UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
DELTATHREE, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing:
1) Amount previously paid:
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deltathree, Inc.
75 Broad Street
31st Floor
New York, New York 10004
October 6, 2004
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Meeting") of deltathree, Inc. (the "Company") to be held at the offices of
Mintz Levin Cohn Ferris Glovsky and Popeo, P.C., Chrysler Center, 666 Third
Avenue, 25th Floor, New York, New York 10017, on November 8, 2004, commencing at
10:30 a.m., local time. I urge you to be present in person or represented by
proxy at the Meeting.
The enclosed Notice of Annual Meeting and Proxy Statement fully describes
the business to be transacted at the Meeting, which includes (i) the election of
seven directors of the Company, (ii) the proposal to adopt the 2004 Stock
Incentive Plan, (iii) the proposal to adopt the 2004 Non-Employee Director Stock
Option Plan, (iv) the ratification of the appointment by the Board of Directors
of Brightman Almagor & Co., a member firm of Deloitte & Touche, as independent
auditors for the year ending December 31, 2004, and (v) the transaction of any
other business that may properly be brought before the Meeting or any
adjournment or postponement thereof.
Our Board of Directors believes that a favorable vote on each of the
matters to be considered at the Meeting is in the best interests of us and our
stockholders and unanimously recommends a vote "FOR" each of the matters.
Accordingly, we urge you to review the accompanying material carefully and to
return the enclosed proxy promptly.
The Board of Directors has fixed the close of business on September 28,
2004 as the record date for the determination of the stockholders entitled to
notice of and to vote at the Meeting. Accordingly, only stockholders of record
at the close of business on that date will be entitled to vote at the Meeting. A
list of the stockholders entitled to vote at the Meeting will be located at our
offices, 75 Broad Street, 31st Floor, New York, New York 10004, at least ten
days prior to the Meeting and will also be available for inspection at the
Meeting.
Our directors and officers will be present to help host the Meeting and to
respond to any questions that our stockholders may have. I hope you will be able
to attend. Even if you expect to attend the Meeting, please sign, date and
return the enclosed proxy card without delay. If you attend the Meeting, you may
vote in person even if you have previously mailed a proxy.
Sincerely,
/s/ Shimmy Zimels
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Shimmy Zimels
Chief Executive Officer and President
deltathree, Inc.
75 Broad Street
31st Floor
New York, New York 10004
NOTICE OF 2004 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 8, 2004
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of deltathree, Inc. (the "Company") will be held at the offices of
Mintz Levin Cohn Ferris Glovsky and Popeo, P.C., Chrysler Center, 666 Third
Avenue, 25th Floor, New York, New York 10017, on November 8, 2004, commencing at
10:30 a.m., local time. A proxy card and a Proxy Statement for the Meeting are
enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of seven directors for a one-year term expiring at our Annual
Meeting of Stockholders in 2005 and until their successors are duly
elected and qualified;
2. The proposal to adopt the 2004 Stock Incentive Plan (the "2004 Plan");
3. The proposal to adopt the 2004 Non-Employee Director Stock Option Plan
(the "2004 Directors Plan");
4. The ratification of the appointment by the Board of Directors of Brightman
Almagor & Co., a member firm of Deloitte & Touche, as independent auditors
for the year ending December 31, 2004; and
5. Such other matters as may properly come before the Meeting or any
adjournment or postponement thereof.
The close of business on September 28, 2004 has been fixed as the record
date for determining stockholders entitled to notice of and to vote at the
Meeting or any adjournment or postponement thereof. For a period of at least 10
days prior to the Meeting, a complete list of stockholders entitled to vote at
the Meeting shall be open to examination by any stockholder during ordinary
business hours at our offices at 75 Broad Street, 31st Floor, New York, New York
10004.
Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Proxy Statement.
A copy of our Annual Report for 2003, which includes our audited financial
statements, is being mailed together with this proxy material.
YOUR VOTE IS IMPORTANT. STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT
THE MEETING IN PERSON ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
By Order of the Board of Directors,
/s/ Paul C. White
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Paul C. White
Secretary
New York, New York
October 6, 2004
deltathree, Inc.
75 Broad Street
31st Floor
New York, New York 10004
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 8, 2004
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SOLICITATION AND VOTING OF PROXIES
This Proxy Statement and accompanying proxy materials are being first
mailed on or about October 8, 2004 to stockholders of deltathree, Inc. (the
"Company") at the direction of our Board of Directors (the "Board") to solicit
proxies in connection with the 2004 Annual Meeting of Stockholders (the
"Meeting"). The Meeting will be held at the offices of Mintz Levin Cohn Ferris
Glovsky and Popeo, P.C., Chrysler Center, 666 Third Avenue, 25th Floor, New
York, New York 10017, on November 8, 2004, commencing at 10:30 a.m., local time,
or at such other time and place to which the Meeting may be adjourned or
postponed.
All shares represented by valid proxies at the Meeting, unless the
stockholder otherwise specifies, will be voted (i) FOR the election of the seven
persons named under "Proposal 1-Election of Directors" as nominees for election
as our directors for a one-year term expiring at our annual meeting of
stockholders in 2005 and until their successors are duly elected and qualified,
(ii) FOR the proposal to adopt the 2004 Stock Incentive Plan (the "2004 Plan")
named under "Proposal 2--Adoption of 2004 Stock Incentive Plan," (iii) FOR the
proposal to adopt the 2004 Non-Employee Director Stock Option Plan (the "2004
Directors Plan") named under "Proposal 3--Adoption of 2004 Non-Employee Director
Stock Option Plan," (iv) FOR the ratification of the appointment by the Board of
the independent auditors named under "Proposal 4-Ratification of Appointment of
Independent Auditors" and (v) at the discretion of the proxy holders, with
regard to any matter not known to the Board on the date of mailing this Proxy
Statement that may properly come before the Meeting or any adjournment or
postponement thereof. Where a stockholder has appropriately specified how a
proxy is to be voted, it will be voted accordingly. The Board has designated
Paul C. White and Shimmy Zimels as proxies for the solicitation on behalf of the
Board of proxies of our stockholders to vote on all matters as may properly come
before the Meeting and any adjournment of the Meeting.
A proxy may be revoked at any time by providing written notice of such
revocation to deltathree, Inc., 75 Broad Street, 31st Floor, New York, New York
10004, which notice must be received prior to the Meeting. If notice of
revocation is not received prior to the Meeting, a stockholder may nevertheless
revoke a proxy if he or she attends the Meeting and votes in person.
RECORD DATE AND VOTING SECURITIES
The close of business on September 28, 2004 is the record date (the
"Record Date") for determining the stockholders entitled to vote at the Meeting.
At the close of business on September 28, 2004, we had issued and outstanding
approximately 29,585,323 shares of our Class A Common Stock, par value $0.001
(the "Common Stock"), held by approximately 125 holders of record. No shares of
our Class B Common Stock are outstanding. The Common Stock constitutes the only
outstanding class of voting securities entitled to be voted at the Meeting.
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy relating to any matter,
of the holders of a majority of the outstanding shares of Common Stock is
necessary to constitute a quorum. For purposes of the quorum and the discussion
below regarding the vote necessary to take stockholder action, stockholders of
record who are present at the Meeting in person or by proxy and who abstain,
including brokers holding customers' shares of record who cause abstentions to
be recorded at the Meeting, are considered stockholders who are present and
entitled to vote at the Meeting, and thus, shares of Common Stock held by such
stockholders will count toward the attainment of a quorum. If a quorum should
not be present, the Meeting may be adjourned from time to time until a quorum is
obtained.
Each share of Common Stock entitles the holder thereof to one vote with
respect to each proposal to be voted on at the Meeting. Nominees for election as
directors at the Meeting will be elected by a plurality of the votes of the
shares present in person or represented by proxy at the Meeting. Each other
proposal scheduled to be voted on at the Meeting requires a majority of the
outstanding shares entitled to vote on such proposal to be voted in favor of the
proposal in order for the proposal to be passed.
Atarey Hasharon Chevra Lepituach Vehashkaot Benadlan (1991) Ltd., an
Israeli company ("Atarey") beneficially owns approximately 50% of our
outstanding Common Stock. Therefore, Atarey will control the outcome of any
matter submitted to a vote of our stockholders, including the election of the
directors at the Meeting.
The accompanying proxy card is designed to permit each holder of Common
Stock as of the close of business on the Record Date to vote on each of the
matters to be considered at the Meeting. A stockholder is permitted to vote in
favor of, or to withhold authority to vote for, any or all nominees for election
to the Board and to vote in favor of or against or to abstain from voting with
respect to the proposal to ratify the appointment by the Board of the
independent auditors.
Brokers holding shares of record for customers generally are not entitled
to vote on certain matters unless they receive voting instructions from their
customers. As used herein, "uninstructed shares" means shares held by a broker
who has not received instructions from its customers on such matters, if the
broker has so notified us on a proxy form in accordance with industry practice
or has otherwise advised us that it lacks voting authority. As used herein,
"broker non-votes" means the votes that could have been cast on the matter in
question by brokers with respect to uninstructed shares if the brokers had
received their customers' instructions. Although there are no controlling
precedents under Delaware law regarding the treatment of broker non-votes in
certain circumstances, we intend to treat broker non-votes in the manner
described below.
In December 2000, the Securities and Exchange Commission adopted a rule
concerning the delivery of annual disclosure documents. The rule allows us or
brokers holding shares on behalf of our stockholders to send a single set of our
annual report and proxy statement to any household at which two or more of our
stockholders reside, if either we or the brokers believe that the stockholders
are members of the same family. This practice, referred to as "householding,"
benefits both stockholders and us. It reduces the volume of duplicate
information received by stockholders and helps to reduce our expenses. The rule
applies to our annual reports, proxy statements and information statements. Once
stockholders receive notice from their brokers or from us that communications to
their addresses will be "householded," the practice will continue until
stockholders are otherwise notified or until they revoke their consent to the
practice. Each stockholder will continue to receive a separate proxy card or
voting instruction card.
Stockholders whose households received a single set of disclosure
documents this year, but who would prefer to receive additional copies, may
contact our transfer agent, American Stock Transfer and Trust Company, by
calling their toll free number, 1-800-937-5449.
Stockholders who do not wish to participate in "householding" and would
like to receive their own sets of our annual disclosure documents in future
years, should follow the instructions described below. Stockholders who share an
address with another stockholder of the Company and who would like to receive
only a single set of our annual disclosure documents, should follow these
instructions:
o Stockholders whose shares are registered in their own name should
contact our transfer agent, American Stock Transfer and Trust
Company, and inform them of their request by calling them at
1-800-937-5449 or writing them at 6201 15th Avenue, Brooklyn, NY
11219.
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o Stockholders whose shares are held by a broker or other nominee
should contact the broker or other nominee directly and inform them
of their request. Stockholders should be sure to include their name,
the name of their brokerage firm and their account number.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of our Common Stock as of September 28, 2004 by:
o each person who we know owns beneficially more than 5% of our Common
Stock;
o each of our directors individually;
o each of our named executive officers individually; and
o all of our executive officers and directors as a group.
Unless otherwise indicated, to our knowledge, all persons listed below
have sole voting and investment power with respect to their shares of Common
Stock. Each person listed below disclaims beneficial ownership of their shares,
except to the extent of their pecuniary interests therein. Shares of Common
Stock that an individual or group has the right to acquire within 60 days of
September 28, 2004 pursuant to the exercise of options are deemed to be
outstanding for the purpose of computing the percentage ownership of such person
or group, but are not deemed outstanding for the purpose of calculating the
percentage owned by any other person listed.
NUMBER PERCENTAGE(1)
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SHARES OF DELTATHREE CLASS A
COMMON STOCK
BENEFICIALLY OWNED
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PRINCIPAL STOCKHOLDER:
Atarey Hasharon Chevra Lepituach Vehashkaot Benadlan (1991)
Ltd ....................................................... 14,783,752 50.0%
7 Giborey Israel St., P.O. Box 8468
South Netanya Industrial Zone 42504, Israel ..............
EXECUTIVE OFFICERS AND DIRECTORS:
Noam Bardin(2)(3) ............................................ 776,304 2.6%
Shimmy Zimels(2)(4) .......................................... 633,407 2.1%
Paul C. White(2)(5) .......................................... 325,000 1.1%
Ilan Biran (2)(5) ............................................ 24,848 *
Ehud Erez (2)(5)(6) .......................................... 10,000 *
Amir Gera (2)(5) ............................................. 24,848 *
Joshua Maor (2)(7) ........................................... 40,999 *
Lior Samuelson (2)(5) ........................................ 34,848 *
Noam Ben-Ozer (2)(5) ......................................... 24,848 *
All Directors and Executive Officers as a group
(9 persons)(8) .............................................. 1,895,102 6.4%
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* Less than 1%.
(1) Percentage of beneficial ownership is based on 29,585,323 shares of Common
Stock outstanding as of September 28, 2004.
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(2) The address for the director or executive officer listed is c/o the
Company.
(3) Includes (a) 187,366 shares of Common Stock and (b) options to purchase
588,938 shares of Common Stock.
(4) Includes (a) 64,469 shares of Common Stock and (b) options to purchase
568,938 shares of Common Stock.
(5) Represents options to purchase shares of Common Stock.
(6) Excludes the 14,783,752 shares of Common Stock owned by Atarey. Mr. Erez
is currently the Chief Executive Officer of Atarey.
(7) Includes (a) 16,151 shares of Common Stock and (b) options to purchase
24,848 shares of Common Stock. (8) Includes (a) 267,986 shares of Common
Stock and (b) options to purchase 1,627,116 shares of Common Stock.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Our Amended and Restated Certificate of Incorporation provides that the
number of members of our Board shall be not less than three and not more than
thirteen. There are currently eight directors on the Board. Ehud Erez, one of
our current directors, is not standing for reelection as a director on our
Board. Thus, at the Meeting, seven directors will be elected to our Board. At
each annual meeting of stockholders, directors will be elected to hold office
for a term of one year and until their respective successors are elected and
qualified. All of the officers identified above under "Executive Officers" serve
at the discretion of our Board.
The Board had seven regular and no special meetings during the fiscal year
ended December 31, 2003. During the fiscal year ended December 31, 2003, each
member of the Board participated in at least 75% of all Board and applicable
committee meetings held during the period for which he was a director. One of
our directors attended our annual meeting of stockholders held in 2003. The
Board has established an executive committee, a compensation committee, a
nominating and governance committee and an audit committee to devote attention
to specific subjects and to assist the Board in the discharge of its
responsibilities. The functions of these committees and their current members
are set forth below.
Executive Committee. The Executive Committee is empowered to act on any
matter except those matters specifically reserved to the full Board by
applicable law. The Executive Committee had no meetings during 2003. Amir Gera
and Joshua Maor are the current members of the Executive Committee.
Compensation Committee. The Compensation Committee is responsible for
evaluating our compensation policies, determining our executive compensation
policies and guidelines and administering our stock option and compensation
plans. The Compensation Committee is responsible for the determination of the
compensation of our Chief Executive Officer, and shall conduct its decision
making process with respect to that issue without the Chief Executive Officer
present. The Board has determined that all members of the Compensation Committee
qualify as independent under the definition promulgated by the Nasdaq Stock
Market. The Compensation Committee had one meeting during 2003. Amir Gera and
Joshua Maor are the current members of the Compensation Committee. Please see
also the report of the Compensation Committee set forth elsewhere in this
report.
Nominating and Governance Committee. The Nominating and Governance
Committee is responsible for assisting, identifying and recommending qualified
candidates for director nominees to the Board, and leading the Board in its
annual review of the Board's performance. The Board has determined that all
members of the Nominating Committee qualify as independent under the definition
promulgated by the Nasdaq Stock Market. There was no standing Nominating and
Governance Committee during 2003. On March 16, 2004, Amir Gera and Joshua Maor
were named as members of the Nominating and Governance Committee. The Nominating
and Governance Committee may consider candidates recommended by stockholders as
well as from other sources such as other directors or officers, third party
search firms or other appropriate sources. For all potential candidates, the
Nominating and Governance Committee may consider all factors it deems relevant,
such as a candidate's personal integrity and sound judgment, business and
professional skills and experience, independence, knowledge of the industry in
which we operate, possible conflicts of interest, diversity, the extent to which
the candidate would fill a present need on the Board, and concern for the
long-term interests of the stockholders. In general, persons recommended by
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stockholders will be considered on the same basis as candidates from other
sources. If a stockholder wishes to nominate a candidate to be considered for
election as a director at the 2005 Annual Meeting of Stockholders using the
procedures set forth in the Company's By-laws, it must follow the procedures
described in "Nomination of Directors." If a stockholder wishes simply to
propose a candidate for consideration as a nominee by the Nominating and
Governance Committee, it should submit any pertinent information regarding the
candidate to the Chairman of the Nominating and Governance Committee by mail at
75 Broad Street, New York, New York 10004. A copy of the Nominating Committee's
written charter is publicly available on the Company's website at
www.deltathree.com
Audit Committee. The Audit Committee recommends to the Board the
appointment of the firm selected to serve as our independent auditors and our
subsidiaries and monitors the performance of such firm; reviews and approves the
scope of the annual audit and evaluates with the independent auditors our annual
audit and annual financial statements; reviews with management the status of
internal accounting controls; evaluates issues having a potential financial
impact on us which may be brought to the Audit Committee's attention by
management, the independent auditors or the Board; evaluates our public
financial reporting documents; reviews the non-audit services to be performed by
the independent auditors, if any; and considers the effect of such performance
on the auditor's independence. Ilan Biran, Ehud Erez and Lior Samuelson are the
current members of the Audit Committee. During the year ended December 31, 2003,
the Board examined the composition of the Audit Committee in light of the
adoption of new rules by the Nasdaq Stock Market and Securities and Exchange
Commission in connection with the Sarbanes-Oxley Act of 2002. Under these rules,
while Messrs. Biran and Samuelson meet the required criteria for audit committee
member independence, Mr. Erez does not meet the required criteria due to his
position with Atarey, an affiliate of the Company. The SEC has stated that
listed issuers will be required to comply with the new listing rules by the
earlier of the date of their first annual meeting of shareholders after January
15, 2004 or October 31, 2004. On September 23, 2004, we replaced Mr. Erez on the
Audit Committee with Noam Ben-Ozer, a nominee for the Board of Directors, who
meets the criteria for audit committee member independence. The Board has
determined that each of Mr. Biran, Mr. Ben-Ozer and Mr. Samuelson are "audit
committee financial experts," as the Securities and Exchange Commission has
defined that term in Item 401 of Regulation S-K. The Audit Committee had five
meetings during 2003.
SHAREHOLDER COMMUNICATIONS TO THE BOARD
The Board of Directors recommends that stockholders initiate any
communications with the Board in writing and send them in care of our Secretary,
at 75 Broad Street, 31st Floor, New York, NY 10004. This centralized process
will assist the Board in reviewing and responding to stockholder communications
in an appropriate manner. The name of any specific intended Board recipient
should be noted in the communication. The Board has instructed our Secretary to
forward such correspondence only to the intended recipients; however, the Board
has also instructed our Secretary, prior to forwarding any correspondence, to
review such correspondence and, in his or her discretion, not to forward certain
items if they are deemed of a commercial or frivolous nature or otherwise
inappropriate for the Board's consideration. In such cases, some of that
correspondence may be forwarded elsewhere in the Company for review and possible
response.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors, which consisted entirely of
directors who met the independence and experience requirements of the Nasdaq
SmallCap Market as in effect on the date of the filing of the Company's Annual
Report on Form 10-K, furnished the following report:
The Audit Committee assists the Board in overseeing and monitoring the
integrity of the Company's financial reporting process, its compliance with
legal and regulatory requirements and the quality of its internal and external
audit processes. The role and responsibilities of the Audit Committee are set
forth in a written Charter adopted by the Board, which is attached at Appendix A
to this Proxy Statement. The Audit Committee reviews and reassesses the Charter
annually and recommends any changes to the Board for approval. The Audit
Committee is responsible for overseeing the Company's overall financial
reporting process, and for the appointment, compensation, retention and
oversight of the work of Brightman Almagor & Co., a member firm of Deloitte &
Touche. In fulfilling its responsibilities for the financial statements for
fiscal year 2003, the Audit Committee has, among other activities, reviewed and
discussed our audited financial statements for the fiscal year ended December
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31, 2003 with management and with our independent auditors, Brightman Almagor &
Co. The Audit Committee has discussed with Brightman Almagor & Co. the matters
required to be discussed by American Institute of Certified Public Accountants
Auditing Standards Board Statement on Auditing Standards No. 61 ("Communications
with Audit Committees") relating to the conduct of the audit. The Audit
Committee has received written disclosures and a letter from Brightman Almagor &
Co. including disclosures required by the Independence Standards Board Standard
No. 1, "Independence Discussions with Audit Committees," and has discussed with
Brightman Almagor & Co. their independence. The Audit Committee has considered
the compatibility of the provision of non-audit services with maintaining the
auditor's independence.
Based on the Audit Committee's review of the audited financial statements
and the review and discussions described in the foregoing paragraph, the Audit
Committee recommended to the Board of Directors that the audited financial
statements for the fiscal year ended December 31, 2003 be included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2003 for filing with
the Securities and Exchange Commission.
The Audit Committee
Ehud Erez
Ilan Biran
Lior Samuelson
The Audit Committee Report in this Proxy Statement shall not be deemed
filed or incorporated by reference into any other filings by us under the
Securities Act of 1933 or the Securities Exchange Act of 1934 except to the
extent that we specifically incorporate this information by reference.
6
PROPOSAL 1
ELECTION OF DIRECTORS
(NOTICE ITEM 1)
GENERAL
At the Meeting, seven directors will be elected to the Board to serve
until our next annual meeting of stockholders and until their respective
successors have been elected and qualified.
Our Amended and Restated Certificate of Incorporation provides that a
director shall hold office until the annual meeting for the year in which his or
her term expires except in the case of elections to fill vacancies or newly
created directorships. Each director is elected for a one-year term. Each of the
nominees is now serving as director on our Board. Ehud Erez, one of our current
directors, is not standing for reelection as a director on our Board.
Under our Amended and Restated By-laws, directors are elected by a
majority of the outstanding shares of Common Stock present in person or
represented by proxy at the Meeting, and thus, the seven nominees for election
as directors who receive the most votes cast will be elected. Instructions
withholding authority and broker non-votes will not be taken into account in
determining the outcome of the election of directors.
Unless authority to vote for any of the nominees named above is withheld,
the shares represented by the enclosed proxy will be voted FOR the election as
directors of such nominees. In the event that any nominee shall become unable or
unwilling to serve, the shares represented by the enclosed proxy will be voted
for the election of such other person as the Board of Directors may recommend in
that nominee's place. The Board has no reason to believe that any nominee will
be unable or unwilling to serve.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR EACH OF THE SEVEN NOMINEES LISTED HEREIN.
NOMINEES FOR DIRECTOR
Set forth below is certain information regarding each nominee as of
September 28, 2004, including such individual's age and principal occupation, a
brief account of such individual's business experience during at least the last
five years and other directorships currently held.
NOAM BARDIN, 33 (Y) Chairman of the Board. Mr. Bardin co-founded
deltathree and served as Chief Executive Officer and President from July 2000
through June 2002. Mr. Bardin has served as Chairman of the Board since April
2002. Mr. Bardin served as Vice President of Technology and Chief Technology
Officer of deltathree since June 1997 before being named President and Chief
Executive Officer in April 2000. He served as Global Network Director from
November 1996 to May 1997. Prior to founding deltathree, he served as Director
of Operations at Ambient Corporation. Mr. Bardin graduated from the Hebrew
University (Jerusalem) with a BA in Economics and an MPA from Harvard University
Kennedy School in Public Administration.
NOAM BEN-OZER, 41 - Director. Mr. Ben-Ozer was named a director of
deltathree in September 2004. Mr. Ben-Ozer currently serves as a Director, and
is Chairman of the Audit Committee for Equity-One, a NYSE-listed real estate
investment trust. Previously, Mr. Ben-Ozer co-founded iPhrase Technologies,
Inc., a privately-held software company. From 1994 to 1999, Mr. Ben-Ozer served
as a consultant for Bain & Company, a management consulting company. From 1993
to 1994, Mr. Ben-Ozer served as an outside consultant to Lernout & Hauspie
Speech Products. Mr. Ben-Ozer is a certified public accountant in Israel and
received an M.B.A. from the Harvard Business School.
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ILAN BIRAN, 58 - Director. Mr. Biran has served as a director of
deltathree since December 2003. Mr. Biran brings a wealth of business and
management experience from the telecom and defense industries. Since January
2004, Mr. Biran has served as the Chairman of YES Satellite Television, one of
the leading satellite television companies in Israel. From 1999 to 2003, Mr.
Biran served as the President and CEO of Bezeq Ltd. - the Israeli PTT, with
annual sales of over $2 billion and approximately 16,000 employees. Mr. Biran
holds the rank of Major General (res.) in the Israeli Defense Force where, as
Commander of the IDF's Central Command, he played an active role in reaching the
peace agreements with Jordan. From 1996 to 1999, he served as the Director
General of the Israeli Ministry of Defense, and prior to that command, he held a
wide variety of senior-level positions in other Israeli units, since 1964. Mr.
Biran holds a B.A. in Economics and Business Administration from Bar-Ilan
University, and holds an Associate Diploma in Strategy and Political Economic
Research from Georgetown University. He is also a graduate of the U.S. Marine
Corps Command and Staff College. In addition, Mr. Biran's public activities
include: serving as the Israeli Prime Minister's Special Coordinator for POWs
and MIAs; is a member of the Board of Trustees of Haifa University; is a member
of the Shevach-Mofet High School Executive Committee and; since 1996, has served
as the Chairman of the Board of Directors of the Israeli Oil Refineries, Ltd.
AMIR GERA, 43 - Director. Mr. Gera has served as a director of deltathree
since June 2001. Since January 2002, Mr. Gera has served as the Chief Executive
Officer of Green Venture Capital Ltd., an investment holding company which
engages primarily in acquiring holdings in venture capital funds, where he had
previously served as the Assistant Director General since January 2001. In
addition, Mr. Gera is also the Chief Executive Officer of Commutech Holding &
Investments Ltd and has served in this capacity since March 2001. From 1993
through 2000, Mr. Gera was the Assistant Director General of Emet Neveh Savion
Ltd., which owns and manages real estate assets.
JOSHUA MAOR, 68 (Y) Director. Mr. Maor has served as a director of
deltathree since June 2001. Mr. Maor has served as the Chairman of Commutech
Holding & Investments Ltd., an investment holding company which engages
primarily in investments in high tech companies, since January 2002, and as the
Chairman of the board of Mofet Venture Capital since 2001. Mr. Maor served as
both the Chairman and Chief Executive Officer Green Venture Capital Ltd from
1997 to January 2002. From 1996 through 1997, Mr. Maor was the Chairman of
I.B.M. Israel Ltd., which distributes and provides services for I.B.M. products,
and I.B.M. Science and Technology Ltd., a research and development company. Mr.
Maor served as a member of our Advisory Board from 1997 through 1998.
LIOR SAMUELSON, 55 (Y) Director. Mr. Samuelson has served as a director of
deltathree since August 2001. Since August 1999, Mr. Samuelson has served as a
Co-Founder and Principal of Mercator Capital. His experience includes advising
clients in the Technology, Communications and Consumer sectors on mergers,
acquisitions and private placements. From March 1997 to August 1999, Mr.
Samuelson was the President and CEO of PricewaterhouseCoopers Securities. Prior
to that, he was the President and CEO of The Barents Group, a merchant bank
specializing in advising and investing in companies in emerging markets. Mr.
Samuelson was also the Co-Chairman of Peloton Holdings, a Private Equity
management company. Before that, he was a managing partner with KPMG and a
senior consultant at Booz, Allen & Hamilton. Mr. Samuelson earned B.S. and M.S.
degrees in Economics from Virginia Polytechnic University.
SHIMMY ZIMELS, 39 (Y) President and Chief Executive Officer and Director.
Mr. Zimels has served as Chief Executive Office and President since June 2002,
and served as Vice President of Operations and Chief Operating Officer of
deltathree since June 1997, before being named President and Chief Executive
Officer in June 2002. Prior to joining deltathree, Mr. Zimels was the Controller
and Vice President of Finance at Net Media Ltd., a leading Israel-based Internet
Service Provider, from June 1995 to June 1997. From April 1991 to May 1995, Mr.
Zimels was a senior tax auditor for the Income Tax Bureau of the State of
Israel. Mr. Zimels graduated with distinction from Hebrew University with a
degree in Economics and Accounting and holds a Masters in Economics from Hebrew
University.
Our Board has determined that the following members of the Board qualify
as independent under the definition promulgated by the Nasdaq Stock Market: Noam
Ben-Ozer, Ilan Biran, Amir Gera , Joshua Maor and Lior Samuelson.
8
PROPOSAL 2
ADOPTION OF 2004 STOCK INCENTIVE PLAN
(NOTICE ITEM 2)
GENERAL
We are asking our stockholders to approve our 2004 Stock Incentive Plan
(the "2004 Plan"). In September 2004, the Company's Board of Directors approved,
subject to approval of our stockholders at the Meeting, the 2004 Plan. The
aggregate number of shares that may be issued under the 2004 Plan shall not
exceed (a) 759,732 shares of Common Stock (which represents 4,000,000 shares of
Common Stock reserved under the 1999 Stock Incentive Plan (the "1999 Plan") less
the amount of shares represented by Awards previously granted under the 1999
Plan and exercised or outstanding as of September 28, 2004), plus (b) such
additional shares of Common Stock as are represented by Awards previously
granted under the 1999 Plan which are cancelled or expire after the date of
stockholder approval of this Plan without delivery of shares of stock by the
Company. If the stockholders approve the 2004 Plan, it will replace our 1999
Stock Incentive Plan (the "1999 Plan") which will be terminated, except with
respect to outstanding options previously granted thereunder. As of September
28, 2004, no options have been granted under the 2004 Plan. Because our named
executive officers are otherwise eligible to receive option grants under the
2004 Plan, they have an interest in this proposal. On September 28, 2004, the
closing market price per share of our Common Stock was $2.02, as reported in the
Nasdaq SmallCap Market.
The 2004 Plan is being submitted to our stockholders for approval at the
Meeting in order to ensure (i) continued listing of our Common Stock on the
Nasdaq SmallCap Market, (ii) favorable federal income tax treatment for grants
of incentive stock options under Internal Revenue Code of 1986 ("the Code")
Section 422, and (iii) eligibility to receive a federal income tax deduction for
certain compensation paid under the 2004 Plan by complying with Rule 162(m) of
the Code. The Board believes that the 2004 Plan is necessary to give the Company
the flexibility needed to attract, retain and motivate its management and
employees and to provide certain benefits under Israel's Income Tax Ordinance
[New Version], 1961 to our employees residing in the State of Israel that are
granted options pursuant to the 2004 Plan.
MATERIAL FEATURES OF THE 2004 PLAN
The following paragraphs provide a summary of the principal features of
our 2004 Plan and its operation. The following summary is qualified in its
entirety by reference to the 2004 Plan as set forth in Appendix B.
2004 STOCK INCENTIVE PLAN
The purpose of the 2004 Plan is to foster and promote the long-term
financial success of our company and materially increase shareholder value by
(a) motivating superior performance by means of performance-related incentives,
(b) encouraging and providing for the acquisition of an ownership interest in
our company by executive officers, other employees and consultants and (c)
enabling us to attract and retain the services of an outstanding management team
upon whose judgment, interest and effort the successful conduct of our
operations is largely dependent.
General. The Plan provides for the grant of (i) incentive stock options
and non-incentive stock options to purchase our Common Stock; (ii) stock
appreciation rights, which may be granted in tandem with or independently of
stock options; (iii) restricted stock and restricted units; (iv) incentive stock
and incentive units; and (v) stock in lieu of cash. The aggregate number of
shares that may be issued under the 2004 Plan shall not exceed (a) 759,732
shares, plus (b) such additional shares of Common Stock as are represented by
Awards previously granted under the 1999 Plan which are cancelled or expire
after the date of stockholder approval of this Plan without delivery of shares
of stock by the Company.
Administration. The 2004 Plan will be administered by a committee that
will be made up of directors who are not employees of the Company and whose
membership on the committee (i) does not adversely impact the Company's ability
to deduct compensation payments made under the Plan and (ii) will permit
recipients of awards to avail themselves of exemptions under federal securities
laws.
9
Eligibility and Extent of Participation. The 2004 Plan provides for
discretionary grants of awards to officers of the Company within the meaning of
Rule 16a-1(f) of the Exchange Act and to other employees and consultants of the
Company. Directors who are non-employees are prohibited from participating in
the plan. The maximum number of shares for which options or stock appreciation
rights may be granted to any one participant in a calendar year is 500,000 of
the shares of Common Stock available under the Plan.
Stock Options. Under the Plan, the compensation committee may grant both
incentive and non-incentive stock options for Common Stock of the Company. The
options generally will have a term of ten years and will become exercisable in
three equal installments commencing on the first anniversary of the date of
grant. The purchase price per share payable upon exercise of an option will be
established by the compensation committee; provided, however, that such option
exercise price may be no less than the fair market value of a share of Common
Stock on the date of grant. The option exercise price is payable by one of the
following methods or a combination of methods to the extent permitted by the
compensation committee: (i) in cash or its equivalent, or (ii) subject to the
approval of the compensation committee, in shares of Common Stock owned by the
participant for at least six months prior to the date of exercise. The
compensation committee may provide that a participant who delivers shares of
Common Stock to exercise an option when the market value of the Common Stock
exceeds the exercise price of the option will be automatically granted reload
options for the number of shares delivered to exercise the option. Reload
options will be subject to the same terms and conditions as the related option
except that the exercise price will be the fair market value on the date the
reload option is granted and such reload option will not be exercisable for six
months.
Stock Appreciation Rights. The compensation committee may grant stock
appreciation rights in tandem with or independently of a stock option. Stock
appreciation rights entitle the participant to receive the excess of the fair
market value of a stated number of shares of Common Stock on the date of
exercise over the base price of the stock appreciation right. The base price may
not be less than 100% of the fair market value of the Common Stock on the date
the stock appreciation right is granted. The compensation committee will
determine when a stock appreciation right is exercisable, the method of
exercise, and whether settlement of the stock appreciation right is to be made
in cash, shares of Common Stock or a combination of cash and shares.
Restricted Stock and Restricted Units. The compensation committee may
grant awards in the form of restricted stock and restricted units. For purposes
of the Plan, restricted stock is an award of Common Stock and a restricted unit
is a contractual right to receive Common Stock (or cash based on the fair market
value of Common stock). Such awards are subject to such terms and conditions, if
any, as the compensation committee deems appropriate. Unless otherwise
determined by the compensation committee, participants are entitled to receive
either currently or at a future date, dividends or other distributions paid with
respect to restricted stock and, if and to the extent determined by the
compensation committee, either to be credited with or receive currently an
amount equal to dividends paid with respect to the corresponding number of
shares covered by restricted units. Restricted stock and restricted units become
vested and nonforfeitable and the restricted period shall lapse upon the third
anniversary of the date of grant unless the compensation committee determines
otherwise.
Incentive Stock and Incentive Units. The Plan allows for the grant of
awards in the form of incentive stock and incentive units. For purposes of the
plan, incentive stock is an award of Common Stock and an incentive unit is a
contractual right to receive Common Stock. Such awards will be contingent upon
the attainment, in whole or in part, of certain performance objectives over a
period to be determined by the compensation committee. With regard to a
particular performance period, the compensation committee has the discretion,
subject to the plan's terms, to determine the terms and conditions of such
awards, including the performance objectives to be achieved during such period
and the determination of whether and to what degree such objectives have been
attained. Unless otherwise determined by the compensation committee,
participants are entitled to receive, either currently or at a future date, all
dividends and other distributions paid with respect to the incentive stock and,
if and to the extent determined by the compensation committee, either to be
credited with or receive currently an amount equal to dividends paid with
respect to the corresponding number of shares covered by the incentive units.
Stock in Lieu of Cash. The Plan authorizes the compensation committee to
grant awards of Common Stock to executive officers in lieu of all or a portion
of an award otherwise payable in cash pursuant to any bonus or incentive
compensation plan of the company, based on the fair market value of the Common
Stock.
10
Amendment and Termination. The Plan will terminate not later than ten
years from the date of its adoption. The board of directors or the compensation
committee may amend, suspend or terminate the Plan or any portion of it at any
time. However, no amendment may be made to the Plan without shareholder approval
if such amendment would (1) increase the number of shares of Common Stock
subject to the Plan, (2) change the price at which awards may be granted, or (3)
remove the administration of the Plan from the compensation committee.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the federal income tax consequences of 2004 Plan
transactions is based upon federal income tax laws in effect on the date of this
Proxy Statement. This summary does not purport to be complete, and does not
discuss, state, local or non-U.S. tax consequences except as set forth below.
Nonqualified Stock Options. The grant of a nonqualified stock option under
the 2004 Plan will not result in any federal income tax consequences to the
participant or to us. Upon exercise of a nonqualified stock option, the
participant is subject to income taxes at the rate applicable to ordinary
compensation income on the difference between the option exercise price and the
fair market value of the shares on the date of exercise. This income is subject
to withholding for federal income and employment tax purposes. We are entitled
to an income tax deduction in the amount of the income recognized by the
participant, subject to possible limitations imposed by Section 162(m) of the
Code and so long as we withhold the appropriate taxes with respect to such
income (if required) and the participant's total compensation is deemed
reasonable in amount. Any gain or loss on the participant's subsequent
disposition of the shares of Common Stock will receive long or short-term
capital gain or loss treatment, depending on whether the shares are held for
more than one year following exercise. We do not receive a tax deduction for any
such gain.
Incentive Stock Options. Incentive stock options are intended to qualify
for treatment under Section 422 of the Code. An incentive stock option does not
result in taxable income to the optionee or deduction to the Company at the time
it is granted or exercised, provided that no disposition is made by the optionee
of the shares acquired pursuant to the option within two years after the date of
grant of the option nor within one year after the date of issuance of shares to
him (referred to as the "ISO holding period"). However, the difference between
the fair market value of the shares on the date of exercise and the option price
will be an item of tax preference includible in "alternative minimum taxable
income." Upon disposition of the shares after the expiration of the ISO holding
period, the optionee will generally recognize long term capital gain or loss
based on the difference between the disposition proceeds and the option price
paid for the shares. If the shares are disposed of prior to the expiration of
the ISO holding period, the optionee generally will recognize taxable
compensation, and the Company will have a corresponding deduction, in the year
of the disposition, equal to the excess of the fair market value of the shares
on the date of exercise of the option over the option price. Any additional gain
realized on the disposition will normally constitute capital gain. If the amount
realized upon such a disqualifying disposition is less than fair market value of
the shares on the date of exercise, the amount of compensation income will be
limited to the excess of the amount realized over the optionee's adjusted basis
in the shares.
In the year of the disqualifying disposition, the Company is entitled to a
deduction equal to the amount of ordinary income recognized by the optionee,
subject to possible limitations imposed by Section 162(m) of the Code and so
long as we withhold the appropriate taxes with respect to such income (if
required) and the participant's total compensation is deemed reasonable in
amount.
Restricted Stock. The grant of restricted stock will subject the recipient
to ordinary compensation income on the difference between the amount paid for
such stock and the fair market value of the shares on the date that the
restrictions lapse. This income is subject to withholding for federal income and
employment tax purposes. We are entitled to an income tax deduction in the
amount of the ordinary income recognized by the recipient, subject to possible
limitations imposed by Section 162(m) of the Code and so long as we withhold the
appropriate taxes with respect to such income (if required) and the
participant's total compensation is deemed reasonable in amount. Any gain or
loss on the recipient's subsequent disposition of the shares will receive long
or short-term capital gain or loss treatment depending on how long the stock has
been held since the restrictions lapsed. We do not receive a tax deduction for
any such gain.
11
Recipients of restricted stock may make an election under Section 83(b) of
the Code ("Section 83(b) Election") to recognize as ordinary compensation income
in the year that such restricted stock is granted, the amount equal to the
spread between the amount paid for such stock and the fair market value on the
date of the issuance of the stock. If such an election is made, the recipient
recognizes no further amounts of compensation income upon the lapse of any
restrictions and any gain or loss on subsequent disposition will be long or
short-term capital gain to the recipient. The Section 83(b) Election must be
made within thirty days from the time the restricted stock is issued.
Stock Appreciation Rights. Recipients of stock appreciation rights
("SARs") generally should not recognize income until the SAR is exercised
(assuming there is no ceiling on the value of the right). Upon exercise, the
participant will normally recognize taxable ordinary income for federal income
tax purposes equal to the amount of cash and fair market value the shares, if
any, received upon such exercise. Participants who are employees will be subject
to withholding for federal income and employment tax purposes with respect to
income recognized upon exercise of an SAR. Participants will recognize gain upon
the disposition of any shares received on exercise of an SAR equal to the excess
of (i) the amount realized on such disposition over (ii) the ordinary income
recognized with respect to such shares under the principles set forth above.
That gain will be taxable as long or short-term capital gain depending on
whether the shares were held for more than one year.
We will be entitled to a tax deduction to the extent and in the year that
ordinary income is recognized by the participant, subject to possible
limitations imposed by Section 162(m) of the Code and so long as we withhold the
appropriate taxes with respect to such income (if required) and the
participant's total compensation is deemed reasonable in amount.
Restricted Stock Units. Recipients of restricted stock units generally
should not recognize income until such units are converted into cash or shares
of stock. Upon conversion, the participant will normally recognize taxable
ordinary income for federal income tax purposes equal to the amount of cash and
fair market value the shares, if any, received upon such conversion.
Participants who are employees will be subject to withholding for federal income
and employment tax purposes with respect to income recognized upon conversion of
the restricted stock units. Participants will recognize gain upon the
disposition of any shares received upon conversion of the restricted stock units
equal to the excess of (i) the amount realized on such disposition over (ii) the
ordinary income recognized with respect to such shares under the principles set
forth above. That gain will be taxable as long or short-term capital gain
depending on whether the shares were held for more than one year.
We will be entitled to a tax deduction to the extent and in the year that
ordinary income is recognized by the participant, subject to possible
limitations imposed by Section 162(m) of the Code and so long as we withhold the
appropriate taxes with respect to such income (if required) and the
participant's total compensation is deemed reasonable in amount.
ISRAELI INCOME TAX CONSIDERATIONS
The following summary of the income tax consequences for our employees
residing in the State of Israel of options granted under the 2004 Plan is based
upon Israeli income tax laws in effect on the date of this Proxy Statement.
These tax consequences will not apply in any way to individuals who are not
residents of the State of Israel or who are not deemed to be residents of the
State of Israel for the payment of tax
Approved 102 Options
Approved 102 Options are governed by Section 102(b) of Israel's Income Tax
Ordinance [New Version], 1961 (the "Ordinance") and will be held by a trustee
for the benefit of the option holders for the requisite holding period under
Section 102, which is two years following the end of the tax year in which the
options were granted to the optionee, with respect to a CGA (as defined below)
and which is one year following the end of the tax year in which the options
were granted to the optionee, with respect to an OIA (as defined below). Under
current tax laws in effect in the State of Israel, the optionees will not be
required to recognize income for Israeli income tax purposes at the date of
grant of Approved 102 Options nor at the date of exercise of such options. The
release of an Approved 102 Option (or of a share received on the exercise
thereof) from the trustee to the optionee, or the sale of an Approved 102 Option
(or of a share received on the exercise thereof), whichever is earlier, is a
taxable event under Israeli law. The grant of Approved 102 Options is subject to
12
approval by Israel's Income Tax Authorities. In addition, CGAs and OIAs may not
be granted simultaneously, and our election of the type of Approved 102 Options
to be granted under the Plan has to be filed with the Israeli Tax Authorities at
least 30 days before the first date of grant of Approved 102 Options. Such
election will become effective as of the first date of grant of an Approved 102
Option under the Plan and shall remain in effect at least until the end of the
year following the year during which we first granted an Approved 102 Option.
Our election shall not prevent us from also granting Unapproved 102 Options at
any time or from time to time. Approved 102 Options may either be classified as
a capital gain option ("CGA") or an ordinary income option ("OIA").
CGA
With respect to a CGA, the optionee will realize a capital gain in an
amount equal to the spread between (i) the fair market value of the share
purchased upon such exercise, on the date such share is sold or released from
trust, as the case may be, and (ii) the exercise price of the option. Capital
gains realized will be taxed at a flat rate of 25%. In cases where the exercise
price of options is lower than the fair market value of the company's shares on
the date of grant, the excess of the fair market value of the shares on the date
of grant over the exercise price (the "Rebate") shall be considered as
compensation income. Upon the sale of shares received following the exercise of
options or upon release from the trust, whichever is earlier, the taxable gain
shall be taxed in two parts:
o The Rebate will be taxable as ordinary income, and the optionee will
be subject to social taxes and income tax rates will be determined
in accordance with the optionee's marginal tax rates; and
o The difference between (i) the fair market value of the share on the
date such shares were sold or released from the trust, as the case
may be, and (ii) the exercise price of the option (plus the Rebate)
shall be taxable as capital gain at a flat rate of 25%. Furthermore,
the capital gains upon the sale of the shares will not be subject to
Israeli social taxes.
For so long as the shares received upon exercise of the options are held
in trust, there will be no taxable event. However, if such shares are
transferred from the trust to the optionee, a taxable event will then occur. If
the optionee then sells such shares, a second taxable event will occur. To the
extent the shares received following the exercise of options are sold during the
holding period required under Section 102 of the Ordinance, the taxable gain
will be considered as ordinary income and will be liable for social taxes.
Income tax rates will be determined in accordance with the optionee's marginal
tax rates.
OIA
With respect to an OIA, the optionee will recognize compensation income,
taxable as ordinary income in an amount equal to the difference between (i) the
fair market value of the share purchased upon such exercise, on the date such
share is sold or released from trust, as the case may be, and (ii) the exercise
price of the option. Furthermore, the compensation income upon the sale of the
shares will be subject to Israeli social taxes. Income tax rates will be
determined in accordance with the optionee's marginal tax rates. For so long as
the shares received upon exercise of the options are held in trust, there will
be no taxable event. However, if such shares are transferred from the trust to
the optionee, a taxable event will then occur. If the optionee then sells such
shares, a second taxable event will occur. To the extent the shares received
following exercise of options are sold during the trust period applicable to
OIAs, the optionee will recognize ordinary income at the time of such sale or
transfer equal to the higher of the tax liability on the grant date or the tax
liability upon disposition or transfer.
Unapproved 102 Options
Unapproved 102 Options are governed by Section 102(c) of the Ordinance and
are not required to be held by a trustee. With respect to non-traded options,
the optionee will recognize compensation income, taxable as ordinary income at
his or her marginal tax rate upon the sale of shares received following the
exercise of options. Furthermore, the compensation income upon the sale of the
shares will be subject to Israeli social taxes.
13
NEW PLAN BENEFITS
As of the date of this Proxy Statement, no executive officer or employee
and no associate of any executive officer or employee, has been granted any
awards, subject to stockholder approval of the proposed 2004 Plan. Because the
plan administrator will make future awards at its discretion, we cannot
determine the number of options and other awards that may be awarded in the
future to eligible participants.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE 2004 STOCK INCENTIVE PLAN.
14
PROPOSAL 3
ADOPTION OF 2004 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(NOTICE ITEM 3)
GENERAL
We are asking our stockholders to approve our 2004 Non-Employee Director
Stock Option Plan (the "2004 Directors Plan"). On September 23, 2004, the
Company's Board of Directors approved, subject to approval of our stockholders
at the Meeting, the 2004 Directors Plan. The aggregate number of shares of
Common Stock that may be issued under the 2004 Directors Plan shall not exceed
(a) 351,216 shares (which represents 600,000 shares of Common Stock reserved
under the 1999 Directors Compensation Plan (the "1999 Directors Plan") less the
amount of shares represented by Options previously granted under the 1999
Directors Plan and exercised or outstanding as of September 28, 2004) plus (b)
such additional shares of Common Stock as are represented by Options previously
granted under the 1999 Directors Plan which are cancelled or expire after the
date of stockholder approval of this Plan without delivery of shares of stock by
the Company. If the stockholders approve the 2004 Directors Plan, it will
replace our 1999 Directors Plan which will be terminated, except with respect to
outstanding options previously granted thereunder. As of September 28, 2004, no
options have been granted under the 2004 Directors Plan. Because our
non-employee directors are otherwise eligible to receive option grants under the
2004 Directors Plan, they have an interest in this proposal.
MATERIAL FEATURES OF THE 2004 DIRECTORS PLAN
The following paragraphs provide a summary of the principal features of
our 2004 Directors Plan and its operation. The following summary is qualified in
its entirety by reference to the 2004 Directors Plan as set forth in Appendix C.
The purposes of the 2004 Directors Plan are to enable us to attract,
maintain and motivate qualified directors and to enhance a long-term mutuality
of interest between our directors and shareholders of our Common Stock by
granting our directors options to purchase our shares.
General. The Directors Plan provides for the automatic grant of
nonstatutory stock options. Options granted under the Plan are not intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The aggregate number of
shares of Common Stock that may be issued under the 2004 Directors Plan shall
not exceed (a) 351,216 shares, plus (b) such additional shares of Common Stock
as are represented by Options previously granted under the 1999 Directors Plan
which are cancelled or expire after the date of stockholder approval of this
Plan without delivery of shares of stock by the Company. Shares subject to any
option granted under the 2004 Directors Plan, or under the 1999 Directors Plan,
which expire or are terminated or canceled prior to exercise will be available
for future grants under the 2004 Directors Plan.
Administration. The 2004 Directors Plan shall be administered by the
Board. The Board may delegate its powers and functions hereunder to a duly
appointed committee of the Board. The Board shall have full authority to
interpret the Plan; to establish, amend and rescind rules for carrying out the
Plan; to administer the Plan; to incorporate in any option agreement such terms
and conditions, not inconsistent with the Plan, as it deems appropriate; to
construe the respective option agreements and the Plan; and to make all other
determinations and to take such steps in connection with the Plan as the Board,
in its discretion, deems necessary or desirable for administering the Plan.
Non-Discretionary Grants
Initial Option Awards. Each director who is not an employee of the Company
will be granted options to acquire 10,000 shares of Common Stock on the date he
or she joins the Board.
15
Subsequent Option Awards. On the first business day after each annual
meeting of stockholders of the Company occurring during the term of the Plan
commencing with the Meeting, each non-employee director who meets the guidelines
for Board service and who continues to be a non-employee director following such
annual meeting shall automatically be granted an option to purchase 10,000
shares of Common Stock; provided that no Subsequent Option Award shall be made
to any non-employee director who has not served as a director of the Company, as
of the time of such annual meeting, for at least six months.
Committee Chairman Awards. Each non-employee director who is appointed as
chairman of a standing committee of the Board (and has not served as the
chairman of such committee immediately prior to the appointment) shall be
automatically granted an option to purchase 10,000 shares of Common Stock on the
date of such appointment. Each non-employee director who serves as a chairman of
the full Board or of a standing committee of the Board other than the audit
committee, and who meets the guidelines for Board service, immediately following
each annual meeting of the Company's stockholders, commencing with the Meeting,
shall be granted an option to purchase an additional 10,000 shares of Common
Stock; provided that no Committee Chairman Award shall be made to: any
non-employee director who has not served as a director of the Company, as of the
time of such annual meeting, for at least six months, and no Committee Chairman
Award shall be made to any Eligible Director who has received a Committee
Chairman award for such service on the same committee within the past six
months.
Audit Committee Service Awards. Each non-employee director who is
appointed as a member of the audit committee of the Board (and has not served as
a member of such committee immediately prior to that appointment) shall be
automatically granted an option to purchase 10,000 shares of Common Stock on the
date of such appointment. Each non-employee director who serves as a member of
the audit committee of the Board, and who meets the guidelines for Board
service, immediately following each annual meeting of the Company's
stockholders, commencing with the Meeting, shall be granted an option to
purchase an additional 10,000 shares of Common Stock; provided that: no Audit
Committee Service Award shall be made to any non-employee director who has not
served as a director of the Company, as of the time of such annual meeting, for
at least six months, and no Audit Committee Award shall be made to any Eligible
Director who has received an Audit Committee award for such service within the
past six months. In addition, the chairman of the audit committee of the Board
shall be granted an additional option to purchase 5,000 shares of Common Stock.
Annual Limitation. Notwithstanding the foregoing, a non-employee director
shall receive a maximum of options to purchase 30,000 shares of Common Stock
during any single calendar year.
Exercise Price. The exercise price per share of Common Stock of each
option granted pursuant to the Plan shall be equal to the fair market value per
share on the date of grant.
Option Term. If not previously exercised, each option shall expire on the
earlier of (i) the tenth anniversary of the date of the grant thereof and (ii)
on the first anniversary of the termination of the non-employee director's
status as a director of the Company.
Exercisability. Each option granted under the Plan shall become fully
vested and exercisable on the first anniversary of the date of grant.
Change in Control. Notwithstanding anything to the contrary in the Plan,
options granted pursuant to the Plan will become exercisable in full upon a
"change in control." A "change in control" shall arise if, at any time while the
non-employee director is a member of the Company's Board any one or more of the
following events occurs:
(i) The Company is merged, consolidated or reorganized into or with
another corporation, or other entity and, as a result thereof, less than 50% of
the outstanding stock or other capital interests of the surviving, resulting or
acquiring corporation, person, or other entity is owned, in the aggregate, by
the stockholder or stockholders of the Company immediately prior to such merger,
consolidation or reorganization;
(ii) The Company sells all or substantially all of its business or assets
(or both) to any other corporation, person, or other entity, less than 50% of
the outstanding, voting stock or other capital interests of which are owned, in
the aggregate, by the stockholders of the Company, directly or indirectly,
immediately prior to or after such sale; or
16
(iii) Any "Person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) other than a Person who is an
affiliate as of the effective date of the Plan becomes the "Beneficial Owner"
(as defined in Rule 13d-3 under said Act), directly or indirectly, of securities
of the Company representing 50% or more of the total voting power represented by
the Company's then outstanding voting securities (excluding for this purpose the
Company or its Affiliates or any employee benefit plan of the Company) pursuant
to a transaction or a series of related transactions which the Board of
Directors does not approve.
Transferability of Awards. No option under the Plan shall be transferable
by the non-employee otherwise than by will or under the applicable laws of
descent and distribution, unless such transfer shall be (a) acceptable under
Rule 16b-3 and is approved by the Board or its authorized delegate or (b) if the
option agreement pursuant to which an option is made so provides, by gift or
domestic relations order, to (i) the spouse, children or grandchildren of such
non-employee director (collectively, "Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Family Members, or (iii) a partnership or
limited liability company in which such Family Members and trusts for the
exclusive benefit of such Family Members are the only partners or members, as
the case may be.
Termination and Amendment. This Plan shall terminate at the close of
business on September 23, 2014, unless sooner terminated by action of the Board
or stockholders of the Company. The Board at any time or from time to time may
amend this Plan to effect (i) amendments necessary or desirable in order that
this Plan and the options granted thereunder shall conform to all applicable
laws and regulations and (ii) any other amendments deemed appropriate.
Notwithstanding the foregoing, (i) the provisions of the Plan relating to (A)
the number of shares to be granted under the Plan or subject to any option
granted to any non-employee director, (B) the timing of any option grant and (C)
the material terms of any such option (including, without limitation, the time
of any such grant) may not be amended without the approval of the Company's
stockholders and (ii) the Board may not effect any amendment that would require
the approval of the stockholders of the Company under any applicable laws or the
listing requirements of The Nasdaq Stock Market (if applicable to the Company at
the time such amendment is adopted or will be effective) unless such approval is
obtained.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the federal income tax consequences of 2004
Directors Plan transactions is based upon federal income tax laws in effect on
the date of this Proxy Statement. This summary does not purport to be complete,
and does not discuss, state, local or non-U.S. tax consequences.
Nonqualified stock options granted under the 2004 Directors Plan generally
have the following federal income tax consequences.
The grant of a nonqualified stock option under the 2004 Directors Plan
will not result in any federal income tax consequences to the participant or to
us. Upon exercise of a nonqualified stock option, the participant is subject to
income taxes at the rate applicable to ordinary compensation income on the
difference between the option exercise price and the fair market value of the
shares on the date of exercise. If the participant becomes an employee, the
Company is required to withhold from regular wages or supplemental wage payments
an amount based on the ordinary income recognized. We are entitled to an income
tax deduction in the amount of the income recognized by the participant, subject
to possible limitations imposed by Section 162(m) of the Code and so long as we
withhold the appropriate taxes with respect to such income (if required) and the
participant's total compensation is deemed reasonable in amount. Any gain or
loss on the participant's subsequent disposition of the shares of Common Stock
will receive long or short-term capital gain or loss treatment, depending on
whether the shares are held for more than one year following exercise. We do not
receive a tax deduction for any such gain.
NEW PLAN BENEFITS
The following table shows the estimated awards to be issued under the 2004
Directors Plan following the Meeting during the remainder of 2004 (and each
subsequent calendar year) to all current director nominees who are not executive
officers. In the event the 2004 Plan is not approved by our stockholders, the
estimated awards set forth in the following table will not be issued under the
2004 Plan.
17
NEW PLAN BENEFITS
2004 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
--------------------------- ----------------------
NAME AND POSITION NUMBER OF SHARES
--------------------------- ----------------------
Non-Executive Directors 130,000 - 170,000
--------------------------- ----------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE 2004 DIRECTORS PLAN.
18
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(NOTICE ITEM 4)
Subject to ratification by our stockholders, on the recommendation of the
Audit Committee, the Board has reappointed Brightman Almagor & Co., a member
firm of Deloitte & Touche, as independent auditors to audit our financial
statements for the fiscal year ending December 31, 2004.
Representatives of Brightman Almagor & Co. are invited to the Meeting and
will have an opportunity to make a statement if they so desire and may be
available to respond to appropriate questions.
The ratification of the selection of Brightman Almagor & Co. as our
independent auditors for the fiscal year ending December 31, 2004 will require
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock present at the Meeting, in person or represented by proxy, and
entitled to vote. In determining whether the proposal has received the requisite
number of affirmative votes, abstentions will be counted and will have the same
effective as a vote against the proposal; broker non-votes will be disregarded
and will have no effect on the outcome of the vote.
THE BOARD BELIEVES THAT A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT
BY THE BOARD OF THE INDEPENDENT AUDITORS AS DESCRIBED ABOVE IS IN THE BEST
INTERESTS OF OUR STOCKHOLDERS AND US AND UNANIMOUSLY RECOMMENDS A VOTE "FOR"
SUCH PROPOSAL.
AUDIT AND NON-AUDIT FEES
The following table presents fees for professional audit services rendered
by Brightman Almagor & Co. for the audit of the Company's annual financial
statements for the years ended December 31, 2003, and December 31, 2002, and
fees billed for other services rendered by Brightman Almagor & Co. during those
periods.
2003 2002
-------- --------
AUDIT FEES $ 54,000 $ 54,000
AUDIT RELATED FEES 4,000 4,000
TAX FEES -- --
ALL OTHER FEES -- --
----------------------------------------------------------
TOTAL $ 58,000 $ 58,000
----------------------------------------------------------
In the above table, in accordance with the SEC's definitions and rules,
"audit fees" are fees we paid Brightman Almagor & Co. for professional services
for the audit of our annual financial statements and review of financial
statements included in our quarterly reports filed with the SEC, as well as work
generally only the independent auditor can reasonably be expected to provide,
such as statutory audits and consultation regarding financial accounting and/or
reporting standards; "audit-related fees" are fees billed by Brightman Almagor &
Co. for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements, including due
diligence related to a potential merger; "tax fees" are fees for tax compliance,
tax advice and tax planning; and "all other fees" are fees billed by Brightman
Almagor & Co for any services not included in the first three categories.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS
Consistent with SEC policies regarding auditor independence, the Audit
Committee has responsibility for appointing, setting compensation and overseeing
the work of the independent auditor. In recognition of this responsibility, the
Audit Committee has established a policy to pre-approve all audit and
permissible non-audit services provided by the independent auditor.
19
Prior to engagement of the independent auditor for the next year's audit,
management will submit an aggregate of services expected to be rendered during
that year for each of four categories of services to the Audit Committee for
approval.
1. Audit services include audit work performed in the preparation of
financial statements, as well as work that generally only the independent
auditor can reasonably be expected to provide, including comfort letters,
statutory audits, and attest services and consultation regarding financial
accounting and/or reporting standards.
2. Audit-Related services are for assurance and related services that are
traditionally performed by the independent auditor, including due diligence
related to mergers and acquisitions, employee benefit plan audits, and special
procedures required to meet certain regulatory requirements.
3. Tax services include all services performed by the independent
auditor's tax personnel except those services specifically related to the audit
of the financial statements, and includes fees in the areas of tax compliance,
tax planning, and tax advice.
4. Other Fees are those associated with services not captured in the other
categories. The Company generally does not request such services from the
independent auditor.
Prior to engagement, the Audit Committee pre-approves these services by
category of service. The fees are budgeted and the Audit Committee requires the
independent auditor and management to report actual fees versus the budget
periodically throughout the year by category of service. During the year,
circumstances may arise when it may become necessary to engage the independent
auditor for additional services not contemplated in the original pre-approval.
In those instances, the Audit Committee requires specific pre-approval before
engaging the independent auditor.
The Audit Committee may delegate pre-approval authority to one or more of
its members. The member to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions to the Audit Committee
at its next scheduled meeting.
EXECUTIVE OFFICERS
Set forth below is a brief description of the present and past business
experience of each of the persons who serve as our executive officers or key
employees who are not also serving as directors.
PAUL C. WHITE, 42 - Chief Financial Officer and Secretary. Mr. White has
served as our Chief Financial Officer since September 2000 and is responsible
for corporate finance and all financial aspects of our operations, including
accounting, tax, treasury, financial analysis, billing, internal audit, investor
relations, real estate and procurement functions. Mr. White brings a vast array
of experience in both the telecommunications and Internet industries. Mr. White
cultivated his expertise in both telecommunications and the Internet with senior
level positions at Tangoe Inc. (formerly TelecomRFQ, Inc.,) a leading provider
of enterprise-wide Telecommunications Expense Management software , where he
served as President and Chief Executive Officer, Buyersedge.com, an on-line
consumer services "reverse-auction' company, where he served as Vice President
of Operations & Finance, and at Southern New England Telecommunications (SNET),
the SBC Communications, Inc. subsidiary, where he served as Director of IT
Strategy & Finance, Director of Corporate Development and Director of Finance &
Business Development between 1995 and 1999. Mr. White has also worked in senior
level positions at Ernst & Young, LLP and Arthur Andersen, LLP. Mr. White has a
BBA and an MBA from Hofstra University, as well as a CPA.
20
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning the
compensation paid or awarded for services rendered during each of our last three
fiscal years to our chief executive officer and each of our other most highly
compensated executive officers in 2001, 2002 and 2003 whose total salary and
bonus exceeded $100,000. These two executive officers are referred to in this
report as "named executive officers".
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------ --------------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION
- ----------------------------------------- ---- ---------- --------- ----------- ------------
Shimmy Zimels (1) 2003 180,000 -- 85,000 --
President and Chief Executive Officer 2002 182,335 -- 100,000 --
and former Chief Operating Officer..... 2001 214,395 -- 80,000 --
2003 180,000 -- 65,000 --
Paul C. White 2002 182,335 -- 100,000 --
Chief Financial Officer................. 2001 201,391 -- -- --
OPTION GRANTS DURING 2003
The following table sets forth information regarding each stock option
granted during fiscal year 2003 to each of the named executive officers.
POTENTIAL REALIZABLE
VALUE AT
% OF ASSUMED RATES
SHARES OF TOTAL OPTIONS EXERCISE OF STOCK PRICE
COMMON STOCK GRANTED TO PRICE APPRECIATION FOR OPTION
UNDERLYING OPTION EMPLOYEES IN PER SHARE EXPIRATION OPTION TERM(2)
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5% 10%
- -------------------------------------------------------------------------------------------------------------------
Shimmy Zimels ............. 85,000 24.7% 1.75 11/04/10 $ 60,556 $ 141,122
Paul C. White.............. 65,000 18.9% 1.75 11/04/10 $ 46,308 $ 107,917
(1) The options were granted pursuant to the Company's 1999 Stock Incentive
Plan. The options granted to the named executive officers are non-qualified
stock options and vest annually in three equal installments commencing one year
from the date of grant.
(2) The amounts shown in this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
These gains are based on assumed rates of stock appreciation of 5% and 10%
compounded annually from the date the respective options were granted to their
expiration date. The gains shown are net of the option exercise price, but do
not include deductions for taxes or other expenses associated with the exercise.
Actual gains, if any, on stock option exercises will depend on the future
performance of the Common Stock, the optionee's continued employment through the
option period and the date on which the options are exercised.
21
OPTION EXERCISES IN FISCAL 2003 AND YEAR-END OPTION VALUES
The following table sets forth information for the named executive
officers with respect to option exercises during 2003 and the value as of
December 31, 2003 of unexercised in-the-money options held by each of the named
executive officers.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES YEAR END (#) YEAR-END ($)
ACQUIRED VALUE EXERCISABLE EXERCISABLE
NAME ON EXERCISE(#) REALIZED($) /UNEXERCISABLE /UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
Shimmy Zimels.............. -- -- 417,271/151,667 407,783/226,117
Paul C. White.............. -- -- 193,333/131,667 310,553/202,717
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain aggregate information with respect to
all of our equity compensation plans in effect as of December 31, 2003:
----------------------------- ----------------------------- --------------------------------- ---------------------------------
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO BE AVAILABLE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE OF WEIGHTED AVERAGE EXERCISE PRICE UNDER EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, WARRANTS OF OUTSTANDING RIGHTS (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY AND RIGHTS WARRANTS AND RIGHTS IN FIRST COLUMN)
----------------------------- ----------------------------- --------------------------------- ---------------------------------
Equity Compensation Plans 2,753,130 $2.55 1,515,846
Approved by Security
Holders (1)
----------------------------- ----------------------------- --------------------------------- ---------------------------------
Equity Compensation Plans
not Approved by Security
Holders N/A N/A N/A
----------------------------- ----------------------------- --------------------------------- ---------------------------------
Total 2,753,130 $2.55 1,515,846
----------------------------- ----------------------------- --------------------------------- ---------------------------------
(1) These plans consist of our 1999 Stock Incentive Plan, 1999
Directors' Plan, and 1999 Employee Stock Purchase Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation decisions in 2003 were made by the Compensation
Committee. During 2003, no interlocking relationship existed between our Board
and the board of directors or compensation committee of any other company.
DIRECTOR COMPENSATION
At our Annual Meeting on December 8, 2003, each of our non-employee
directors became eligible to receive $10,000 for their services as directors,
through the next annual meeting date. We anticipate paying $10,000 to each
non-employee director in 2004 following the Meeting.
22
Directors are reimbursed for the expenses they incur in attending meetings
of the Board and Board committees. Under our 1999 Directors' Plan, each "new"
director (i.e., a director that was not on the board in the previous year) who
is not our employee receives options to purchase 24,848 shares of Common Stock
on the date such director is initially elected to the Board. In addition, under
our 1999 Directors' Plan, each "existing" non-employee director (i.e., a
director that was on the board in the previous year) will be eligible to receive
on an annual basis options to purchase 10,000 shares of Common Stock on the date
such director is re-elected to the Board. In all cases, the exercise price is
equal to the fair market value on the date of grant at the time of our Annual
Meeting.
Under the 1999 Directors' Plan, on the first business day following each
annual meeting of our stockholders during the term of the Directors' Plan, each
existing director who is not our employee is granted options to acquire 10,000
shares of our Common Stock with an exercise price per share equal to the fair
market value of a share of our Common Stock on the date of grant. These options
have a seven-year term and become exercisable on the first anniversary of the
date of grant. Each individual who becomes a new director will be granted
options to acquire 24,848 shares of our Common Stock with an exercise price per
share equal to the fair market value on the date of grant. These options have a
seven-year term and will be immediately exercisable. The maximum number of
shares that may be issued under the Directors' Plan is 600,000 shares of Common
Stock. The plan will terminate December 31, 2009, unless sooner terminated by
our stockholders.
We are asking our stockholders to approve our 2004 Non-Employee Director
Stock Option Plan (the "2004 Directors Plan") at the Meeting. If the
stockholders approve the 2004 Directors Plan, it will replace our 1999 Directors
Plan which will be terminated, except with respect to outstanding options
previously granted thereunder.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
We currently have employment agreements in place with Messrs. Zimels and
White, each with the following principal terms:
o The agreements, dated as of April 26, 2004, and are effective until
August 31, 2006, and March 31, 2007, for Messrs. Zimels and White,
respectively, and shall thereafter be automatically extended for the
same duration on the expiration date and on each expiration date
thereafter unless either party provides the other party with written
notice of non-renewal at least 90 days prior to expiration of a
term, provided that the executive provides notice of renewal to the
Compensation Committee six (6) months prior to expiration of the
term.
o Pursuant to the agreements, Mr. Zimels and Mr. White are entitled to
receive a base salary of $239,000 and $226,000, respectively. Such
base salary shall be increased on each January 1, commencing January
1, 2005, by an amount equal to his base salary then in effect,
multiplied by the applicable cost of living index during the prior
year. The employee's base salary, as adjusted for cost of living
increases, may be further increased at the option and in the
discretion of the Board.
o The employee's options are immediately exercisable in full upon a
change of control. The employee's options, following any termination
of the employee's employment, other than for cause, remain
exercisable for the lesser of two years and the remaining term of
his options.
o If employee's employment is terminated by us without cause or by the
employee for good reason (which includes, without limitation, a
reduction in salary and/or bonus opportunity, a change of control
and a material reduction in duties and responsibilities), the
employee is entitled to receive previously earned, but unpaid
salary, vested benefits and a payment equal to his base salary as in
effect immediately prior to the termination date.
o If employee dies or is unable to perform his duties, he or his
representative, estate or beneficiary will be paid, in addition to
any previously earned but unpaid salary and vested benefits, 12
months' total base salary reduced, in the case of disability, by any
disability benefits he receives.
23
On March 31, 2002, Messrs. White and Zimels each took a voluntary pay
reduction for an unspecified time, from their then current salaries of $213,210,
and $213,210, respectively, to $180,000 each. Messrs. Zimels' and White's have
kept their voluntary pay reduction in effect at $180,000 each, whereas their
current contractual salaries had increased to $232,650 and $220,242,
respectively, for 2003, due to a cost-of-living increase clause included in
their respective contracts.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for recommending to the Board of
Directors the overall executive compensation strategy of the Company and for the
ongoing monitoring of the compensation strategy's implementation. In addition to
recommending and reviewing the compensation of the executive officers, it is the
responsibility of the Compensation Committee to recommend new incentive
compensation plans and to implement changes and improvements to existing
compensation plans, including the 1999 Stock Incentive Plan, the 1999
Performance Incentive Plan, the 1999 Employee Stock Purchase Plan and the 1999
Directors' Plan. The Compensation Committee makes its compensation
determinations based upon its own analysis of information it compiles and the
business experience of its members.
Overall Policy
The Compensation Committee believes that the stability of the Company's
management team, as well as the Company's ability to continue to incentivize
management and to attract and retain highly qualified executives for its
expanding operations, will be a contributing factor to the Company's continued
growth and success. In order to promote stability, growth and performance, and
to attract new executives, the Company's strategy is to compensate its
executives with an overall package that the Company believes is competitive with
those offered by similarly situated companies and which consists of (i) a stable
base salary set at a sufficiently high level to retain and motivate these
officers but generally targeted to be in the lower half of its peer group
comparables, (ii) an annual bonus linked to the Company's overall performance
each year and to the individual executive's performance each year and (iii)
equity-related compensation which aligns the financial interests of the
Company's executive officers with those of the Company's stockholders by
promoting stock ownership and stock performance through the grant of stock
options and stock appreciation rights, restricted stock and other equity and
equity-based interests under the Company's various plans.
Executive officers are also entitled to customary benefits generally
available to all employees of the Company, including group medical and life
insurance. Base salary, bonuses and benefits are paid by the Company and its
subsidiaries.
Federal Income Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the amount of compensation a publicly held corporation may
deduct as a business expense for Federal income tax purposes. The limit, which
applies to a company's chief executive officer and the four other most highly
compensated executive officers, is $1 million (the "Deductibility Limit"),
subject to certain exceptions. The exceptions include the general exclusion of
performance-based compensation from the calculation of an executive officer's
compensation for purposes of determining whether his or her compensation exceeds
the Deductibility Limit. The Compensation Committee has determined that
compensation payable to the executive officers should generally meet the
conditions required for full deductibility under section 162(m) of the Code.
While the Company does not expect to pay its executive officers compensation in
excess of the Deductibility Limit, the Compensation Committee also recognizes
that in certain instances it may be in the best interest of the Company to
provide compensation that is not fully deductible.
24
Base Salary
The base salaries for the named executive officers are based upon
employment agreements between the Company and such officers.
Annual Incentive Bonuses
The Board of Directors approved the 1999 Performance Incentive Plan
established by RSL COM. The Company established the Performance Incentive Plan
to enable the Company and its subsidiaries to attract, retain, motivate and
reward the best qualified executive officers and key employees by providing them
with the opportunity to earn competitive compensation directly linked to the
Company's performance. The Performance Incentive Plan is effective through and
including the year 2005, unless extended or earlier terminated by the Board of
Directors. As part of the Performance Incentive Plan, the Compensation Committee
may determine that any bonus payable under the Performance Incentive Plan be
paid in cash, in shares of Common Stock or in any combination thereof, provided
that at least 50% of such bonus is required to be paid in cash. In addition, the
Performance Incentive Plan permits a participant to elect to defer payment of
his or her bonus on terms and conditions established by the Compensation
Committee. No more than 400,000 shares of Common Stock may be issued under the
Performance Incentive Plan.
Under the 1999 Performance Incentive Plan, bonuses may be payable if the
Company meets any one or more of the following performance criteria, which are
set annually by the Compensation Committee: (i) revenues; (ii) operating income;
(iii) gross profit margin; (iv) net income; (v) earnings per share; (vi) maximum
capital or marketing expenditures; or (vii) targeted levels of customers.
Under the 1999 Performance Incentive Plan, bonus amounts are determined as
follows: if 100% of such targets are achieved, the bonus potentially payable to
participants will generally equal 35% of their base salary for such year, if 80%
of such targets are achieved, the bonus potentially payable to participants will
generally equal 25% of their base salary for such year, and if less than 80% of
such targets are achieved, the participants will generally not be entitled to
receive any bonus for such year. To the extent the Company's results exceed 80%
of the targets but is less that 100% of the targets, the amount of the bonus
payable to participants will be adjusted proportionately based on where such
results fall within the ranges set forth above. Any such bonus will consist of
two components. Fifty percent of the amount determined pursuant to the formula
described above will be payable if the targets are achieved. Up to an additional
50% of such amount will be payable in the discretion of the Compensation
Committee. In addition, the 1999 Performance Incentive Plan permits the
Compensation Committee to grant discretionary bonuses to participants,
notwithstanding that a bonus would not otherwise be payable under the 1999
Performance Incentive Plan, to recognize extraordinary individual performance.
With respect to 2003, there were no bonuses awarded to any executive
officer, under the 1999 Performance Incentive Plan. Pursuant to the terms of the
1999 Performance Incentive Plan, any awards would have been paid in the current
year, promptly following the completion of the audit of the Company's 2003
financial statements.
Long-Term Incentive Compensation
The Company reinforces the importance of producing satisfactory returns to
stockholders over the long term through the operation of the 1999 Stock
Incentive Plan and the 1999 Directors' Plan. For a discussion relating to the
1999 Directors' Plan, refer to the section entitled "1999 Directors' Plan" in
this annual report. Grants of stock, stock options, stock unit awards and stock
appreciation rights under such plans provide executives with the opportunity to
acquire an equity interest in the Company and align the executive's interest
with that of the stockholders to create stockholder value as reflected in growth
in the market price of the Common Stock.
1999 Stock Incentive Plan
The Board of Directors adopted the 1999 Stock Incentive Plan in
conjunction with the Company's initial public offering. The purposes of the 1999
Stock Incentive Plan are to foster and promote the long-term financial success
of the Company and materially increase stockholder value by (i) motivating
superior performance by means of performance-related incentives, (ii)
encouraging and providing for the acquisition of an ownership interest in the
Company by executive officers and other key employees and (iii) enabling the
Company to attract and retain the services of an outstanding management team
upon whose judgment, interest and special effort the successful conduct of its
operations is largely dependent.
25
Under the 1999 Stock Incentive Plan, the Compensation Committee is
authorized to grant options for up to 4,000,000 shares of Common Stock. This
represented, upon completion of the initial public offering, approximately 15%
of the outstanding shares of the Company, on a fully diluted basis. Options
granted under the 1999 Stock Incentive Plan are to be granted to certain
officers of the Company and to other employees and consultants of the Company.
Directors who are non-employees of the Company are prohibited from participating
in the 1999 Stock Incentive Plan.
The 1999 Stock Incentive Plan is administered by the Compensation
Committee and provides for the grant of (i) incentive and non-incentive stock
options to purchase Common Stock; (ii) stock appreciation rights, which may be
granted in tandem with or independently of stock options; (iii) restricted stock
and restricted units; (iv) incentive stock and incentive units; (v) deferred
stock units; and (vi) stock in lieu of cash. The maximum number of shares for
which options or stock appreciation rights may be granted to any one participant
in a calendar year is 600,000. As of December 31, 2003, the Company has granted
options to acquire an aggregate of 2,822,311 shares of Common Stock.
Chief Executive Officer's Fiscal 2003 Compensation
Mr. Shimmy Zimels was our chief executive officer for all of 2003. Under
the terms of his employment agreement, Mr. Zimels was entitled to receive an
aggregate annual base salary of $232,650. However, during 2003, Mr. Zimels
received an aggregate annual base salary of $180,000, due to his voluntary pay
reduction, and his participation in the 1999 Performance Incentive Plan resulted
in no bonus compensation for 2003.
Submitted by:
The Compensation Committee
Amir Gera
Joshua Maor
26
STOCK PERFORMANCE CHART
The following chart compares the cumulative total stockholder return on
our Common Stock from the date of our initial public offering (November 22,
1999) through December 31, 2003 with the cumulative total return on The Nasdaq
Stock Market (U.S.) Index and the Nasdaq Telecommunications Index. For purposes
of the chart, it is assumed that the value of the investment in our Common Stock
and each index was $100 on November 22, 1999. Shareholder returns over the
indicated period should not be considered indicative of future shareholder
returns.
COMPARISON OF 50 MONTH CUMULATIVE TOTAL RETURN*
AMONG DELTATHREE.COM, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
CUMULATIVE TOTAL RETURN
----------------------------------------------------------------------------------------------
11/23/99 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01
--------- --------- ---------- ---------- --------- --------- --------- --------- -----------
Deltathree, Inc. $ 100.00 $ 171.67 $ 139.59 $ 97.09 24.17 7.92 8.33 4.93 5.33
Nasdaq Stock Market (U.S.) 100.00 121.58 136.57 118.74 109.49 73.31 54.71 64.52 44.77
Nasdaq Telecommunications Market 100.00 113.28 120.35 94.98 75.76 48.24 42.51 40.28 29.34
----------------------------------------------------------------------------------------------
12/01 3/02 6/02 9/02 12/02 3/03 6/03 9/03 12/03
--------- --------- --------- ---------- --------- --------- --------- --------- -----------
Deltathree, Inc. 6.00 7.13 4.14 3.20 3.17 3.67 4.33 11.00 19.47
Nasdaq Stock Market (U.S.) 58.19 55.14 43.95 35.26 40.23 40.47 48.80 53.73 60.15
Nasdaq Telecommunications 32.31 23.03 13.89 12.74 14.88 17.02 21.02 21.31 24.74
Market
----------------------------------------------------------------------------------------------
27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We are not, and have not been during the last two fiscal years, a party to
any related-party agreements. All transactions between us and our officers,
directors, principal stockholders and affiliates must be reviewed and approved
in advance by the Audit Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who own more than 10% of a
registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
beneficial ownership of Common Stock and other equity securities of us.
Directors, officers and greater than 10% stockholders are required by SEC
regulations to furnish us with all Section 16(a) forms they file.
To our knowledge, based solely upon our review of the copies of such
reports furnished to us, we believe that all of our directors, officers and
greater than 10% stockholders have complied with the applicable Section 16(a)
reporting requirements except that: an initial report of ownership was filed
late by Ilan Biran; three reports of change in beneficial ownership, covering an
aggregate of sixteen transactions, were filed late by Noam Bardin; two reports
of change in beneficial ownership, covering an aggregate of two transactions,
were filed late by Shimmy Zimels; two reports of change in beneficial ownership,
covering an aggregate of two transactions, were filed late by Paul White; and
one report of change in beneficial ownership, covering one transaction, was
filed late by Lior Samuelson.
CODE OF CONDUCT AND ETHICS
On March 25, 2004, we adopted a Corporate Code of Conduct and Ethics
applicable to all employees and directors of the Company, including our
principal executive officer, principal financial and accounting officer and
controller. A copy of the Code of Conduct and Ethics is attached as an exhibit
to the Company's Annual Report on Form 10-K. Disclosure regarding any amendments
to, or waivers from, provisions of the Code of Conduct and Ethics that apply to
our directors, principal executive and financial officers will be included in a
Current Report on Form 8-K within five business days following the date of the
amendment or waiver, unless website posting of such amendments or waivers is
then permitted by the rules of The Nasdaq Stock Market.
STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at our subsequent annual meetings consistent with Rule 14a-8 promulgated
under the Securities Exchange Act of 1934, which in certain circumstances may
require the inclusion of qualifying proposals in our Proxy Statement. For such
proposals to be considered for inclusion in the Proxy Statement and proxy
relating to our 2005 Annual Meeting of Stockholders, all applicable requirements
of Rule 14a-8 must be satisfied and such proposals must be received by us no
later than July 1, 2005. Such proposals should be directed to us at 75 Broad
Street, 31st Floor, New York, New York 10004.
Except in the case of proposals made in accordance with Rule 14a-8, our
Amended and Restated By-laws require that stockholders desiring to bring any
business before our 2005 Annual Meeting of Stockholders deliver written notice
thereof to us not less than 90 days nor more than 120 days prior to such meeting
and comply with all other applicable requirements of the By-laws. However, in
the event that our 2005 Annual Meeting is called for a date that is not within
30 days before or after the date of the Meeting, the notice must be received by
the close of business on the 10th day following the public disclosure of the
date of the annual meeting or the mailing of notice of the annual meeting.
28
OTHER MATTERS
The Board knows of no matters other than those described herein that will
be presented for consideration at the Meeting and does not intend to bring any
other matters before the Meeting. However, should any other matters properly
come before the Meeting or any adjournment or postponement thereof, it is the
intention of the persons named in the accompanying proxy card to vote in
accordance with their best judgment in the interests of the Company.
MISCELLANEOUS
We will bear all costs incurred in the solicitation of proxies. In
addition to the solicitation by mail, our officers and employees may solicit
proxies by mail, facsimile, telephone or in person, without additional
compensation. We may also make arrangements with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of Common Stock held of record by such
persons, and we may reimburse such brokerage houses and other custodians,
nominees and fiduciaries for their out-of-pocket expenses incurred in connection
therewith.
ADDITIONAL COPIES OF OUR ANNUAL REPORT WILL BE FURNISHED AT NO CHARGE TO
EACH PERSON TO WHOM A PROXY STATEMENT IS DELIVERED UPON RECEIPT OF A WRITTEN OR
ORAL REQUEST OF SUCH PERSON ADDRESSED TO DELTATHREE, INC., 75 BROAD STREET, 31ST
FLOOR, NEW YORK, NEW YORK 10004.
By Order of the Board of Directors,
/s/ Paul C. White
-----------------------------------
Paul C. White
Secretary
New York, New York
October 6, 2004
29
APPENDIX A
DELTATHREE, INC.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The Audit Committee shall provide assistance to the board of directors of
the Corporation (the "Board") in fulfilling the Board's responsibility to the
Corporation's shareholders relating to the Corporation's accounting, financial
reporting practices, and the quality and integrity of its financial reports. The
Audit Committee's primary duties and responsibilities are to:
o Oversee that management has maintained the reliability and integrity
of the accounting policies, financial reporting and disclosure
practices of the Corporation;
o Oversee that management has established and maintained an
independent relationship with its external auditor;
o Oversee that management has established and maintained processes to
assure that an adequate system of internal control of financial
reporting is functioning within the Corporation; and
o Oversee that management has established and maintained processes to
assure compliance by the Corporation with all applicable laws,
regulations and corporate policy.
The Audit Committee intends to fulfill these responsibilities primarily by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent, in that each Audit
Committee member may not, other than in his or her capacity as a director or
member of any committee of the Board, (i) accept any consulting, advisory, or
other compensatory fee from the Corporation; or (ii) be an affiliated person of
the Corporation or any subsidiary thereof. In addition, each Audit Committee
member shall meet the independence requirements of NASD Rule 4200, which governs
the Nasdaq Stock Market ("Nasdaq"), as such requirements may be changed from
time to time; provided, that any non-independent director serving on the Audit
Committee pursuant to the "exceptional and limited circumstances" exception
available under Nasdaq rules may not serve on the Audit Committee for more than
two (2) years; and provided, further, that such non-independent director may not
be permitted to serve as chair of the Audit Committee.
All members of the Audit Committee shall be familiar with basic finance
and accounting practices and shall be able to read and understand fundamental
financial statements at the time of their appointment to the Audit Committee.
Furthermore, at least one member of the Audit Committee shall be financially
sophisticated as defined by having experience in finance or accounting,
professional certification in accounting, or any other comparable experience or
background, such as being or having been a CEO or CFO or other senior officer
with financial oversight responsibilities. The Corporation shall disclose, in
its annual report, whether or not, and if not, the reasons therefor, the Audit
Committee includes at least one Audit Committee Financial Expert, as defined by
the Securities Exchange Act of 1934, as amended.
The members of the Audit Committee shall be elected by the Board at the
annual organizational meeting of the Board and shall hold office until their
resignations or until their successors shall be duly elected and qualified.
Unless a Chair is elected by the full Board, the members of the Audit Committee
may designate a Chair by majority vote of the full Audit Committee membership.
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III. MEETINGS
The Audit Committee shall meet in executive session at least two times per
year, or more frequently as circumstances dictate. As part of its job to foster
open communication, the Audit Committee should meet separately, at least
annually, with management, the director of the internal auditing department and
the independent auditor to discuss any matters that the Audit Committee or each
of these groups believe should be discussed privately. In addition, the Audit
Committee or at least its Chair should meet separately with the independent
auditor, and management quarterly to review the Corporation's financial
statements in accordance with Section IV below.
IV. RESPONSIBILITIES AND DUTIES
The Audit Committee, in its capacity as a committee of the Board, shall be
directly responsible for the appointment, retention, compensation, evaluation,
oversight and, if necessary, termination of the registered public accounting
firm(s) employed by the Corporation (including resolution of disagreements
between management and the auditor regarding financial reporting) for the
purpose of preparing or issuing an audit report or related work, and each
registered public accounting firm shall report directly to the Audit Committee.
To fulfill its responsibilities and duties, the Audit Committee shall:
Documents/Reports Review
1. Review and reassess, at least annually, the adequacy of this Charter and
make recommendations to the Board, as conditions dictate, to update this
Charter.
2. Review with management and the independent auditor the Corporation's
annual financial statements and Form 10-K prior to the filing of the Form
10-K or prior to the release of earnings, including a discussion with the
independent auditor of the matters required to be discussed by Statement
of Auditing Standards No. 61 ("SAS No. 61").
3. Review with management and the independent auditor each Form 10-Q prior to
its filing or prior to the release of earnings, including a discussion
with the independent auditor of the matters required to be discussed by
SAS No. 61. The Chair of the Audit Committee may represent the entire
Audit Committee for purposes of this review.
4. Review with management and the independent auditor the effect of
regulatory and accounting initiatives that may affect the Corporation, as
well as the effect of any off-balance sheet structures and transactions on
the Corporation's financial statements.
Independent Auditor
5. Review the performance of the independent auditor and appoint or terminate
the independent auditor. The Audit Committee has the sole authority and
responsibility to select, evaluate, and where appropriate, replace the
outside auditor. The independent auditor is ultimately accountable to the
Audit Committee for such auditor's review of the financial statements and
controls of the Corporation. The Audit Committee shall determine the
appropriate compensation of the independent auditor.
6. Approve in advance all audit services and all permitted non-audit
services, except where such services are determined to be de minimis under
the Exchange Act. The Audit Committee may delegate, to one or more
designated members of the Audit Committee, the authority to grant such
pre-approvals. The decisions of any member to whom such authority is
delegated shall be presented to the full Audit Committee at each of its
scheduled meetings.
7. Oversee and ensure the independence of the auditor by:
o receiving from, and reviewing and discussing with, the auditor, on a
periodic basis, a formal written statement delineating all
relationships between the auditor and the Corporation consistent
with Independence Standards Board Standard 1 ("ISB No. 1");
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o reviewing, and actively discussing with the Board, if necessary, and
the auditor, on a periodic basis, any disclosed relationships or
services between the auditor and the Corporation or any other
disclosed relationships or services that may impact the objectivity
and independence of the auditor;
o recommending, if necessary, that the Board take appropriate action
to satisfy itself of the auditor's independence; and
o ensuring that the lead or coordinating audit partner having primary
responsibility for the audit, or the audit partner responsible for
reviewing the audit does not perform audit services for the
Corporation for more than five (5) consecutive fiscal years.
8. Set clear hiring policies for employees or former employees of the
Corporation's independent auditor.
Financial Reporting Process
9. In consultation with the independent auditor and the internal auditors,
review the integrity of the Corporation's financial reporting processes,
both internal and external. The Audit Committee shall report regularly to
and review with the full Board any issues that arise with respect to the
quality or integrity of the Corporation's financial statements, compliance
with legal or regulatory requirements, the performance and independence of
the independent auditor, or the performance of the internal audit
function.
10. Consider and approve, if appropriate, changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent auditor, management, or the internal auditing department.
11. Ensure that there exist regular systems of reporting to the Audit
Committee by each of management, the independent auditor and the internal
auditor regarding any significant judgments made in management's
preparation of the financial statements and any significant difficulties
encountered during the course of the review or audit, including any
restrictions on the scope of work or access to required information.
12. Regularly review any significant disagreements among management and the
independent auditor or the internal auditing department in connection with
the preparation of the financial statements.
13. Ensure and oversee timely reports from the independent auditor to the
Audit Committee of (i) all critical accounting policies and practices;
(ii) all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management
officials of the Corporation, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the independent
auditor; and (iii) other material written communications between the
independent auditor and the management of the Corporation, such as any
management letter or schedule of unadjusted differences.
Legal Compliance/General
14. Review, with the Corporation's counsel, any legal matter that could have a
significant impact on the Corporation's financial statements.
15. Report through its Chair to the Board following meetings of the Audit
Committee.
16. Maintain minutes or other records of meetings and activities of the Audit
Committee.
17. Review and approve, prior to the Corporation's entry into any such
transactions, all transactions between the Corporation and its executive
officers, members of its Board, beneficial holders of more than 5% of the
Corporation's securities, immediate family members of any of the foregoing
persons, and any other parties whom the Board determines may be considered
to be related parties.
A-3
18. When deemed necessary by the members of the Audit Committee, retain
independent legal, accounting or other advisors or consultants to advise
and assist the Audit Committee in carrying out its duties, without needing
to seek approval for the retention of such advisors or consultants from
the Board. The Audit Committee shall determine the appropriate
compensation for any advisers retained by the Audit Committee. The Audit
Committee may request any officer or employee of the Corporation or the
Corporation's outside counsel or independent auditor to attend a meeting
of the Audit Committee or to meet with any members of, or consultants to,
the Audit Committee.
19. Establish procedures for (i) the receipt, retention, and treatment of
complaints received by the Corporation regarding accounting, internal
accounting controls, or auditing matters; and (ii) the confidential,
anonymous submission by employees of the Corporation of concerns regarding
questionable accounting or auditing matters.
20. Perform any other activities consistent with this Charter, the
Corporation's by-laws, and governing law, as the Audit Committee or the
Board deems necessary or appropriate.
V. COMPENSATION
21. Audit Committee members shall be compensated by the Corporation solely in
the form of directors' fees and/or stock options. Audit Committee members
may, however, receive greater fees than those received for Board service
by other Board members, in light of their heightened responsibilities to
the Corporation.
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APPENDIX B
DELTATHREE, INC.
2004 STOCK INCENTIVE PLAN
This plan, as amended from time to time, shall be known as the deltathree, Inc.
2004 Stock Incentive Plan (the "Plan"). This Plan replaces the previous 1999
Stock Incentive Plan (the "1999 Plan").
1. PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of the Company and its Subsidiaries and materially increase
shareholder value by:
(a) motivating superior performance by means of performance-related
incentives;
(b) encouraging and providing for the acquisition of an ownership
interest in the Company by Eligible Employees; and
(c) enabling the Company to attract and retain the services of
outstanding management team and other qualified and dedicated
employees upon whose judgment, interest and special effort the
successful conduct of its operations is largely dependent.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including the
Option Agreement and its appendices), the following definitions shall
apply:
(a) "ADMINISTRATOR" - means the Board or the Compensation Committee as
shall be administering the Plan, in accordance with Section 3
hereof.
(b) "AFFILIATE" - means a corporation which is a Parent or Subsidiary of
the Company, direct or indirect.
(c) "APPLICABLE LAWS" - means the requirements relating to the
administration of employee stock option plans under the law of the
United States of America, any stock exchange or quotation system on
which the shares shall be listed or quoted and the applicable laws
of any country or jurisdiction where Options are granted under the
Plan.
(d) "AWARD" - shall mean any grant or award under the Plan, as evidenced
in a written document delivered to a Participant as provided in
Section 13(b).
(e) "BOARD" - means the Board of Directors of the Company.
(f) "CAUSE" - shall mean (i) the willful failure by the Participant to
perform substantially the Participant's duties (other than due to
physical or mental illness) after reasonable notice to the
Participant of such failure, (ii) the Participant's engaging in
serious misconduct that is injurious to the Company or any
Subsidiary, (iii) the Participant's having been convicted of, or
entered a plea of nolo contendere to, a crime that constitutes a
felony, or (iv) the breach by the Participant of any written
covenant or agreement not to compete, in each case with respect to
the Company or any Subsidiary, regarding confidentiality of
information of the Company or any Subsidiary or nonsolicitation or
hiring of employees of the Company or any Subsidiary.
(g) "CODE" - means the United States Internal Revenue Code of 1986, as
amended from time to time, and the regulations thereunder.
B-1
(h) "COMMITTEE" - shall mean the Compensation Committee of the Board, or
such other Board committee as may be designated by the Board to
administer the Plan.
(i) "COMPANY" - shall mean deltathree, Inc., a Delaware corporation, and
any successor thereto.
(j) "COMMON STOCK" - shall mean the Class A common shares, par value
$0.001 per share, of the Company, as may be adjusted pursuant to
section 4(c) of the Plan.
(k) "DEFERRED ANNUAL AMOUNT" - shall mean, with respect to any year, the
amount of compensation that a Participant elects to defer in
exchange for an award of Elective Units as determined pursuant to
Section 9 hereof.
(l) "CONSULTANT" - means any person who is engaged by the Company to
render consulting or advisory services to any of the Company
entities.
(m) "DISABILITY" - shall mean long-term disability as defined under the
terms of the Company's applicable long-term disability plans or
policies.
(n) "DATE OF GRANT" - shall have the meaning set forth in Section 14
below.
(o) "DIRECTOR" - means a member of the Board.
(p) "DISINTERESTED DIRECTOR" - shall mean a director of the Company who
is both a "Non-Employee Director" within the meaning of Rule 16b-3
under the Exchange Act and an "outside director" within the meaning
of Section 162(m) of the Code.
(q) "DIVIDEND EQUIVALENT" - shall mean a right granted to a Participant
to receive cash or Common Stock equal in value to dividends paid
with respect to Common Stock.
(r) "EARLY RETIREMENT" - shall mean retirement at or after the earliest
age at which the Participant may retire and receive an immediate,
but actuarially reduced, retirement benefit under any defined
benefit pension plan maintained by the Company or any of its
Subsidiaries in which such Participant participates, or, in the
absence of any such applicable plan, as determined by the Committee.
(s) "EFFECTIVE DATE" - shall mean the date on which the Plan is approved
by the shareholders of the Company.
(t) "ELECTIVE UNITS" - shall mean a contractual right to receive a share
of Common Stock at the time and subject to the conditions set forth
in Section 9 hereof, in respect of a Participant's Deferred Annual
Amount.
(u) "ELIGIBLE EMPLOYEE" - shall mean each Executive Officer and each
other employee or consultant of the Company or its Subsidiaries, but
shall not include Directors who are not employees of any such
entity.
(v) "EMPLOYMENT" - shall mean, for purposes of Sections 5(g), 7(b) and
8(b), continuous and regular salaried employment with the Company or
a Subsidiary, which shall include (unless the Committee shall
otherwise determine) any period of vacation, any approved leave of
absence or any salary continuation or severance pay period and, at
the discretion of the Committee, may include service with any former
Subsidiary of the Company
(w) "EXCHANGE ACT" - means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended.
(x) "EXERCISE PRICE" - means the price for each Share of stock subject
to an Option.
B-2
(y) "EXECUTIVE OFFICER" - shall mean those persons who are officers of
the Company within the meaning of Rule16a-1(f) of the Exchange Act.
(z) "FAIR MARKET VALUE" - of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last price
of the Common Stock on the Composite Tape or other comparable
reporting system for the trading day immediately preceding the
applicable date;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales
prices are not regularly reported for the Common Stock for the
trading day referred to in clause (1), and if bid and asked prices
for the Common Stock are regularly reported, the mean between the
bid and the asked price for the Common Stock at the close of trading
in the over-the-counter market for the trading day on which Common
Stock was traded immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as
the Administrator, in good faith, shall determine.
(aa) "INCENTIVE STOCK" - shall mean any Award of Common Stock granted
under Section 8 which becomes vested and nonforfeitable upon the
attainment, in whole or in part, of performance objectives
determined by the Committee.
(bb) "INCENTIVE STOCK OPTION" - or "ISO" - shall mean an Option which is
intended to meet the requirements of Section 422 of the Code.
(cc) "INCENTIVE UNIT" - shall mean any Award of a contractual right
granted under Section 8 to receive Common Stock (or, at the
discretion of the Committee, cash based on the Fair Market Value of
the Common Stock) which becomes vested and nonforfeitable upon the
attainment, in whole or in part, of performance objectives
determined by the Committee
(dd) "NONSTATUTORY STOCK OPTION" - or "NSO" - shall mean an Option which
is not intended to be an Incentive Stock Option.
(ee) "NORMAL RETIREMENT" - shall mean retirement at or after the earliest
age at which the Participant may retire and receive a retirement
benefit without an actuarial reduction for early commencement of
benefits under any defined benefit pension plan maintained by the
Company or any of its Subsidiaries in which such Participant
participates, or, in the absence of any such applicable plan, as
determined by the Committee
(ff) "102 AWARD" - means an Award that the Board intends to be a "102
Award" which shall only be granted to employees of the Company who
are not Ten Percent Shareholders, and shall be subject to and shall
be construed consistently with the requirements of Section 102 of
the Tax Ordinance. The Company shall have no liability to an
Eligible Person, or to any other party, if an Option (or any part
thereof) which is intended to be a 102 Option is not a 102 Option.
Approved 102 Awards may either be classified as Capital Gain Awards
("CGA") or Ordinary Income Awards ("OIA").
Approved 102 Awards elected and designated by the Company to qualify
under the capital gain tax treatment in accordance with the
provisions of Section 102(b)(2) of the Tax Ordinance shall be
referred to herein as CGA.
Approved 102 Awards elected and designated by the Company to qualify
under the ordinary income tax treatment in accordance with the
provisions of Section 102(b)(1) of the Tax Ordinance shall be
referred to herein as OIA.
B-3
The Company's election of the type of Approved 102 Awards as CGA or
OIA granted to Employees (the "Election"), shall be appropriately
filed with the Israeli Tax Authorities before the Date of Grant of
any Approved 102 Option.
Such Election shall become effective beginning the first Date of
Grant of an Approved 102 Award under the Plan and shall remain in
effect until at least the end of the year following the year during
which the Company first granted Approved 102 Awards. The Election
shall obligate the Company to grant only the type of Approved 102
Award it has elected, and shall apply to all Approved 102 Awards
granted during the period indicated herein, all in accordance with
the provisions of Section 102(g) of the Tax Ordinance. For the
avoidance of doubt, such Election shall not prevent the Company from
granting Unapproved 102 Awards simultaneously.
All Approved 102 Awards must be held in trust by a Trustee, as
described in Section 11.
For the avoidance of doubt, the designation of Unapproved 102 Awards
and Approved 102 Awards shall be subject to the terms and conditions
set forth in Section 102 of the Tax Ordinance and the regulations
promulgated thereunder
With regards to Approved 102 Awards, the provisions of the Plan
and/or the Option Agreement shall be subject to the provisions of
Section 102 and the Tax Assessing Officer's permit, and the said
provisions and permit shall be deemed an integral part of the Plan
and of the Option Agreement. Any provision of Section 102 and/or the
said permit which is necessary in order to receive and/or to keep
any tax benefit pursuant to Section 102, which is not expressly
specified in the Plan or the Option Agreement, shall be considered
binding upon the Company and the Participants.
(gg) "3(I) OPTIONS" - means Options that do not contain such terms as
will qualify under Section 102 of the Tax Ordinance.
(hh) "OPTION" - " shall mean the right to purchase the number of shares
of Common Stock specified by the Committee, at a price and for the
term fixed by the Committee in accordance with the Plan and subject
to any other limitations and restrictions as this Plan and the
Committee shall impose.
(ii) "OPTION AGREEMENT" - means a written or electronic agreement between
the Company and an Participant evidencing the terms and conditions
of an individual Option grant. The Option Agreement shall state,
inter alia, the number of Shares covered thereby, the dates when it
may be exercised (subject to Section 5), the Exercise Price per
Share subject to the Option and such other terms as the
Administrator in its discretion may prescribe. The Option Agreement
is subject to the terms and conditions of the Plan.
(jj) "PARTICIPANT" - shall mean an Eligible Employee who is selected by
the Committee to receive an Award under the Plan.
(kk) "PARENT" - means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the
time of granting an Option, each of the corporations (other than the
Company), owns stock possessing fifty percent (50%) or more of total
combined voting power of all classes of stock in one of the other
corporations in such chain.
(ll) "RELOAD OPTION" - shall have the meaning ascribed thereto in Section
5(h).
(mm) "RETIREMENT" - shall mean Participant's retirement pursuant to
applicable law or in accordance with the terms of any tax-qualified
retirement plan maintained by the Company or any of its Parents or
Subsidiaries in which the Participant participates within the
meaning of Section 22(e)(3) of the Code.
(nn) "RESTRICTED PERIOD" - shall mean the period during which a grant of
Incentive Stock, Restricted Stock, Incentive Units or Restricted
Units is subject to forfeiture.
(oo) "RESTRICTED STOCK" - shall mean any Award of Common Stock granted
under Section 7 which becomes vested and nonforfeitable, in whole or
in part, upon the completion of such period of service as shall be
determined by the Committee.
B-4
(pp) "RESTRICTED UNIT" - shall mean any Award of a contractual right
granted under Section 7 to receive Common Stock (or, at the
discretion of the Committee, cash based on the Fair Market Value of
the Common Stock) which becomes vested and nonforfeitable, in whole
or in part, upon the completion of such period of service as shall
be determined by the Committee.
(qq) "SERVICE PROVIDER" - means an Employee, advisor or Consultant of the
Company, provided, however, that a consultant or advisor must be an
individual who is providing or will be providing bona fide services
to the Company, with such services (1) not being in connection with
the offer or sale of securities in a capital-raising transaction,
and (2) not directly or indirectly promoting or maintaining a market
for securities of the Company.
(rr) "SHARE" - shall mean a share of Common Stock.
(ss) "STOCK APPRECIATION RIGHT" - shall mean a contractual right granted
under Section 6 to receive cash, Common Stock or a combination
thereof.
(tt) "SUBSIDIARY" - shall mean any corporation of which the Company
possesses directly or indirectly fifty percent (50%) or more of the
total combined voting power of all classes of stock of such
corporation and any other business organization, regardless of form,
in which the Company possesses directly or indirectly fifty percent
(50%) or more of the total combined equity interests in such
organization.
(uu) "SUPPLEMENTAL UNITS" - shall mean an award made pursuant to Section
9 with respect to a number of shares of Common Stock in excess of
the number of shares of Common Stock corresponding to the
Participant's Elective Units.
(vv) "TAX ORDINANCE" - means the Israeli Income Tax Ordinance [New
Version]-1961 and the rules and regulations promulgated thereunder
as now in effect or as hereafter amended.
(ww) "TEN PERCENT SHAREHOLDER" - means a person who owns shares
possessing more than ten percent (10%) of the total combined voting
power of all classes of shares of the Company or of any of its
Affiliates immediately before such Option is granted.
(xx) "TRUSTEE" - means any individual appointed by the Company to serve
as a trustee and approved by the applicable law.
3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee which shall consist of at
least two Directors of the Company chosen by the Board each of whom is a
Disinterested Director. The Committee shall have the responsibility of
construing and interpreting the Plan and of establishing and amending such
rules and regulations as it deems necessary or desirable for the proper
administration of the Plan. Any decision or action taken or to be taken by
the Committee, arising out of or in connection with the construction,
administration, interpretation and effect of the Plan and of its rules and
regulations, shall, to the maximum extent permitted by applicable law, be
within its absolute discretion (except as otherwise specifically provided
herein) and shall be conclusive and binding upon all Participants and any
person claiming under or through any Participant. No member of the Board
or the Committee shall be liable for any action taken or determination
made in good faith with respect to the Plan or any Award granted
hereunder.
4. MAXIMUM AMOUNT OF SHARES AVAILABLE FOR AWARDS
(a) MAXIMUM NUMBER OF SHARES. The aggregate number of Shares that may be
issued under this Plan shall not exceed (a) 759,732 Shares (which
represents 4,000,000 Shares reserved under the 1999 Plan less the
amount of Shares represented by Awards previously granted under the
1999 Plan and previously exercised and/or outstanding as of
September 28, 2004), plus (b) such additional Shares as are
represented by Awards previously granted under the 1999 Plan which
are cancelled or expire after the date of stockholder approval of
this Plan without delivery of shares of stock by the Company, except
as provided in this Section. Shares subject to any Award granted
hereunder, or under the 1999 Plan, which expire or are terminated or
canceled prior to exercise will be available for future grants under
the Plan. Without limiting the generality of the foregoing, whenever
shares are received by the Company in connection with the exercise
of or payment for any Award granted under the Plan only the net
number of shares actually issued shall be counted against the
foregoing limit.
B-5
(b) SHARES AVAILABLE FOR ISSUANCE. Shares of Common Stock may be made
available from the authorized but unissued shares of the Company or
from Shares held in the Company's treasury and not reserved for some
other purpose. In addition, if any Award (including awards made
under the 1999 Plan) in respect of Shares is canceled or forfeited
for any reason without delivery of shares of Common Stock, the
shares subject to such Award shall thereafter again be available for
award pursuant to the Plan.
(c) ADJUSTMENTS UPON CERTAIN EVENTS. In the event of any Share dividend
or Share split, re-capitalization (including, without limitation,
the payment of an extraordinary dividend), merger, consolidation,
combination, spin-off, distribution of assets to shareholders,
exchange of shares, or other similar corporate change, the aggregate
number of Shares available for Options under Section 4(a) or subject
to outstanding Options and the respective prices applicable to
outstanding Options shall be appropriately adjusted.
(d) NO ADJUSTMENT IF VALUE RECEIVED. Except as hereinbefore expressly
provided, the issuance by the Company of shares of stock of any
class or securities convertible into shares of stock of any class,
for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or other securities, and in any case whether or
not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to the number of Shares subject
to Options to be awarded to an Eligible Employee pursuant to Section
5.
(e) Neither this Plan nor any Agreement nor any offer of Shares or
Options to an Participant shall impose any obligation on the Company
to continue to employ or engage the services of any Participant, and
nothing in the Plan or in any Option granted pursuant thereto shall
give any Participant any right to continue in the employment or
service of the Company or restrict the right of the Company to
terminate such employment or services at any time.
(f) The grant of an Option to a Participant hereunder, shall neither
entitle such Participant to participate, nor disqualify him from
participating, in any other grant of Options pursuant to this Plan
or any other share incentive or share option plan of the Company or
any of its Affiliates.
5. STOCK OPTIONS
(a) GRANT. Subject to the provisions of the Plan, the Committee shall
have the authority to grant Options to Eligible Employees and to
determine (i) the number of shares to be covered by each Option,
(ii) the exercise price therefor and (iii) the conditions and
limitations applicable to the exercise of the Option.
Notwithstanding the foregoing, in no event shall the Committee grant
any Participant Options in any single calendar year with respect to
more than 500,000 shares of Common Stock authorized for issuance
under the Plan, as such number may be adjusted pursuant to Section
4(c). The Committee shall have the authority to grant 102 Options,
3(i) Options, Incentive Stock Options or Nonstatutory Stock Options.
In the case of Incentive Stock Options, the terms and conditions of
such grants shall be subject to and comply with Section 422 of the
Code and the regulations thereunder.
(b) All Service Providers of the Company shall be eligible to receive
Options under the Plan; provided, however, that Options qualifying
as ISOs shall be granted only to employees of the Company and
options qualified under section 102 of the ordinance - capital gain
track - shall be granted only to employees of the Company who are
not Ten Percent shareholders of the Company.
(c) Each Option granted pursuant to the Plan, shall be evidenced by an
Option Agreement, in such form as the Committee shall from time to
time approve. Each Option Agreement shall state, among other
matters, the number of Shares underlying the Option, the Exercise
Price and the type of Option granted there under (whether a 102
Option, a 3(i) Option, an ISO or a NSO or any other applicable
agreement).
B-6
(d) OPTION PRICE. The Committee shall establish the exercise price at
the time each Option is granted. Notwithstanding the foregoing, (i)
the exercise price at the time an Option is granted shall not be
less than the Fair Market Value of the Common Stock at the date of
grant and (ii) in the case of an Incentive Stock Option issued to a
Participant who owns stock in the Company possessing more than 10%
of the total combined voting power of all classes of stock of the
Company, the exercise price at the time such Incentive Stock Option
is granted to such individual shall equal at least 110% of the Fair
Market Value of the Common Stock at the date of grant.
(e) OPTION TERM. If not previously exercised each Option shall expire
upon the tenth (10th) anniversary of the date of the grant thereof
or, upon the earlier termination of the Participant's Employment
(or, if applicable, on the day following the last day on which such
Option is exercisable under Section 5(g) below), provided that (i)
the Committee may establish a shorter term for an Option at the time
of the grant of such Option and (ii) in the case of an Incentive
Stock Option issued to a Participant who owns stock in the Company
possessing more than 10% of the total combined voting power of all
classes of stock of the Company, such Incentive Stock Option shall
expire on the fifth (5th) anniversary of the date of grant.
(f) EXERCISE. Each Option shall be exercised at such times and subject
to such terms and conditions as the Committee may specify in the
applicable Award or thereafter; provided, however, that if the
Committee does not establish a different exercise schedule at or
after the date of grant of an Option, such Option shall become
exercisable on a cumulative basis in three equal annual installments
commencing on the first anniversary of the date the Option is
granted. The Committee may impose such conditions with respect to
the exercise of Options as it shall deem appropriate, including
without limitation, any conditions relating to the application of
federal or state securities laws. No Shares shall be delivered
pursuant to any exercise of an Option unless arrangements
satisfactory to the Committee have been made to assure full payment
of the option price therefor and of applicable taxes as provided in
Section 13(a) below. Without limiting the generality of the
foregoing, payment of the option price may be made in cash or its
equivalent or, if and to the extent permitted by the Committee, by
exchanging shares of Common Stock owned by the Participant for at
least six (6) months (or such longer period as is required by
applicable accounting standards to avoid a charge to earnings) and
that are not the subject of any pledge or other security interest,
or by a combination of the foregoing, provided that the combined
value of all cash and cash equivalents and the Fair Market Value of
any such Common Stock so tendered to the Company, valued as of the
date of such tender, is at least equal to such option price
(g) TERMINATION OF EMPLOYMENT. Unless the Committee shall otherwise
determine at or after grant, in the event of termination of
Participant's employment with the Company other than for Cause,
Disability or Death, or if applicable, the termination of services
given by the Participant to the Group other than for Cause,
Disability or Death, all Options granted to that Participant, which
are vested and exercisable at the time of such termination, may,
unless earlier terminated in accordance with the provisions of the
Plan or the Option Agreement, be exercised within three (3) months
after the date of such termination. If, on the date of termination,
the Shares subject to the Option have not vested in their entirety,
any Shares covered by the unvested portion of the Option shall
expire and be of no further force and effect and revert to the Plan.
If the vested portion of the Option is not so exercised within the
time specified herein, such vested portion of the Option shall
expire and be of no further force and effect, and the Shares covered
by such Option shall revert to the Plan.
In the event of termination of Participant's employment with the
Company, or if applicable, the termination of services given by the
Participant to the Company by reason of death or total and permanent
Disability (within the meaning of Section 22(e)(3) of the Code), or
Retirement, the outstanding Options, which were vested on the date
of termination, may be exercised by the Participant, the
Participant's legal guardian, the Participant's estate or a person
who acquires the right to exercise the Option by bequest or
B-7
inheritance, as the case may be, within twelve (12) months after
termination (but in no event later than the expiration of the term
of such Option as set forth in the Option Agreement). If, on the
date of termination, there are Options which are not entirely
vested, the Shares covered by the unvested portion of the Options
shall revert to the Plan. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
If a Participant's Employment is terminated for Cause (or, if after
the Participant's termination of Employment, the Committee
determines that the Participant's Employment could have been
terminated for Cause had the Participant still been employed or has
otherwise engaged in conduct that is detrimental to the interests of
the Company, as determined by the Committee in its sole discretion),
all Options held by the Participant shall immediately terminate,
regardless of whether then exercisable.
In the event of a Participant's termination of Employment for any
reason not described in the preceding sentences, the Participant
(or, in the event of the Participant's death or Disability during
the period during which an Option is exercisable under this
sentence, the Participant's beneficiary or legal representative) may
exercise any Option which was exercisable at the time of such
termination for 90 days (or such greater or lesser period as the
Committee shall specify at or after the grant of such Option)
following the date of such termination, but in no event after the
date the Option otherwise expires.
(h) RELOAD OPTIONS. The Committee may provide that a Participant (or, if
applicable, his permitted transferee) who delivers shares of Common
Stock that have been owned by such Participant (or permitted
transferee) for any minimum period of time specified by the
Committee to exercise an Option (when the fair market value of
Common Stock exceeds the exercise price of such Option) will
automatically be granted new Options ("Reload Options") for a number
of shares of Common Stock equal to the number of shares so
delivered. Unless the Committee determines otherwise, such Reload
Options will be subject to the same terms and conditions (including
the same expiration date) as the related Option except (i) that the
exercise price shall initially be equal to the Fair Market Value of
a share of Common Stock on the date such Reload Option is granted
and (ii) such Reload Option shall not be exercisable prior to the
six month anniversary of the date of grant and, thereafter, shall be
exercisable in full.
6. STOCK APPRECIATION RIGHTS
(a) GRANT OF SARS. The Committee shall have the authority to grant Stock
Appreciation Rights in tandem with an Option, in addition to an
Option, or freestanding and unrelated to an Option. Notwithstanding
the foregoing, in no event shall the Committee grant any Participant
SARs with respect to more than 600,000 shares of Common Stock
authorized for issuance under the Plan, as such number may be
adjusted pursuant to Section 4(c).
(b) EXERCISE OF SARS. A Stock Appreciation Right shall entitle the
Participant to receive from the Company an amount equal to the
excess of the Fair Market Value of a share of Common Stock on the
date of exercise of the Stock Appreciation Right over the base price
thereof. The Committee shall determine the time or times at which or
the event or events (including, without limitation, a change of
control) upon which a Stock Appreciation Right may be exercised in
whole or in part, the method of exercise and whether such Stock
Appreciation Right shall be settled in cash, shares of Common Stock
or a combination of cash and shares of Common Stock; provided,
however, that unless otherwise specified by the Committee at or
after grant, a Stock Appreciation Right granted in tandem with an
Option shall be exercisable only at the same time or times as the
related Option is exercisable.
B-8
7. RESTRICTED STOCK AND RESTRICTED UNITS
(a) GRANT OF RESTRICTED STOCK OR RESTRICTED UNITS. The Committee may
grant Awards of Restricted Stock or Restricted Units to Participants
at such times and in such amounts, and subject to such other terms
and conditions not inconsistent with the Plan, as it shall
determine. Each grant of Restricted Stock or Restricted Units shall
be evidenced by an Award Agreement. Unless the Committee provides
otherwise at or after the date of grant, stock certificates
evidencing any shares of Restricted Stock so granted shall be held
in the custody of the Secretary of the Company until the Restricted
Period lapses, and, as a condition to the grant of any Award of
shares of Restricted Stock, the Participant shall have delivered to
the Secretary of the Company a certificate, endorsed in blank,
relating to the shares of Common Stock covered by such Award.
(b) TERMINATION OF EMPLOYMENT. Unless the Committee otherwise determines
at or after grant, the rights of a Participant with respect to an
award of Restricted Stock or Restricted Units outstanding at the
time of the Participant's termination of Employment shall be
determined under this Section 7(b). In the event that a
Participant's Employment terminates due to the Participant's (i)
death, (ii) Disability, (iii) Early Retirement with the consent of
the Committee or (iv) Normal Retirement, any award of Restricted
Stock or Restricted Units shall become vested and nonforfeitable as
to that number of shares which is equal to the number of shares of
Common Stock subject to such Award times a fraction, the numerator
of which is the number of days actually worked during the Restricted
Period (or, in the case of an Award which has previously vested in
part (an "Installment Award"), the number of days worked since the
last vesting date) and the denominator of which is the total number
of days during the Restricted Period (or, in the case of an
Installment Award, the number of days between the last vesting date
and the end of the Restricted Period). Unless the Committee
otherwise determines, any portion of any Restricted Stock or
Restricted Unit Award that has not become nonforfeitable at the date
of a Participant's termination of Employment shall be forfeited as
of such date.
(c) DELIVERY OF SHARES. Upon the expiration or termination of the
Restricted Period and the satisfaction (as determined by the
Committee) of any other conditions determined by the Committee, the
restrictions applicable to the Restricted Stock or Restricted Units
shall lapse and a stock certificate for the number of shares of
Common Stock with respect to which the restrictions have lapsed
shall be delivered, free of all such restrictions, except any that
may be imposed by law, to the Participant or the Participant's
beneficiary or estate, as the case may be. No payment will be
required to be made by the Participant upon the delivery of such
shares of Common Stock and/or cash, except as otherwise provided in
Section 13(a) of the Plan. At or after the date of grant, the
Committee may accelerate the vesting of any award of Restricted
Stock or Restricted Units or waive any conditions to the vesting of
any such award.
(d) RESTRICTED PERIOD; RESTRICTIONS ON TRANSFERABILITY DURING RESTRICTED
PERIOD. Unless otherwise determined by the Committee at or after the
date of grant, the Restricted Period applicable to any award of
Restricted Stock or Restricted Units shall lapse, and the shares
related to such award shall become freely transferable, on the third
anniversary of the date of grant. Restricted Stock or Restricted
Units may not be sold, assigned, pledged or otherwise encumbered,
except as herein provided, during the Restricted Period. Any
certificates issued in respect of Restricted Stock shall be
registered in the name of the Participant and deposited by such
Participant, together with a stock power endorsed in blank, with the
Company. At the expiration of the Restricted Period with respect to
any award of Restricted Stock, unless otherwise forfeited, the
Company shall deliver such certificates to the Participant or to the
Participant's legal representative. Payment for Restricted Stock
Units shall be made by the Company in shares of Common Stock, cash
or in any combination thereof, as determined by the Committee.
B-9
(e) RIGHTS AS A STOCKHOLDER; DIVIDEND EQUIVALENTS. Unless otherwise
determined by the Committee at or after the date of grant,
Participants granted shares of Restricted Stock shall be entitled to
receive, either currently or at a future date, as specified by the
Committee, all dividends and other distributions paid with respect
to those shares, provided that if any such dividends or
distributions are paid in shares of Common Stock or other property
(other than cash), such shares and other property shall be subject
to the same forfeiture restrictions and restrictions on
transferability as apply to the shares of Restricted Stock with
respect to which they were paid. The Committee will determine
whether and to what extent to credit Dividend Equivalents to the
account of, or to pay dividends currently to, each recipient of
Restricted Units. To the extent provided by the Committee at or
after the date of grant, any Dividend Equivalents credited to a
Participant's account shall be deemed to have been invested in
shares of Common Stock on the record date established for the
related dividend and, accordingly, a number of additional Restricted
Units shall be credited to such Participant's account equal to the
greatest whole number which may be obtained by dividing (x) the
value of such Dividend Equivalent on the record date by (y) the Fair
Market Value of a share of Common Stock on such date.
8. INCENTIVE AWARDS
(a) INCENTIVE STOCK AND INCENTIVE UNITS. Subject to the provisions of
the Plan, the Committee shall have the authority to grant Incentive
Stock or Incentive Units to any Eligible Employee and to determine
(i) the number of shares of Incentive Stock and the number of
Incentive Units to be granted to each Participant and (ii) the other
terms and conditions of such Awards; provided that, to the extent
necessary to comply with applicable law, Incentive Stock shall only
be awarded to an Eligible Employee who has been employed for such
minimum period of time as shall be determined by the Committee. The
Restricted Period related to Incentive Stock or Incentive Units
shall lapse upon the determination by the Committee that the
performance objectives established by the Committee have been
attained, in whole or in part. Such performance objectives may be
related to the performance of (i) the Company, (ii) a Subsidiary,
(iii) a division or unit of the Company or any Subsidiary, (v) the
Participant or (vi) any combination of the foregoing, over a
measurement period or periods established by the Committee. Unless
the Committee otherwise determines at the time of grant of Incentive
Stock or Incentive Units, the performance objectives with respect to
such Award shall be related to at least one of the following
criteria, which may be determined solely by reference to the
performance of the Company or a Subsidiary or a division or unit of
the Company or a Subsidiary or based on comparative performance
relative to other companies: (i) consolidated earnings before income
taxes, depreciation and amortization; (ii) revenues; (iii) earnings
per share; (iv) net income; (v) gross profit margin; (vi) maximum
capital expenditures; (vii) return on equity; and/or (viii) return
on total capital. Except to the extent otherwise expressly provided
herein, the Committee may, at any time and from time to time, change
the performance objectives applicable with respect to any Incentive
Stock or Incentive Units to reflect such factors, including, without
limitation, changes in a Participant's duties or responsibilities or
changes in business objectives (e.g., from corporate to Subsidiary
or business unit performance or vice versa), as the Committee shall
deem necessary or appropriate. In making any such adjustment, the
Committee shall adjust the number of Incentive Stock or Incentive
Units or take other appropriate actions to prevent any enlargement
or diminution of the Participant's rights related to service
rendered and performance attained prior to the effective date of
such adjustment.
(b) TERMINATION OF EMPLOYMENT. Unless the Committee otherwise determines
at or after grant, the rights of a Participant with respect to an
award of Incentive Stock or Incentive Units outstanding at the time
of the Participant's termination of Employment shall be determined
under this Section 8(b). In the event that a Participant's
Employment terminates due to the Participant's (i) death, (ii)
Disability, (iii) Early Retirement with the consent of the Committee
or (iv) Normal Retirement, any award of Incentive Stock or Incentive
Units shall become vested and nonforfeitable at the end of the
measurement period as to that number of shares which is equal to
that percentage, if any, of such award that would have been earned
based on the attainment or partial attainment of such performance
objectives times a fraction, the numerator of which is the number of
days employed during the Restricted Period (or, in the case of an
Award which has previously vested in part (an "Installment Award"),
the number of days employed since the last vesting date) and the
B-10
denominator of which is the total number of days during the
Restricted Period (or, in the case of an Installment Award, the
number of days between the last vesting date and the end of the
Restricted Period); provided that, any portion of any Incentive
Stock or Incentive Unit award that does not become vested as of the
times set forth in this sentence shall be forfeited at such times.
In all other cases, any portion of any award of Incentive Stock or
Incentive Units that has not become nonforfeitable at the date of a
Participant's termination of Employment shall be forfeited as of
such date.
(c) AWARDS NONTRANSFERABLE. Incentive Stock or Incentive Units may not
be sold, assigned, pledged or otherwise encumbered, except as herein
provided, during the Restricted Period. Any certificates issued in
respect of Incentive Stock shall be registered in the name of the
Participant and deposited by such Participant, together with a stock
power endorsed in blank, with the Company. At the expiration of the
Restricted Period with respect to any award of Incentive Stock,
unless otherwise forfeited, the Company shall deliver such
certificates to the Participant or to the Participant's legal
representative. Payment for Incentive Stock Units shall be made by
the Company in shares of Common Stock, cash or in any combination
thereof, as determined by the Committee.
(d) RIGHTS AS A STOCKHOLDER; DIVIDEND EQUIVALENTS. Unless otherwise
determined by the Committee at or after the date of grant,
Participants granted shares of Incentive Stock shall be entitled to
receive, either currently or at a future date, as specified by the
Committee, all dividends and other distributions paid with respect
to those shares, provided that if any such dividends or
distributions are paid in shares of Common Stock or other property
(other than cash), such shares and other property shall be subject
to the same forfeiture restrictions and restrictions on
transferability as apply to the shares of Incentive Stock with
respect to which they were paid. The Committee will determine
whether and to what extent to credit Dividend Equivalents to the
account of, or to pay dividends currently to, each recipient of
Incentive Units during the period of deferral. To the extent
provided by the Committee at or after the date of grant, any
Dividend Equivalents credited to a Participant's account shall be
deemed to have been invested in shares of Common Stock on the record
date established for the related dividend and, accordingly, a number
of additional Incentive Units shall be credited to such
Participant's account equal to the greatest whole number which may
be obtained by dividing (x) the value of such Dividend Equivalent on
the record date by (y) the Fair Market Value of a share of Common
Stock on such date.
(e) INTERPRETATION. Notwithstanding anything else contained in this
Section 8 to the contrary, if any award of Incentive Stock or
Incentive Units is intended, at the time of grant, to be other
performance-based compensation within the meaning of Section
162(m)(4)(C) of the Code, to the extent required to so qualify any
Award hereunder, the Committee shall not be entitled to exercise any
discretion otherwise authorized under this Section 8 with respect to
such award if the ability to exercise such discretion (as opposed to
the exercise of such discretion) would cause such award to fail to
qualify as other performance-based compensation.
9. ELECTIVE AND SUPPLEMENTAL UNITS
(a) ELECTIVE UNITS; SUPPLEMENTAL UNITS. On such date or dates as shall
be established by the Committee and subject to such terms and
conditions as the Committee shall determine, a Participant may be
permitted to elect to defer receipt of all or a portion of his
annual compensation and/or annual incentive bonus ("Deferred Annual
Amount") payable by the Company or a Subsidiary and receive in lieu
thereof a number of Elective Units equal to the greatest whole
number which may be obtained by dividing (x) the amount of the
Deferred Annual Amount by (y) the Fair Market Value of a share of
Common Stock on the date of grant. No shares of Common Stock will be
issued upon the issuance of Elective Units; the Company will
establish a separate account for the Participant and will record in
such account the number of Elective Units issued to the Participant.
To the extent the Committee so determines, a Participant who elects
to receive Elective Units shall also receive that number of
Supplemental Units equal to the greatest whole number which may be
obtained by dividing (x) such percentage of the Deferred Annual
Amount as is determined by the Committee at the date of grant by (y)
the Fair Market Value of a share of Common Stock on the date of
grant.
B-11
(b) RIGHTS AS A STOCKHOLDER; DIVIDEND EQUIVALENTS. A Participant shall
not have any right in respect of Elective Units issued pursuant to
the Plan to vote on any matter submitted to the Company's
stockholders until such time as the shares of Common Stock
attributable to such Elective Units have been issued to such
Participant or his beneficiary. The Committee will determine whether
and to what extent to credit Dividend Equivalents to the account of,
or to pay dividends currently to, each recipient of Elective Units.
Dividend Equivalents credited to a Participant's account shall be
deemed to have been invested in shares of Common Stock on the record
date established for the related dividend and, accordingly, a number
of Elective Units shall be credited to such Participant's account
equal to the greatest whole number which may be obtained by dividing
(x) the value of such Dividend Equivalent on the record date by (y)
the Fair Market Value of a share of Common Stock on such date.
(c) VESTING OF ELECTIVE UNITS AND SUPPLEMENTAL UNITS. The Elective Units
credited to a Participant, together with any Dividend Equivalents
credited in respect of such Elective Units, shall be fully vested at
all times. Unless the Committee provides otherwise at or after the
date of grant, the Supplemental Units credited to a Participant,
together with any Dividend Equivalents credited in respect of
Supplemental Units, shall become vested in full on the third
anniversary of the date the corresponding Deferred Annual Amount
would have been paid absent the Participant's election to defer
provided the Participant remains in the continuous employ of the
Company or a Subsidiary through such date. Notwithstanding the
foregoing, the Committee may accelerate the vesting of any
Supplemental Units at or after the date of grant.
(d) SETTLEMENT OF ELECTIVE UNITS AND SUPPLEMENTAL UNITS. Unless the
Committee determines otherwise at or after the date of grant, a
Participant shall receive one share of Common Stock for each
Elective Unit (and related Dividend Equivalents) as of the date of
such Participant's termination of employment (or such later date as
may be elected by the Participant in accordance with the rules and
procedures of the Committee). Unless the Committee determines
otherwise at or after the date of grant, a Participant shall receive
one share of Common Stock for each Supplemental Unit (and related
Dividend Equivalents) that shall have become vested on or prior to
the date of such Participant's termination of employment with the
Company and the Subsidiaries, other than any such termination for
Cause, on the date of such termination of employment (or on such
earlier date as the Committee shall permit or such later date as may
be elected by the Participant in accordance with the rules and
procedures of the Committee). In the event of the termination of a
Participant's employment with the Company and the Subsidiaries for
Cause, the Participant shall immediately forfeit all rights with
respect to any Supplemental Units (and related Dividend Equivalents)
credited to his account. The Committee may provide in the Award
Agreement applicable to Elective Units that, in lieu of issuing
shares of Common Stock in settlement of the vested Supplemental
Units (and related Dividend Equivalents), the Committee may direct
the Company to pay to the Participant the cash value thereof.
10. DESIGNATION OF AWARDS PURSUANT TO SECTION 102 OF THE TAX ORDINANCE
(a) The Committee may designate Awards granted to Employees pursuant to
Section 102 of the Tax Ordinance as Unapproved 102 Awards or as
Approved 102 Awards.
(b) The grant of an Approved 102 Award under the Plan shall be
conditioned upon the approval of the Plan by the Israeli Tax
Authorities.
(c) Approved 102 Awards may either be classified as Capital Gain Awards
or Ordinary Income Awards.
(d) Each Award Agreement shall state, inter alia, the type of Award
granted thereunder (whether a CGA, OIA, Unapproved 102 Award or a
3(i) Award), the vesting provisions and the Exercise Price.
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(e) No Approved 102 Awards may be granted under this Plan to any
eligible Employee, unless and until, the Company's election of the
type of Approved 102 Awards as CGA or OIA granted to Employees (the
"Election"), shall be appropriately filed with the Israeli Tax
Authorities at least thirty (30) days before the first Date of Grant
of an Approved 102 Option under this Plan. Such Election shall
become effective beginning the first Date of Grant of an Approved
102 Option under the Plan and shall remain in effect until at least
the end of the year following the year during which the Company
first granted Approved 102 Awards. The Election shall obligate the
Company to grant only the type of Approved 102 Option it has
elected, and shall apply to all Approved 102 Awards granted during
the period indicated herein, all in accordance with the provisions
of Section 102(g) of the Tax Ordinance, as now in effect or as
hereafter amended. For the avoidance of doubt, such Election shall
not prevent, subject to the Board's sole discretion, the Company
from simultaneously (i) granting Unapproved 102 Awards; or (ii) 3(i)
Options.
(e) All Approved 102 Awards must be held in trust by a Trustee, as
described in Section 11 below.
(f) For the avoidance of doubt, the designation of Unapproved 102 Awards
and Approved 102 Awards shall be subject to the terms and conditions
set forth in Section 102 of the Tax Ordinance and regulations,
rules, orders or procedures promulgated thereunder as now in effect
or as hereafter amended.
(g) With regards to Approved 102 Awards, the provisions of the Plan and
the Option Agreement shall be subject to the provisions of Section
102 and the Tax Assessing Officer's permit, and the said provisions
and permit shall be deemed an integral part of the Plan and of the
Option Agreement. Any provision of Section 102 and/or the said
permit which is necessary in order to receive and/or to keep any tax
benefit pursuant to Section 102, which is not expressly specified in
the Plan or the Option Agreement, shall be considered binding upon
the Company and the Participants.
11. TRUSTEE
(a) The Committee may choose to deposit the Awards granted pursuant to
the Plan with a trustee (the "Trustee"). In such event, the Trustee
shall hold such Awards, and any Shares issued upon the exercise of
any of such Awards, in trust pursuant to the Company's instructions
from time to time. The Trustee shall be entitled to make such
provisions and take such steps as it may deem necessary or
appropriate for the withholding of all taxes required by law to be
withheld with respect to the exercise of the Awards or their sale to
a third party. The Company shall deliver the Trustee all the
necessary information required by him. The Trustee shall be exempt
from any liability with respect to any action or decision duly taken
in its/his capacity as Trustee.
(b) Anything herein to the contrary notwithstanding, Approved 102 Awards
granted under the Plan and/or all Shares allocated or issued upon
exercise of such Approved 102 Awards and/or all other shares
received subsequently following any realization of rights in
connection with such Approved 102 Awards or Shares and all rights
attached to shares described above or Approved 102 Awards, shall be
allocated or issued to the Trustee and held for the benefit of the
Participant for such period of time as required by Section 102 or
any regulations, rules, orders or procedures promulgated there under
as now in effect or as hereafter amended (the "Restricted Period Per
Section 102"). All of the rights attached to Shares issued upon
exercise of Approved 102 Awards, including without limitation
dividend in shares, shall be subject to the same tax treatment as
the treatment to which such Awards are subject to. In case the
requirements pursuant to Section 102 for an Approved 102 Awards are
not met, then the Approved 102 Awards may be regarded as Unapproved
102 Awards, all in accordance with the provisions of Section 102 and
regulations, rules, orders or procedures promulgated there under as
now in effect or as hereafter amended.
(c) Notwithstanding anything to the contrary, the Trustee shall not make
any transaction or take any action with respect to Approved 102
Awards or Shares issued upon exercise thereof, will not transfer,
assign, release, pledge, mortgage voluntarily, or grant in
connection therewith any proxy or assignment deed, whether
immediately effective or effective at a future date, other than by
will or by operation of law, until after the full payment of the
Participant's tax liabilities arising from the grant of such Awards
or their exercise or release or transfer by the Trustee or after
guarantying the payment of said taxes. If such Options or Shares
have been transferred by will or by operation of law, the provisions
of Section 102 will apply with respect to the heirs or the
transferees of the Participant or Stockholder, as the case may be.
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(d) Upon receipt of an Approved 102 Award, the Participant will sign an
undertaking to release the Trustee from any liability in respect of
any action or decision duly taken and bona fide executed in relation
with the Plan, or any Approved 102 Award or Share held, released or
transferred by the Trustee, in accordance with the terms of Section
102.
(e) Subject to the provisions of Section 102 and any regulations, rules,
orders or procedures promulgated there under as now in effect or as
hereafter amended, during the Restricted Period Per Section 102 a
Participant may not release the Approved 102 Awards or Shares issued
upon exercise thereof from trust or sell such Awards or Shares while
they are held by the Trustee. At any time thereafter each
Participant may require (but shall not be Participant, any Approved
102 Awards or Shares issued pursuant to the exercise of such
Approved 102 Awards, provided that (1) such transfer is in
compliance with all applicable securities laws, and (2) all
applicable tax due pursuant to such a sale or transfer has been paid
in accordance with Section 102 and the Trustee has received an
acknowledgment from the Israeli Tax Authorities that the Participant
has paid any applicable tax due pursuant to the Tax Ordinance.
Notwithstanding the above, if any such sale or release occurs during
the Restricted Period Per Section 102, the sanctions under Section
102 of the Tax Ordinance and under any rules or regulation or orders
or procedures promulgated there under as now in effect or as
hereafter amended, shall apply to and shall be borne by such
Participant.
12. STOCK IN LIEU OF CASH
The Committee may grant Awards or shares of Common Stock in lieu of all or
a portion of an award otherwise payable in cash to an Executive Officer
pursuant to any bonus or incentive compensation plan of the Company
(subject to any applicable limitations in such bonus or incentive
compensation plan). If shares are issued in lieu of cash, the number of
shares of Common Stock to be issued shall be the greatest number of whole
shares which has an aggregate Fair Market Value on the date the cash would
otherwise have been payable pursuant to the terms of such other plan equal
to or less than the amount of such cash.
13. GENERAL PROVISIONS
(a) WITHHOLDING. The Company shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or
otherwise) any taxes required by law to be withheld in respect of
Awards under this Plan. In the case of any Award satisfied in the
form of Common Stock, no shares shall be issued unless and until
arrangements satisfactory to the Committee shall have been made to
satisfy any withholding tax obligations applicable with respect to
such Award. Without limiting the generality of the foregoing and
subject to such terms and conditions as the Committee may impose,
the Company shall have the right to retain, or the Committee may,
subject to such terms and conditions as it may establish from time
to time, permit Participants to elect to tender, Common Stock
(including Common Stock issuable in respect of an Award) to satisfy,
in whole or in part, the amount required to be withheld.
(b) AWARDS. Each Award hereunder shall be evidenced by a written or
electronic agreement. The agreement shall be delivered to the
Participant and shall incorporate the terms of the Plan by reference
and specify the terms and conditions thereof and any rules
applicable thereto (each, an "Award Agreement").
(c) NON-TRANSFERABILITY. No Award shall be transferable by a Participant
otherwise than by will or under the applicable laws of descent and
distribution, unless such transfer shall be (i) permitted by the
Committee (on such terms as it shall establish) or (ii) if the
Option agreement pursuant to which an Award is made so provides, to
(A) the spouse, children or grandchildren of such Participant
(collectively, "Family Members"), (B) a trust or trusts for the
exclusive benefit of such Family Members, or (C) a partnership or
limited liability company in which such Family Members and trusts
for the exclusive benefit of such Family Members are the only
partners or members, as the case may be. In addition, no Award shall
be assigned, negotiated, pledged or hypothecated in any way (whether
by operation of law or otherwise) and no Award shall be subject to
execution, attachment or similar process. Upon any attempt to
transfer, assign, negotiate, pledge or hypothecate any Award, or in
the event of any levy upon any Award by reason of any attachment or
similar process, in either case contrary to the provisions hereof,
such Award shall immediately become null and void.
B-14
(d) LEGEND. To the extent any stock certificate is issued to a
Participant in respect of shares of Restricted Stock or Incentive
Stock awarded under the Plan prior to the expiration of the
applicable Restricted Period, such certificate shall be registered
in the name of the Participant and shall bear the following (or
similar) legend:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS CONTAINED IN THE DELTATHREE, INC. 2004
STOCK INCENTIVE PLAN AND THE AWARD AGREEMENT, DATED AS OF _____,
BETWEEN THE COMPANY AND THE PARTICIPANT, AND MAY NOT BE SOLD,
PLEDGED, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE ENCUMBERED
IN ANY MANNER (EXCEPT AS PROVIDED IN SECTION 13(C) OF THE PLAN OR IN
SUCH AWARD AGREEMENT) UNTIL _______________ ."
Upon the lapse of the Restricted Period with respect to any such
shares of Restricted Stock or Incentive Stock, the Company shall
issue or have issued new share certificates without the legend
described herein in exchange for those previously issued.
(e) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to be retained in the
employ of the Company or any Subsidiary. Further, the Company and
each Subsidiary expressly reserves the right at any time to dismiss
a Participant free from any liability, or any claim under the Plan,
except as provided herein or in any agreement entered into with
respect to an Award.
(f) NO RIGHTS TO AWARDS, NO SHAREHOLDER RIGHTS. No Participant or
Eligible Employee shall have any claim to be granted any Award under
the Plan, and there is no obligation of uniformity of treatment of
Participants and Eligible Employees. Subject to the provisions of
the Plan and the applicable Award, no person shall have any rights
as a shareholder with respect to any shares of Common Stock to be
issued under the Plan prior to the issuance thereof.
(g) EFFECTIVE DATE AND TERMINATION OF THE PLAN. The Plan shall become
effective on the Effective Date. No Awards may be granted under the
Plan after the expiration of ten years from the date this Plan is
adopted. The Plan will terminate on September 23, 2014, the date
which is ten years from the earlier of the date of its adoption by
the Board of Directors and the date of its approval by the
shareholders. The Plan may be terminated at an earlier date by vote
of the shareholders or the Board of Directors of the Company;
provided, however, that any such earlier termination shall not
affect any Option Agreements or Award Agreements executed prior to
the effective date of such termination.
(h) AMENDMENT OF PLAN. The Board or the Committee may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that
no amendment shall be made without shareholder approval if such
amendment would:
(1) increase the number of shares of Common Stock subject to the
Plan, except pursuant to Section 4(c);
(2) determine the price at which Options may be granted; or
(3) remove the administration of the Plan from the Committee.
Without the written consent of an affected Participant, no
termination, suspension or modification of the Plan shall adversely
affect any right of such Participant under the terms of an Award
granted before the date of such termination, suspension or
modification.
(i) APPLICATION OF PROCEEDS. The proceeds received by the Company from
the sale of its shares under the Plan will be used for general
corporate purposes.
B-15
(j) COMPLIANCE WITH LEGAL AND EXCHANGE REQUIREMENTS. The Plan, the
granting and exercising of Awards thereunder, and the other
obligations of the Company under the Plan, shall be subject to all
applicable federal and state laws, rules, and regulations, and to
such approvals by any regulatory or governmental agency as may be
required. The Company, in its discretion, may postpone the granting
and exercising of Awards, the issuance or delivery of Common Stock
under any Award or any other action permitted under the Plan to
permit the Company, with reasonable diligence, to complete such
stock exchange or similar listing or registration or qualification
of such Common Stock or other required action under any federal or
state law, rule, or regulation and may require any Participant to
make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of
Common Stock in compliance with applicable laws, rules, and
regulations. The Company shall not be obligated by virtue of any
provision of the Plan to recognize the exercise of any Award or to
otherwise sell or issue Common Stock in violation of any such laws,
rules, or regulations; and any postponement of the exercise or
settlement of any Award under this provision shall not extend the
term of such Awards, and neither the Company nor its directors or
officers shall have any obligation or liability to the Participant
with respect to any Award (or Stock issuable thereunder) that shall
lapse because of such postponement.
(k) GENDER AND NUMBER. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the
plural shall include the singular.
(l) GOVERNING LAW.
(i) The Plan and all instruments issued there under or in connection
therewith the Delaware Company, shall be governed by, construed,
enforced and interpreted in accordance with, the laws of the State
of New York.
(ii) The Plan and all instruments issued there under or in
connection therewith the Company affiliates and/or subsidiaries,
shall be governed by, and interpreted in accordance with, the
applicable laws with in the county of incorporation of the Company's
affiliate and/or subsidiary.
14. DATE OF GRANT
Subject to Applicable Laws, the Date of Grant of an Award shall, for all
purposes, be the date on which the Committee makes the determination
granting such Award.
15. TAX CONSEQUENCES
Any tax consequences arising from the grant or exercise of any Award or
from the disposition of Shares or from any other event or act (whether of
the Participant or of the Company or of its Trustee) hereunder, shall be
borne solely by the Participant. The Company and/or the Trustee shall
withhold taxes according to the requirements under the Applicable Laws,
rules, and regulations, including withholding taxes at source.
Furthermore, such Participant shall agree to indemnify the Company that
employs the Participant and/or the Trustee, and/or the Company's
shareholders and/or directors and/or officers if applicable, and hold them
harmless against and from any and all liability for any such tax or
interest or penalty thereon, including without limitation, liabilities
relating to the necessity to withhold, or to have withheld, any such tax
from any payment made to the Participant. Except as otherwise required by
law, the Company shall not be obligated to honor the exercise of any
Option by or on behalf of an Participant until all tax consequences (if
any) arising from the exercise of such Options are resolved in a manner
reasonably acceptable to the Company.
16. NON-EXCLUSIVITY OF THE PLAN
The adoption of the Plan by the Board shall not be construed as amending,
modifying or rescinding any previously approved incentive arrangements or
as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without
limitation, the granting of Options otherwise then under the Plan, and
such arrangements may be either applicable generally or only in specific
cases.
For the avoidance of doubt, prior grant of options to Participants of the
Company under their employment agreements, and not in the framework of any
previous option plan, shall not be deemed an approved incentive
arrangement for the purpose of this Section.
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17. INABILITY TO OBTAIN AUTHORITY
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been
obtained.
18. MULTIPLE AGREEMENTS
The terms of each Option may differ from other Options granted to each
Participant under the Plan at the same time. The Administrator may also
grant more than one Option to a given Participant during the term of the
Plan, either in addition to, or in substitution for, one or more Options
previously granted to that Participant.
19. DISPUTES
Any dispute or disagreement which may arise under or as a result of or
pursuant to this Plan or the Options Agreements shall be determined by the
Board in its sole discretion and any interpretation made by the Board of
the terms of the Plan or the Option Agreements shall be final, binding and
conclusive.
Adopted by the Board on September 23, 2004.
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APPENDIX C
DELTATHREE, INC.
2004 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSES
The purposes of this deltathree, Inc. 2004 Non-Employee Director Stock
Option Plan (the "Plan") are to enable the Company to attract, retain and
motivate the best qualified directors and to enhance a long-term mutuality
of interest between the directors and stockholders of the Company by
granting them options to purchase the Company's shares. This plan replaces
the previous 1999 Directors' Compensation Plan (the "1999 Plan").
2. DEFINITIONS
Unless the context requires otherwise, the following words as used in the
Plan shall have the meanings ascribed to each below, it being understood
that masculine, feminine and neuter pronouns are used interchangeably, and
that each encompasses the others.
"Affiliate" shall mean a corporation which is a parent or subsidiary of
the Company, direct or indirect.
"Award" shall mean any Option or Share awarded under the Plan.
"Board" shall mean the Board of Directors of the Company.
"Class A Common Stock" shall mean the Class A common shares of the
Company, par value $.001 per share.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean deltathree, Inc., a Delaware corporation, and any
successor thereto.
"Eligible Director" shall mean the Chairman of the Board (so long as such
person receives no compensation for his services to the Company or any of its
subsidiaries other than as a non-executive Chairman) and any director of the
Company who is not an employee of the Company or any of its subsidiaries.
"Fair Market Value" of a Share of Common Stock shall mean:
(1) If the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales prices are regularly
reported for the Common Stock, the closing or last price of the Common
Stock on the Composite Tape or other comparable reporting system for the
trading day immediately preceding the applicable date;
(2) If the Common Stock is not traded on a national securities exchange
but is traded on the over-the-counter market, if sales prices are not
regularly reported for the Common Stock for the trading day referred to in
clause (1), and if bid and asked prices for the Common Stock are regularly
reported, the mean between the bid and the asked price for the Common
Stock at the close of trading in the over-the-counter market for the
trading day on which Common Stock was traded immediately preceding the
applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Board, in good faith, shall determine.
"Guidelines for Board Service" shall mean the description of duties that
each Eligible Director must perform during his or her term of service as a
member of the Board. Such Guidelines will be proposed by the Executive Committee
of the Board, and ratified by the Board prior to the annual meeting of
stockholders each year, beginning with the 2004 annual meeting of stockholders.
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"Option" shall mean the right to purchase Shares at a stated price for a
specified period of time. For purposes of the Plan, the Options are nonstatutory
stock options and are not intended to qualify under Section 422 of the Code.
"Share" shall mean a share of Class A Common Stock.
3. EFFECTIVE DATE
The effective date of the Plan (the "Effective Date") shall be the date on
which the Plan is approved by the stockholders of the Company.
4. ADMINISTRATION
(a) Powers of the Board. This Plan shall be administered by the Board.
The Board may delegate its powers and functions hereunder to a duly
appointed committee of the Board. The Board shall have full
authority to interpret this Plan; to establish, amend and rescind
rules for carrying out this Plan; to administer this Plan; to
incorporate in any option agreement such terms and conditions, not
inconsistent with this Plan, as it deems appropriate; to construe
the respective option agreements and this Plan; and to make all
other determinations and to take such steps in connection with this
Plan as the Board, in its discretion, deems necessary or desirable
for administering this Plan. All expenses incurred in the
administration of the Plan, including, but not limited to, for the
engagement of any counsel, consultant or agent, shall be paid by the
Company.
(b) Disinterested Status. Notwithstanding the foregoing, neither the
Board, any committee thereof nor any person designated pursuant to
(c) below shall take any action that would cause any director who is
a "Non-Employee Director" for purposes of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended, as then in
effect or any successor provisions ("Rule 16b-3"), to cease to be a
"Non-Employee Director," with regard to this Plan or any other stock
option or other equity plan of the Company. In particular, neither
the Board nor any committee thereof shall have any discretion as to
(i) the selection of Eligible Directors as eligible to receive
awards pursuant to the Plan; or
(ii) the number of Shares subject to Options awarded pursuant to
Section 6.
(c) Delegation. The Board may designate the Secretary of the Company,
other officers or employees of the Company or competent professional
advisors to assist the Board in the administration of this Plan, and
may grant authority to such persons to execute agreements or other
documents on its behalf.
(d) Agents and Indemnification. The Board may employ such legal counsel,
consultants and agents as it may deem desirable for the
administration of this Plan, and may rely upon any opinion received
from any such counsel or consultant and any computation received
from any such consultant or agent. No member or former member of the
Board or any committee thereof or any person designated pursuant to
paragraph (c) above shall be liable for any action or determination
made in good faith with respect to this Plan. To the maximum extent
permitted by applicable law and the Company's Certificate of
Incorporation and Bylaws, each member or former member of the Board
or any committee thereof or any person designated pursuant to (c)
above shall be indemnified and held harmless by the Company against
any cost or expense (including counsel fees, which shall be paid by
the Company when incurred) or liability (including any sum paid in
settlement of a claim with the approval of the Company) arising out
of any act or omission to act in connection with this Plan, unless
arising out of such person's own fraud or bad faith. Such
indemnification shall be in addition to any rights of
indemnification the person may have as a director, officer or
employee or under the Certificate of Incorporation of the Company or
the Bylaws of the Company.
C-2
5. SHARES; ADJUSTMENT UPON CERTAIN EVENTS
(a) Shares Available. Shares to be issued under this Plan shall be made
available, at the discretion of the Board, either from authorized
but unissued Shares or from issued Shares reacquired by the Company.
The aggregate number of Shares that may be issued under this Plan
shall not exceed (a) 351,216 Shares (which represents 600,000 Shares
reserved under the 1999 Plan less the amount of Shares represented
by Options previously granted under the 1999 Plan and previously
exercised and/or outstanding as of September 28, 2004) plus (b) such
additional Shares as are represented by Options previously granted
under the 1999 Plan which are cancelled or expire after the date of
stockholder approval of this Plan without delivery of shares of
stock by the Company, except as provided in this Section. Shares
subject to any Option granted hereunder, or under the 1999 Plan,
which expire or are terminated or canceled prior to exercise will be
available for future grants under the Plan.
(b) No Limit on Corporate Action. The existence of this Plan and Shares
granted hereunder shall not affect in any way the right or power of
the Board or the stockholders of the Company to make or authorize
any adjustment, recapitalization, reorganization or other change in
the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of bonds, debentures,
preferred or prior preference shares ahead of or affecting common
shares, the dissolution or liquidation of the Company or any sale or
transfer of all or part of its assets or business, or any other
corporate act or proceeding.
(c) Adjustments upon Certain Events. In the event of any Share dividend
or Share split, recapitalization (including, without limitation, the
payment of an extraordinary dividend), merger, consolidation,
combination, spin-off, distribution of assets to stockholders,
exchange of shares, or other similar corporate change, the aggregate
number of Shares available for Options under Section 5(a) or subject
to outstanding Options, the number of Shares underlying any
outstanding Option Awards or future Option Awards pursuant to
Section 6 and the respective prices applicable to outstanding
Options shall be appropriately adjusted.
(d) No Adjustment If Value Received. Except as hereinbefore expressly
provided, the issuance by the Company of shares of stock of any
class or securities convertible into shares of stock of any class,
for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or other securities, and in any case whether or
not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to the number of Shares subject
to Options underlying any outstanding Option Awards or future Option
Awards pursuant to Section 6.
6. OPTION AWARDS
(a) Initial Option Awards. Each individual who becomes an Eligible
Director after the Effective Date shall be automatically granted an
Option to purchase ten thousand (10,000) shares of Common Stock
("Initial Option Award") on the date such Eligible Director joins
the Board.
(b) Subsequent Option Awards. On the first business day after each
annual meeting of stockholders of the Company occurring during the
term of the Plan commencing with the annual meeting of stockholders
in 2004, each Eligible Director who meets the Guidelines for Board
Service and who continues to be an Eligible Director following such
annual meeting shall automatically be granted an Option to purchase
ten thousand (10,000) shares of Common Stock (a "Subsequent Option
Award"); provided that no Subsequent Option Award shall be made to
any Eligible Director who has not served as a director of the
Company, as of the time of such annual meeting, for at least six (6)
months.
(c) Committee Chairman Awards.
(i) Each Eligible Director who is appointed as chairman of a
standing committee of the Board after the Effective Date (and
has not served as the chairman of such committee immediately
prior to the appointment) shall be automatically granted an
Option to purchase ten thousand (10,000) shares of Common
Stock ("Initial Committee Chairman Award") on the date of such
appointment.
C-3
(ii) Each Eligible Director who serves as a chairman of the full
Board or of a standing committee of the Board other than the
audit committee, and who meets the Guidelines for Board
Service, immediately following each annual meeting of the
Company's stockholders, commencing with the annual meeting of
the Company's stockholders in 2004, shall be granted an Option
to purchase an additional ten thousand (10,000) shares of
Common Stock (a "Committee Chairman Award"); provided that:
(1) no Committee Chairman Award shall be made to any Eligible
Director who has not served as a director of the Company, as
of the time of such annual meeting, for at least six (6)
months, and (2) no Committee Chairman Award shall be made to
any Eligible Director who has received a Committee Chairman
award for such service on the same committee within the past
six (6) months. Each such Committee Chairman Award shall be
made on the first business day after each annual stockholders'
meeting in question.
(d) Audit Committee Service Awards.
(i) Each Eligible Director who is appointed as a member of the
audit committee of the Board after the Effective Date (and has
not served as a member of the audit committee immediately
prior to the appointment) shall be automatically granted an
Option to purchase ten thousand (10,000) shares of Common
Stock ("Initial Audit Committee Award") on the date of such
appointment.
(ii) Each Eligible Director who serves as a member of the audit
committee of the Board, and who meets the Guidelines for Board
Service, immediately following each annual meeting of the
Company's stockholders, commencing with the annual meeting of
the Company's stockholders in 2004, shall be granted an Option
to purchase an additional ten thousand (10,000) shares of
Common Stock (an "Audit Committee Service Award"); provided
that: (1) no Audit Committee Service Award shall be made to
any Eligible Director who has not served as a director of the
Company, as of the time of such annual meeting, for at least
six (6) months, and (2) no Audit Committee Award shall be made
to any Eligible Director who has received an Audit Committee
award for such service within the past six (6) months. In
addition, the chairman of the audit committee of the Board
shall be granted an additional Option to purchase five
thousand (5,000) shares of Common Stock (an "Audit Committee
Chairman Award"). Each such Audit Committee Service Award and
Audit Committee Chairman Award shall be made on the first
business day after each annual stockholders' meeting in
question.
(e) Annual Limitation. Notwithstanding the foregoing, an Eligible
Director shall receive a maximum of Options to purchase thirty
thousand (30,000) shares of Common Stock during any single calendar
year.
(f) Option Agreement. Options shall be evidenced by a written or
electronic option agreement embodying the terms of this Section 6.
(g) Exercise Price. The exercise price per share of Common Stock of each
Option granted pursuant to this Plan shall be equal to the Fair
Market Value per Share on the date of grant.
(h) Option Term. If not previously exercised, each Option shall expire
on the earlier of (i) the tenth (10th) anniversary of the date of
the grant thereof and (ii) on the first anniversary of the
termination of the Eligible Director's status as a director of the
Company.
(i) Exercisability. Each Initial and Subsequent Option Award, Initial
Committee Chairman Award, Committee Chairman Option Award, Initial
Audit Committee Award, Audit Committee Service Award and Audit
Committee Chairman Award granted under this Plan shall become fully
vested and exercisable on the first anniversary of the date of
grant.
C-4
(j) Procedure for Exercise. An Eligible Director electing to exercise
one or more Options shall give written notice to the Secretary of
the Company of such election and of the number of Shares he has
elected to purchase. Shares purchased pursuant to the exercise of
Options shall be paid for at the time of exercise in cash or by
delivery to the Company of unencumbered Shares owned by the Eligible
Director for at least six (6) months (or such longer period as is
required by applicable accounting standards to avoid a charge to
earnings), having a value equal to the aggregate exercise price of
the Options based on the closing price of the Shares on the date of
exercise, or a combination thereof. Upon receipt of payment, the
Company shall deliver to the Eligible Director as soon as
practicable a certificate or certificates for the Shares then
purchased.
(k) Termination of Director Status. If an Eligible Director ceases to
serve as a member of the Board for any reason, (resignation, failure
to stand for reelection or failure to be reelected), any Option
granted to such Eligible Director may be exercised, to the extent it
was exercisable at such date of termination, within one year
following the Eligible Director's termination of service or prior to
the expiration date of the term of the Option, whichever period is
shorter.
(l) Change in Control. Notwithstanding anything to the contrary in the
Plan, Options granted pursuant to the Plan will become exercisable
in full upon a "change in control." For purposes of this Section, a
"change in control" shall arise if, at any time while the Eligible
Director is a member of the Company's Board of Directors any one or
more of the following events occurs:
(i) The Company is merged, consolidated or reorganized into or
with another corporation, or other entity and, as a result
thereof, less than 50% of the outstanding stock or other
capital interests of the surviving, resulting or acquiring
corporation, person, or other entity is owned, in the
aggregate, by the stockholder or stockholders of the Company
immediately prior to such merger, consolidation or
reorganization; or
(ii) The Company sells all or substantially all of its business or
assets (or both) to any other corporation, person, or other
entity, less than 50% of the outstanding, voting stock or
other capital interests of which are owned, in the aggregate,
by the stockholders of the Company, directly or indirectly,
immediately prior to or after such sale.
(iii) Any "Person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) other than
a Person who is an Affiliate as of the Effective Date becomes
the "Beneficial Owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented
by the Company's then outstanding voting securities (excluding
for this purpose the Company or its Affiliates or any employee
benefit plan of the Company) pursuant to a transaction or a
series of related transactions which the Board of Directors
does not approve.
7. TRANSFERABILITY OF AWARDS
No Award shall be transferable by the Eligible Director otherwise than by
will or under the applicable laws of descent and distribution, unless such
transfer shall be (a) acceptable under Rule 16b-3 and is approved by the
Board or its authorized delegate or (b) if the Option agreement pursuant
to which an Award is made so provides, by gift or domestic relations
order, to (i) the spouse, children or grandchildren of such Eligible
Director (collectively, "Family Members"), (ii) a trust or trusts for the
exclusive benefit of such Family Members, or (iii) a partnership or
limited liability company in which such Family Members and trusts for the
exclusive benefit of such Family Members are the only partners or members,
as the case may be. In addition, no Award shall be assigned, negotiated,
pledged or hypothecated in any way (whether by operation of law or
otherwise) and no Award shall be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, negotiate, pledge
or hypothecate any Award, or in the event of any levy upon any Award by
reason of any attachment or similar process, in either case contrary to
the provisions hereof, such Award shall immediately become null and void.
8. RIGHTS AS A STOCKHOLDER
An Eligible Director (or a permitted transferee of an Option) shall have
no rights as a stockholder with respect to any Shares covered by his
Option until he shall have become the holder of record of such Share(s),
and no adjustments shall be made for dividends in cash or other property
or distribution or other rights in respect to any such Shares, except as
otherwise specifically provided for in this Plan.
C-5
9. DETERMINATIONS
Each determination, interpretation or other action made or taken pursuant
to the provisions of this Plan by the Board shall be final and binding for
all purposes and upon all persons, including, without limitation, the
Company, the directors, officers and other employees of the Company, the
Eligible Director and the respective heirs, executors, administrators,
personal representatives and other successors in interest of such persons.
10. TERMINATION, AMENDMENT AND MODIFICATION
(a) Termination and Amendment. This Plan shall terminate at the close of
business on September 23, 2014, unless sooner terminated by action
of the Board or stockholders of the Company, and no Awards shall be
granted under this Plan thereafter. The Board at any time or from
time to time may amend this Plan to effect (i) amendments necessary
or desirable in order that this Plan and the Awards shall conform to
all applicable laws and regulations and (ii) any other amendments
deemed appropriate. Notwithstanding the foregoing, (i) the
provisions of the Plan relating to (A) the number of Shares to be
granted under the Plan or subject to any Option Award granted to any
Eligible Director, (B) the timing of any Award and (C) the material
terms of any such Option Award (including, without limitation, the
time of any such grant) may not be amended without the approval of
the Company's stockholders and (ii) the Board may not effect any
amendment that would require the approval of the stockholders of the
Company under any applicable laws or the listing requirements of The
Nasdaq Stock Market (if applicable to the Company at the time such
amendment is adopted or will be effective) unless such approval is
obtained.
(b) No Effect on Existing Rights. Except as otherwise required by law,
no termination, amendment or modification of this Plan may, without
the consent of an Eligible Director or the permitted transferee of
an Award, alter or impair the rights and obligations arising under
any then outstanding Award held by such Eligible Director or the
permitted transferee.
11. NON-EXCLUSIVITY
Neither the adoption of this Plan by the Board nor the submission of this
Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other
compensatory arrangements as it may deem desirable, including, without
limitation, payments of cash amounts related to the tax liabilities
arising directly or indirectly from the issuance of Shares in respect of
an Option Award granted to an Eligible Director hereunder.
12. GENERAL PROVISIONS
(a) No Right to Serve as a Director. This Plan shall not impose any
obligations on the Company to retain any Eligible Director as a
director nor shall it impose any obligation on the part of any
Eligible Director to remain as a director of the Company, provided
that each Eligible Director by accepting each Award shall represent
to the Company that it is his good faith intention to continue to
serve as a director of the Company until the next annual meeting of
stockholders and that he agrees to do so unless a change in
circumstances arises.
(b) No Right to Particular Assets. Nothing contained in this Plan and no
action taken pursuant to this Plan shall create or be construed to
create a trust of any kind or any fiduciary relationship between the
Company and any Eligible Director, the executor, administrator or
other personal representative or designated beneficiary of such
Eligible Director, or any other persons. Any reserves that may be
established by the Company in connection with this Plan shall
continue to be part of the general funds of the Company, and no
individual or entity other than the Company shall have any interest
in such funds until paid to an Eligible Director. To the extent that
any Eligible Director or his executor, administrator, or other
personal representative, as the case may be, acquires a right to
receive any payment from the Company pursuant to this Plan, such
right shall be no greater than the right of an unsecured general
creditor of the Company.
C-6
(c) Beneficiary Designation. Each Eligible Director under the Plan may
from time to time name any beneficiary or beneficiaries (who may be
named contingently or successively) to whom any benefit under the
Plan is to be paid or by whom any right under the Plan is to be
exercised in case of his death. Each designation will revoke all
prior designations by the same Eligible Director, shall be in a form
prescribed by the Company, and will be effective only when filed by
the Eligible Director in writing with the Company during his
lifetime. In the absence of any such designation, benefits remaining
unpaid at the Eligible Director's death shall be paid to or
exercised by the Eligible Director's surviving spouse, if any, or
otherwise to or by his estate.
(d) Listing of Shares and Related Matters. The Plan, the granting and
exercising of Awards thereunder, and the other obligations of the
Company under the Plan, shall be subject to all applicable federal
and state laws, rules, and regulations, and to such approvals by any
regulatory or governmental agency as may be required. If at any time
the Board shall determine in its discretion that the listing,
registration or qualification of the Shares covered by this Plan
upon any national securities exchange or under any United States or
non-United States federal, state or other law, or the consent or
approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the delivery of
Shares under this Plan, no Shares will be delivered unless and until
such listing, registration, qualification, consent or approval shall
have been effected or obtained, or otherwise provided for, free of
any conditions not acceptable to the Board. The Company, in its
discretion, may require an Eligible Director to make such
representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of Shares in
compliance with applicable laws, rules, and regulations. The Company
shall not be obligated by virtue of any provision of the Plan to
recognize the exercise of any Award or to otherwise sell or issue
Shares in violation of any such laws, rules, or regulations; and any
postponement of the exercise or settlement of any Award under this
provision shall not extend the term of such Awards, and neither the
Company nor its directors or officers shall have any obligation or
liability to any person with respect to any Award (or Shares
issuable thereunder) that shall lapse because of such postponement.
(e) Issuance of Stock Certificates; Legends. Upon any exercise of an
Option and payment of the exercise price thereof and upon the
issuance of Shares pursuant to this Plan, a certificate or
certificates for the Shares shall be issued by the Company in the
name of the person or persons exercising such Option or receiving
such Shares and shall be delivered to or upon the order of such
person or persons. Certificates for Shares issued upon exercise of
an Option or otherwise hereunder shall bear such legend or legends
as the Board, in its discretion, determines to be necessary or
appropriate to prevent a violation of, or to perfect an exemption
from, the registration requirements of the Securities Act of 1933,
as amended, or to implement the provisions of any agreements between
the Company and the Eligible Director with respect to such Shares.
(f) Withholding Taxes. The Company shall have the right to make such
provisions as it deems necessary or appropriate to satisfy any
obligations it may have to withhold federal, state or local income
or other taxes incurred by reason of the issuance of Shares under
the Plan, including requiring an Eligible Director to reimburse the
Company for any taxes required to be withheld or otherwise deducted
and paid by the Company in respect of the issuance of Shares.
(g) Notices. Each Eligible Director shall be responsible for furnishing
the Board with the current and proper address for the mailing of
notices and delivery of agreements and Shares. Any notices required
or permitted to be given shall be deemed given if directed to the
person to whom addressed at such address and mailed by regular
United States mail, first-class and prepaid. If any item mailed to
such address is returned as undeliverable to the addressee, mailing
will be suspended until the Eligible Director furnishes the proper
address.
(h) Severability of Provisions. If any provision of this Plan shall be
held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Plan shall be
construed and enforced as if such provision had not been included.
(i) Incapacity. Any benefit payable to or for the benefit of a minor, an
incompetent person or other person incapable of receipting therefor
shall be deemed paid when paid to such person's guardian or to the
party providing or reasonably appearing to provide for the care of
such person, and such payment shall fully discharge the Board, the
Company and other parties with respect thereto.
C-7
(j) Headings and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of
this Plan, and shall not be employed in the construction of this
Plan.
(k) Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the
plural shall include the singular.
(l) Governing Law. This Plan shall be construed and enforced according
to the laws of the State of New York.
C-8
ANNUAL MEETING OF STOCKHOLDERS OF
DELTATHREE, INC.
November 8, 2004
PLEASE DATE, SIGN AND MAIL
YOUR PROXY CARD IN THE
ENVELOPE PROVIDED AS SOON
AS POSSIBLE.
PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED.
- ------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
- ------------------------------------------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
[_] [_] [_]
1. ELECTION OR DIRECTORS (OR IF ANY NOMINEE 2. PROPOSAL TO RATIFY THE APPOINTMENT
IS NOT AVAILABLE FOR ELECTION, SUCH OF BRIGHTMAN ALMAGOR & CO., A MEMBER
SUBSTITUTE AS THE BOARD OF DIRECTORS FIRM OF DELOITTE & TOUCHE, AS THE
MAY DESIGNATE). COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 2004.
NOMINEES:
[_] FOR ALL NOMINEES [_] NOAM BARDIN 3. PROPOSAL TO ADOPT THE 2004 STOCK [_] [_] [_]
[_] WITHOLD AUTHORITY [_] NOAM BEN-OZER INCENTIVE PLAN.
FOR ALL NOMINEES [_] ILAN BIRAN
[_] FOR ALL EXCEPT [_] AMIR GERA 4. PROPOSAL TO ADOPT THE 2004
(SEE INSTRUCTIONS [_] JOSHUA MAOR NON-EMPLOYEE DIRECTOR STOCK OPTION
BELOW) [_] LIOR SAMUELSON PLAN. [_] [_] [_]
[_] SHIMMY ZIMELS
In their discretion, the proxies are authorized to vote upon such other matters
INSTRUCTIONS: to withold authority to vote as may properly come before the meeting or any adjournments thereof. If you wish
for any individual nominee(s), to vote in accordance with the Board of Directors' recommendations, just sign
mark "FOR ALL EXCEPT" and fill in below. You need not mark any boxes.
the circle next to each nominee
you wish to withold, as shown here: THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
- ------------------------------------------------ DIRECTION IS MADE, THIS PROXY WILL BE VOTED (1) FOR THE ELECTION OF DIRECTORS,
(2) FOR THE RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT PUBLIC
ACCOUNTANTS, (3) FOR THE ADOPTION OF THE 2004 STOCK INCENTIVE PLAN AND (4) FOR
THE ADOPTION OF THE 2004 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
- ------------------------------------------------
To change the address on your account, please
check the box at right and indicate your new
address in the space above. Please note that
changes to the registered name(s) on the account
may not be submitted via this method. [_]
Signature of Stockholder [_____________________] Date: [_______] Signature of Stockholder [_____________________] Date: [_______]
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When
signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation,
please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
DELTATHREE, INC.
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 8, 2004
THIS PROXY IS BEING SOLICITED BY DELTATHREE INC.'S BOARD OF DIRECTORS
The undersigned, revoking any previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement, dated October 6,
2004, in connection with the Annual Meeting to be held at 10:30 a.m. on November
8, 2004 at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
located at the Chrysler Center, 666 Third Avenue, 25th Floor, New York, New
York, and hereby appoints Shimmy Zimels and Paul C. White, and each of them
(with full power to act alone), the attorneys and proxies of the undersigned,
with power of substitution to each, to vote all shares of the Common Stock of
deltathree, Inc. registered in the name provided herein, which the undersigned
is entitled to vote at the 2004 Annual Meeting of Stockholders, and at any
adjournments thereof, with all the powers the undersigned would have if
personally present. Without limiting the general authorization hereby given,
said proxies are, and each of them is, instructed to vote or act as follows on
the proposals set forth in this Proxy.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)