
the Audit Committee shall have the following duties and powers:
1. with respect to the outside auditors,
(i) to provide advice to the Board of Directors in selecting, evaluating
or replacing outside auditors;
(ii) to review the fees charged by the outside auditors for audit and
non-audit services;
(iii) to ensure that the outside auditors prepare and deliver annually a
Statement as to Independence (it being understood that the outside auditors
are responsible for the accuracy and completeness of this Statement), to
discuss with the outside auditors any relationships or services disclosed in
this Statement that may impact the objectivity and independence of the
Company's outside auditors and to recommend that the Board of Directors take
appropriate action in response to this Statement to satisfy itself of the
outside auditors' independence;
(iv) if applicable, to consider whether the outside auditors' provision
of (a) information technology consulting services relating to financial
information systems design and implementation and (b) other non-audit
services to the Company, is compatible with maintaining the independence of
the outside auditors; and
(v) to instruct the outside auditors that the outside auditors are
ultimately accountable to the Board of Directors and Audit Committee;
2. with respect to the internal auditing department,
(i) to review the appointment and replacement of the director of the
internal auditing department; and
(ii) to advise the director of the internal auditing department that he
or she is expected to provide to the Audit Committee summaries of and, as
appropriate, the significant reports to management prepared by the internal
auditing department and management's responses thereto;
3. with respect to financial reporting principles and policies and internal
audit controls and procedures,
(i) to advise management, the internal auditing department and the
outside auditors that they are expected to provide to the Audit Committee a
timely analysis of significant financial reporting issues and practices;
(ii) to consider any reports or communications (and management's and/or
the internal audit department's responses thereto) submitted to the Audit
Committee by the outside auditors required by or referred to in SAS 61 (as
codified by AU Section 380), as may be modified or supplemented, including
any reports and communications related to:
o deficiencies noted in the audit in the design or operation of
internal controls;
o consideration of fraud in a financial statement audit;
o detection of illegal acts;
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o the outside auditors' responsibility under generally accepted
auditing standards;
o significant accounting policies;
o management judgments and accounting estimates;
o adjustments arising from the audit;
o the responsibility of the outside auditor for other information in
documents containing audited financial statements;
o disagreements with management;
o consultation by management with other accountants;
o major issues discussed with management prior to retention of the
outside auditors;
o difficulties encountered with management in performing the audit;
o the outside auditors' judgments about the quality of the entity's
accounting principles; and
o reviews of interim financial information conducted by the outside
auditors;
(iii) to meet with management, the director of the internal auditing
department and/or the outside auditors:
o to discuss the scope of the annual audit;
o to discuss the audited financial statements;
o to discuss any significant matters arising from any audit or report
or communication referred to in items 2(ii) or 3(ii) above, whether
raised by management, the internal auditing department or the
outside auditors, relating to the Company's financial statements;
o to review the form of opinion the outside auditors propose to render
to the Board of Directors and shareholders;
o to discuss significant changes to the Company's auditing and
accounting principles, policies, controls, procedures and practices
proposed or contemplated by the outside auditors, the internal
auditing department or management; and
o to inquire about significant risks and exposures, if any, and the
steps taken to monitor and minimize such risks;
(iv) to obtain from the outside auditors assurance that the audit was
conducted in a manner consistent with Section 10A of the Securities Exchange
Act of 1934, as amended, which sets forth certain procedures to be followed
in any audit of financial statements required under the Securities Exchange
Act of 1934; and
(v) to discuss with the Company's General Counsel any significant legal
matters that may have a material effect on the financial statements, the
Company's compliance policies, including material notices to or inquiries
received from governmental agencies; and
4. with respect to reporting and recommendations,
(i) to prepare any report or other disclosures, including any
recommendation of the Audit Committee, required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
proxy statement;
(ii) to review this Charter at least annually and recommend any changes
to the full Board of Directors; and
(iii) to report its activities to the full Board of Directors on a
regular basis and to make such recommendations with respect to the above and
other matters as the Audit Committee may deem necessary or appropriate.
V. Resources and Authority of the Audit Committee: The Audit Committee
shall have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for
special audits, reviews and other procedures and to retain special counsel and
other experts or consultants.
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