SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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/ / Soliciting Material Under Rule 14a-12
eResearchTechnology, Inc.
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(Name of Registrant as Specified in Its Charter)
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eResearchTechnology, Inc.
30 S. 17th Street
Philadelphia, PA 19103
March 20, 2003
Dear eResearchTechnology, Inc. Stockholders:
You are cordially invited to the Annual Meeting of Stockholders to be held
at 3:00 P.M. on April 22, 2003 at the Company's executive offices, 30 South
17th Street, Philadelphia, PA 19103.
Details with respect to the meeting are set forth in the attached Notice of
Annual Meeting and Proxy Statement.
Your vote is important. Whether or not you plan to attend the meeting, you
are urged to complete, date, sign and return your proxy. If you attend the
meeting and would prefer to vote in person you may still do so.
Very truly yours,
/s/ JOEL MORGANROTH, M.D.
JOEL MORGANROTH, M.D.
Chairman of the Board
eResearchTechnology, Inc.
eResearchTechnology, Inc.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 22, 2003
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To the Stockholders:
The Annual Meeting of Stockholders of eResearchTechnology, Inc. (the
"Company") will be held at the Company's executive offices located at 30 South
17th Street, Philadelphia, PA 19103, at 3:00 P.M. on April 22, 2003 for the
following purposes:
1. To elect three directors to serve three-year terms.
2. To approve the 2003 Stock Option Plan.
3. To approve an amendment to the Company's Restated Certificate of
Incorporation to authorize an additional 35,000,000 shares of Common
Stock, $.01 par value.
4. To ratify the selection by the Audit Committee of the Board of Directors
of the firm of KPMG LLP as independent accountants for 2003.
5. To transact any other business that may properly come before the meeting
or any adjournment or postponement thereof.
Stockholders of record as of the close of business on March 11, 2003 are
entitled to notice of and to vote at the meeting.
Whether or not you plan to attend the meeting, please complete, date and
sign the enclosed proxy card and return it in the enclosed envelope. Your
proxy may be revoked at any time prior to the time it is voted.
By Order of the Board of Directors,
/s/ ANNA MARIE PAGLIACCETTI
ANNA MARIE PAGLIACCETTI
Vice President, General Counsel and
Secretary
Philadelphia, PA
March 20, 2003
eResearchTechnology, Inc.
30 S. 17th Street
Philadelphia, PA 19103
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PROXY STATEMENT
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These proxy materials are furnished in connection with solicitation of
proxies by the Board of Directors of eResearchTechnology, Inc., a Delaware
corporation ("eRT" or the "Company"), for the Annual Meeting of Stockholders
of eRT to be held at 3:00 P.M. on April 22, 2003, at the Company's executive
offices located at 30 South 17th Street, Philadelphia, PA 19103, and any
adjournments or postponements of such meeting. These proxy materials were
first mailed to stockholders on or about March 20, 2003. Sending a signed
proxy will not affect the stockholder's right to attend the Annual Meeting and
vote in person. Every stockholder has the power to revoke such stockholder's
proxy at any time before it is voted. The proxy, before it is exercised at the
meeting, may be revoked by filing with the Secretary of the Company a notice
in writing revoking it, by delivering a duly executed proxy bearing a later
date, or by attending the meeting and voting in person.
Stockholders Entitled to Vote
The close of business of March 11, 2003 was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting. As of the record
date, there were _____________ outstanding shares of the common stock, $.01
par value (the "Common Stock"), of eRT.
Voting of Proxies
A form of proxy is enclosed. All properly executed proxies received by the
Board of Directors, and not revoked, will be voted as indicated in accordance
with the instructions thereon. In the absence of contrary instructions, shares
represented by such proxies will be voted for the election of the director
nominees named in this proxy statement, for the approval of the Company's 2003
Stock Option Plan, for the proposal to amend the Company's Restated
Certificate of Incorporation to authorize an additional 35,000,000 shares of
Common Stock and for ratification of KPMG LLP as independent accountants for
the year ending December 31, 2003, all of which are described herein; and in
the discretion of the proxy holders on such other matters as may properly come
before the meeting.
The presence, in person or by proxy, of stockholders entitled to cast at
least a majority of the votes that all stockholders are entitled to cast on a
particular issue constitutes a quorum for the purpose of considering such
matter. Each share of Common Stock outstanding as of the record date is
entitled to one vote on each matter that may be brought before the Annual
Meeting. Election of directors will be by plurality of the votes cast. Any
other proposal will require the affirmative vote of a majority of the votes
that the holders of shares present in person or by proxy are entitled to cast
on such proposal. Broker nonvotes and abstentions are counted for the purposes
of determining the presence or absence of a quorum for the transaction of
business at the meeting. Abstentions are counted in the tabulations of the
votes cast on proposals presented to the stockholders, whereas broker nonvotes
are not counted for purposes of determining the election of directors or
whether a proposal has been approved.
Costs Of Solicitation
The entire cost of soliciting proxies will be borne by eRT. Arrangements may
be made with brokerage houses and other custodians, nominees and fiduciaries
to send proxies and proxy materials to the beneficial owners of stock, and
reimbursement for expenses may be made. Proxies may be solicited in person or
by telephone by directors, officers or regular employees of eRT, none of whom
will receive additional compensation therefor.
ELECTION OF DIRECTORS
(Proposal No. 1)
The Board of Directors currently consists of six directors divided into
three classes. Three directors are to be elected at the Annual Meeting to
serve until the 2006 Annual Meeting. With the election of three directors, the
1
Board of Directors will consist of seven directors. The nominees for election
as directors are Joseph A. Esposito and John M. Ryan, each of whom currently
serves on the Board, and David D. Gathman. The Company's remaining four
directors will continue in office for the terms specified below. THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF MR.
ESPOSITO, MR. RYAN AND MR. GATHMAN.
The proxy holders intend to vote all proxies received by them in the
accompanying form for such nominees unless otherwise directed. In the event
any nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy or, in lieu
thereof, the Board of Directors may reduce the number of directors. As of the
date of this Proxy Statement, the Company is not aware of any nominee who is
unable or will decline to serve as a director.
The following table lists the name and age of the three nominees and the
four continuing directors of the Company whose terms of office will continue
after the Annual Meeting, and the year in which each director's term of office
will expire (assuming, in the case of each of the nominees, such nominees are
elected at the Annual Meeting).
Year of
Name Age As Expiration of
---- of 3/1/03 Term as Director
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Nominees for Election
Joseph A. Esposito............................ 50 2006
John M. Ryan.................................. 67 2006
David D. Gathman.............................. 55 2006
Directors Continuing in Office
Sheldon M. Bonovitz........................... 65 2004
Arthur H. Hayes, Jr., M.D..................... 69 2004
Joel Morganroth, M.D.......................... 57 2005
Stephen S. Phillips........................... 57 2005
Mr. Esposito has served as President and Chief Executive Officer of the
Company since March 2001. Mr. Esposito formerly served as the President and
Chief Operating Officer of the Company from April 1998 until March 2001 and
has served as a member of its Board of Directors since 1999. He also served as
President of the Company's Clinical Research Technology and Services division
from October 1997 to April 1998. From May 1997 through October 1997, he was
President of DLB Systems, Inc. He has over 28 years of experience in
technology, working closely with pharmaceutical companies in the areas of
clinical research, supply chain management and regulatory document management.
Mr. Esposito was awarded the 2002 Ellis Island Medal of Honor by Congress and
the National Ethnic Coalition Organization for outstanding citizenship,
individual achievement and encouragement of cultural unity.
Mr. Ryan has served on the Company's Board of Directors since 1999. Since
1987, Mr. Ryan has been a principal in Devon Hill Ventures, Inc., a venture
investing and consulting firm focusing on technology investments. In 1977, Mr.
Ryan founded SunGard Data Systems, Inc. and served as its Chief Executive
Officer until 1986 and its Chairman until 1987. Mr. Ryan served as Chairman
and Acting Chief Executive Officer for DLB Systems, Inc. from 1995 until its
acquisition by the Company in 1997. Mr. Ryan is also a director of Neoware
Systems, Inc. and a number of private companies.
Mr. Gathman has been nominated by the Company's current Board of Directors
to serve as a member of the Board for a three-year term beginning in April
2003. Since May 2002, Mr. Gathman has been Vice President and Chief Financial
Officer of Targeted Diagnostics & Therapeutics, Inc., which develops
molecular-based technologies for the detection, diagnosis and treatment of
colorectal cancer, gastrointestinal cancers and certain infectious diseases.
From February 2001 until May 2002, Mr. Gathman served as the Senior Vice
President and Chief Financial Officer of the Federal Reserve Bank of
Philadelphia. Prior to that, Mr. Gathman was Chief Financial Officer of
Internet Capital Group, Inc. from January 1999 until September 2000, and
Executive Vice President and Chief Financial Officer and a member of the Board
of Directors of Integrated Systems Consulting
2
Group, Inc., an information services consulting firm, from March 1994 until
December 1998. Mr. Gathman is also a director of Neoware Systems, Inc. and
another private company.
Mr. Bonovitz has served on the Company's Board of Directors since 1999. Mr.
Bonovitz has been a partner in the law firm of Duane Morris LLP for more than
five years, where he currently serves as Chairman and Chief Executive Officer.
Mr. Bonovitz is also a member of the Board of Directors of Comcast
Corporation. In addition, he serves on the Boards of Trustees of The Curtis
Institute of Music and the Philadelphia Museum of Art.
Dr. Hayes has served on the Company's Board of Directors since 1996. Since
1991, Dr. Hayes has served as President and Chief Operating Officer of
MediScience Associates, Inc., a consulting firm. Dr. Hayes is an advisor to
firms in health care product development and regulation, clinical
pharmacology, and medical and pharmacy practice, and is internationally
recognized as a medical researcher and clinician. Dr. Hayes served as
Commissioner of the Food and Drug Administration from 1981 to 1983. He is also
a member of the Board of Directors of Celgene, Inc., Myriad Genetics and NaPro
Biopharmaceuticals, Inc.
Dr. Morganroth has served as the Chairman of the Company since 1999, its
Chief Scientist since March 2001 and as a director of the Company since 1997.
He served as Chief Executive Officer from 1993 to March 2001. In addition, Dr.
Morganroth has consulted for the Company since 1976. Dr. Morganroth is a
globally recognized cardiologist and clinical researcher. Dr. Morganroth
served for over ten years as a Medical Review Officer/Expert for the Food and
Drug Administration.
Mr. Phillips has served on the Company's Board of Directors since August
2002. Mr. Phillips currently serves as Special Counsel to Medtronic Sofamor
Danek, Inc. Before its acquisition in 1999 by Medtronic, Mr. Phillips was the
Executive Vice President, General Counsel and Secretary of Sofamor Danek
Group, Inc., a manufacturer of spinal implants and cranial navigation systems
used in neurosurgery. Before joining Sofamor Danek in 1998, Mr. Phillips was a
senior partner in the Philadelphia office of Pepper Hamilton LLP where he was
a member of the firm's Executive Committee.
There are no family relationships among the directors, the director nominees
and the executive officers.
Board of Directors Meetings and Committees
The Board of Directors of the Company held a total of ten meetings during
2002. Each director attended more than 75% of the meetings of the Board of
Directors and any committee of which he is a member except for Dr. Hayes who
attended approximately 69% of such meetings.
The Board of Directors has an Executive Committee, a Compensation and Stock
Option Committee, and an Audit Committee.
The Executive Committee has, with certain exceptions, all the authority of
the Board of Directors, and has specifically been delegated the authority to
make recommendations to the Board with respect to management nominees to the
Board of Directors and to review and make recommendations with respect to such
stockholder nominees to the Board as may be submitted to the corporation. A
stockholder desiring to propose a candidate to the Executive Committee should
submit a written recommendation, together with sufficient biographical
information concerning the individual, to the Secretary of the Company. While
letters of recommendation may be submitted for consideration at any time, the
Company requests that recommendations be received prior to November 15 in any
year for consideration in connection with the nomination and election of
directors at the Company's next Annual Meeting. This Committee, which
currently consists of Mr. Bonovitz, Dr. Morganroth, and Mr. Ryan, did not hold
any meetings during 2002.
The Compensation and Stock Option Committee is primarily responsible for
determining the compensation payable to the officers and key employees of the
Company and for recommending to the Board of Directors additions, deletions
and alterations with respect to the various employee benefit plans and other
fringe benefits provided by the Company, except that no member of the
Committee may take part in any decision pertaining to his compensation or
benefits in his capacity as a director of the Company. The Committee also is
primarily responsible for administering the Company's stock option plans,
awarding stock options to key employees and non-employee directors of the
Company and determining the terms and conditions on which the options are
granted. This Committee, which currently consists of Dr. Hayes and Mr. Ryan,
held three meetings during 2002.
3
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent accountants and reviewing and
evaluating the Company's accounting principles and reporting practices and its
system of internal accounting controls, and has the responsibility and
authority described in its written charter, which has been adopted and
approved by the Board of Directors. The committee held nine meetings during
2002. Mr. Jerry Lee served as a member of the Audit Committee from January 1,
2002 until his term as director expired on April 23, 2002, at which time Mr.
Bonovitz became a member of the Committee. Mr. James Gale and Mr. Howard Ross
served as members of the Audit Committee from January 1, 2002 until their
resignations from the Board of Directors on July 23, 2002, at which time Mr.
Phillips and Mr. Ryan became members of the Committee. The Committee currently
consists of Mr. Bonovitz, Mr. Phillips and Mr. Ryan. The members of the Audit
Committee are independent, as defined by NASDAQ rules.
Audit Committee Report on Audited Financial Statements
The Audit Committee of the Board of Directors recommends to the Board of
Directors the accounting firm to be retained to audit the Company's financial
statements and, once retained, consults with and reviews recommendations made
by the accounting firm with respect to financial statements, financial
records, and financial controls of the Company.
Accordingly, the Audit Committee has (a) reviewed and discussed the audited
financial statements with management; (b) discussed with the Company's
independent accountants, the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees); (c) received
the written disclosures and the letter from the Company's independent
accountants required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees); and (d) discussed with the
Company's independent accountants its independence from management and the
Company, including the matters in the written disclosures required by the
Independence Standards Board. The Audit Committee also discussed with the
Company's independent accountants the overall scope and plans for its audit.
The Audit Committee met with management and the Company's independent
accountants to discuss the results of the accountants' examinations, their
evaluations of the Company's internal controls and the overall quality of the
Company's financial reporting.
In reliance on the review and discussions referred to above, and subject to
the limitations of its role, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002.
This report of the Audit Committee does not constitute soliciting material
and should not be deemed filed or incorporated by reference into any other eRT
filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that eRT specifically
incorporates this report by reference therein.
Members of the Audit Committee
Sheldon M. Bonovitz (Chair)
Stephen S. Phillips
John M. Ryan
On July 3, 2002, the Company dismissed Arthur Andersen LLP ("Andersen"), as
its independent accountant, and appointed KPMG LLP as its new independent
accountant. The decision to change the Company's independent accountant was
recommended by the Audit Committee and approved by the Board of Directors of
the Company.
Andersen's reports on the Company's financial statements for the years ended
December 31, 2000 and December 31, 2001 did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
During the years ended December 31, 2000 and December 31, 2001 and the
period from December 31, 2001 through July 3, 2002, there were no
disagreements with Andersen on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Andersen, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report; and there were no reportable events as defined in
Item 304(a)(1)(v) of Regulation S-K.
At the time this disclosure was first made, the Company provided Andersen
with a copy of the foregoing disclosures and requested a letter from Andersen
addressed to the Securities and Exchange Commission stating whether it agreed
with such statements. Andersen orally advised the Company that due to events
impacting Andersen's infrastructure it was unable to issue such a letter.
4
During the years ended December 31, 2000 and December 31, 2001 and the
period from December 31, 2001 through July 3, 2002, the Company did not
consult KPMG LLP with respect to the application of accounting principles to a
specified transaction either completed or proposed, or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.
During 2002, the Company retained its principal independent accountants to
provide services in the following categories and amounts:
Audit Fees $121,000
Financial Information Systems Design and Implementation Fees 0
All Other Fees
Audit-related fees 42,005
Tax compliance 144,400
--------
Total All Other 186,405
--------
Total Fees $307,405
========
Audit fees were for professional services rendered in connection with the
audit of the Company's consolidated financial statements for the year ended
December 31, 2002 that are customary under auditing standards generally
accepted in the United States or that are customary for the purpose of
rendering an opinion or review report on the financial statements, and for the
review of the financial statements included in the quarterly reports on Form
10-Q required to be filed during fiscal year 2002. Audit-related fees consist
primarily of services rendered in connection with due diligence procedures
requested by the Company in relation to a proposed transaction. Tax compliance
fees consist primarily of 2002 federal, state and local tax return preparation
and work related to the determination and support of research and development
tax credits available to the Company for fiscal years 2001 and 2002.
The Audit Committee has considered the above non-audit services and has
determined that the provision thereof is compatible with maintaining auditor
independence. It is anticipated that representatives of KPMG LLP will be
present at the meeting to respond to appropriate questions and, if they
desire, to make a statement.
Compensation of Directors
During 2002, directors who are not employees of the Company received a fee of
$1,000 for each directors meeting attended and $500 for each committee meeting
attended, and also received an annual retainer of $6,000. Upon the initial
election of any "outside director" (as defined), such individual receives at the
time of election an automatic one-time option grant of 5,000 shares of Common
Stock, and each outside director receives a fixed annual option grant of 5,000
shares of Common Stock. If the 2003 Stock Option Plan is approved, these amounts
will increase from 5,000 shares to 10,000 shares. Each director is also
reimbursed for out-of-pocket expenses incurred in connection with attending
meetings and other services as a director.
Certain Relationships and Related Party Transactions
Certain of the Company's diagnostic testing and clinical research contracts
require that specified medical professional services be provided by Joel
Morganroth, M.D., the Company's Chairman and Chief Scientist. The Company has
retained Joel Morganroth, M.D., P.C., a professional corporation owned by Dr.
Morganroth, to provide these and other services related to the successful
operation, marketing and business development of the Company's Cardiac Safety
division. This professional corporation received fees for these services of
approximately $389,000 for 2002, which included a bonus award of $209,000.
Effective January 1, 2003, the Company amended its consulting agreement with
the professional corporation, for which the professional corporation will
receive fees at the rate of $228,000 per annum plus discretionary bonuses to
be determined by the Board of Directors. The consulting agreement continues on
a year to year basis unless terminated.
Sheldon M. Bonovitz, a director of eRT, is a partner of the law firm of
Duane Morris LLP, which performs legal services for the Company.
5
Executive Compensation
Compensation Committee Report on Executive Compensation
The Compensation and Stock Option Committee of the Board of Directors
consists entirely of non-management directors, and its primary function is to
make recommendations to the Board of Directors concerning executive
compensation and benefit policies for the Company.
The Committee believes that the most effective compensation program is one
that provides executives competitive base salaries and incentives to achieve
both current and long-term strategic business goals of the Company.
The Company's executive compensation programs are designed to:
o Align the interests of executive officers with the long-term interests of
stockholders.
o Motivate and challenge executive officers to achieve both annual and long-
term strategic business goals.
o Support an environment that rewards executive officers based upon
corporate and individual performance and results.
o Attract and retain executive officers critical to the long-term success of
the Company.
In 2002, the basic components of executive officer compensation consisted of
base salary, a cash bonus plan tied to measurements based on Company
performance, and long-term incentives in the form of stock options. The
executive officers also participate in employee benefit plans available
generally to the Company's employees.
Base Salary. Technology companies face competition for qualified employees,
and the Committee believes it is important that Company executive officer
compensation levels be competitive with other technology companies. The
Committee reviewed the compensation of its executives in comparison with other
publicly traded technology companies of similar size and development stage and
targeted base salary levels to be consistent with comparable positions at
these companies.
Annual Incentive Compensation Program. In 2002, the Company offered an
annual incentive compensation program permitting officers and all employees to
earn cash bonuses based on achieving targeted financial goals. Based upon
actual 2002 performance, the bonus pool for executive officers was $963,000
with the executive officer participants earning bonuses ranging from 25% to
100% of base salary.
The Committee believes that this annual incentive compensation program aids
in ensuring that the Company's overall levels of compensation remain
competitive and benefits the Company in that a significant portion of the
compensation of executive officers is in the form of variable incentive pay,
which further aligns the interests of the executive officers with the
interests of the Company's stockholders.
Long-Term Incentive in Form of Stock Options. The Committee believes that
significant management ownership of the Company's stock effectively motivates
the building of stockholder wealth and aligns the interests of management with
those of the Company's stockholders. The Company's executive officers received
option grants totaling 2,500 shares of Common Stock during 2002 under the
terms of the Company's 1996 Stock Option Plan at a per share exercise price
equal to market price on the date of grant. All options become exercisable
over four years, in equal annual increments beginning one year after the date
of grant, contingent upon the officer's continued employment with the Company.
There were no options granted in 2002 to the executive officers listed in the
Summary Compensation Table appearing in this proxy statement.
Chief Executive Officer Compensation. The compensation plan for Mr.
Esposito for 2002 contained the same elements and operated in the same manner
as the compensation plan described above for all the executive officers. His
base salary was unchanged from 2001 and 2000. His specific performance goals
for incentive compensation were based on the Company's long-term plan and on
the annual operating budget approved by the Board of Directors. His actual
cash bonus was calculated based on the achievement of those specific goals. In
2002, the Company achieved exceptional growth in both revenues and
profitability, substantially improved its competitive position and
significantly enhanced its proprietary software. The Compensation Committee
believes in rewarding exceptional performance with exceptional compensation.
Following the terms of Mr. Esposito's
6
2002 executive incentive compensation plan, the Compensation Committee
approved a cash bonus of $271,389, representing slightly more than 100% of his
base salary for the year. In the opinion of the Compensation Committee, the
compensation paid to Mr. Esposito was consistent with the compensation of
other chief executive officers in comparable companies with similar
performances.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1,000,000 per covered officer in any fiscal year. The
limitation applies only to compensation that is not considered to be
performance-based. Non-performance-based compensation paid to the Company's
executive officers for 2002 did not exceed the $1,000,000 limit per officer,
and the Committee does not anticipate that the non-performance-based
compensation to be paid the Company's executive officers in the foreseeable
future will exceed that limit.
Members of the Compensation and Stock Option Committee
John M. Ryan (Chair)
Arthur H. Hayes, Jr., M.D.
Compensation Committee Interlocks and Insider Participation
At the end of 2002, the Compensation and Stock Option Committee was composed
of Dr. Hayes and Mr. Ryan. Neither of these individuals is a current or former
officer or employee of the Company or any of its subsidiaries, nor had they
had any other relationship requiring disclosure by the Company under Item 402
of Regulation S-K.
7
Summary Compensation Table
The following table sets forth information in respect of the compensation
paid for the years ended December 31, 2000, 2001 and 2002 to the persons
(sometimes collectively referred to as the "Named Executive Officers") who
were, at any time during 2002, the Chief Executive Officer, and at the end of
2002, the other four most highly compensated executive officers of the Company
whose salary and bonus exceeded $100,000 in such year:
Annual Long Term
Compensation(1) Compensation(2)
------------------- ------------------
Securities All Other
Name and Principal Position Year Salary Bonus Underlying Options Compensation(3)
--------------------------- ---- -------- -------- ------------------ ---------------
Joseph A. Esposito........................................ 2002 $270,000 $271,389 -- $ 3,280
President and Chief 2001 $270,000 $ 90,000 121,501 $ 3,298
Executive Officer 2000 $270,000 $125,000 -- $ 3,441
Jeffrey S. Litwin, M.D.................................... 2002 $170,000 $157,147 -- $ 3,282
Sr. Vice President and Chief 2001 $150,000 $112,740 90,000 $ 3,268
Medical Officer 2000 $ 69,230 $ 42,917 -- $ 1,164
Robert S. Brown........................................... 2002 $170,000 $133,248 -- $11,532
Sr. Vice President, 2001 $150,000 $112,740 45,000 $11,143
Outsourcing Partnerships 2000 $148,000 $ 82,500 41,250 $11,316
Bruce Johnson............................................. 2002 $175,000 $111,385 -- $ 3,068
Sr. Vice President and Chief 2001 $175,000 $ 30,000 45,000 $ 3,298
Financial Officer 2000 $129,230 $ 68,750 105,001 $ 2,323
Scott Grisanti............................................ 2002 $170,000 $ 50,250 -- $ 3,135
Sr. Vice President, Business 2001 $150,000 $ 60,000 75,000 $ 3,110
Development and Chief 2000 $ 25,961 $ 5,700 -- $ 104
Marketing Officer
---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total of annual salary and bonuses for the officer
for such year.
(2) Option amounts are adjusted to reflect the 50% stock dividend paid on July
16, 2002.
(3) Represents the sum of (A) the Company's 401(k) plan contributions, which in
2002 were $2,750 for Mr. Esposito, $2,750 for Dr. Litwin; $11,000 for Mr.
Brown, $2,538 for Mr. Johnson and $2,619 for Mr. Grisanti; and (B) the
dollar value of the insurance premium paid by the Company with respect to
group term life insurance, which for 2002 was $530 for Mr. Esposito, $532
for Dr. Litwin, $532 for Mr. Brown, $530 for Mr. Johnson and $516 for Mr.
Grisanti. In 2001, these amounts were $2,625 for Mr. Esposito, $2,625 for
Dr. Litwin, $10,500 for Mr. Brown, $2,625 for Mr. Johnson and $2,547 for
Mr. Grisanti for 401(k) plan contributions; and $673 for Mr. Esposito, $643
for Dr. Litwin, $643 for Mr. Brown, $673 for Mr. Johnson and $563 for Mr.
Grisanti for the dollar value of the insurance premium paid by the Company
with respect to group term life insurance. In 2000, these amounts were
$2,625 for Mr. Esposito, $804 for Dr. Litwin, $10,500 for Mr. Brown and
$1,712 for Mr. Johnson for 401(k) plan contributions; and $816 for Mr.
Esposito, $360 for Dr. Litwin, $816 for Mr. Brown, $611 for Mr. Johnson and
$104 for Mr. Grisanti for the dollar value of the insurance premium paid by
the Company with respect to group term life insurance.
8
Employment Contracts
The Company has entered into employment agreements with each of the Named
Executive Officers. Under these agreements, the employment may be terminated
with or without cause by the Company at any time. In the event that the
Company terminates an officer's employment other than "for cause", the Company
is obligated to continue normal salary payment for between six months and one
year. These agreements provide that, upon a change of control (as defined
therein) of the Company in which the officer is not provided a comparable
position, the executive has the right to resign and receive the severance that
would otherwise be provided if the executive's employment was terminated other
than "for cause" and, in some instances, severance up to one year of total
salary if severance would have otherwise been less. Pursuant to the agreement,
each officer has agreed for a period of no less than one year after
termination of employment, to refrain from interfering with the Company's
business by soliciting customers or employees.
2002 Option Exercises and Fiscal Year-End Values
The following tables contain certain information concerning the number and
value of any unexercised stock options held by the Named Executive Officers as
of December 31, 2002 and as to the shares acquired and the value realized by
Named Executive Officers who exercised options in 2002.
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Name Acquired on Value Realized Options at FY-End 2002 (#) at FY-End 2002 ($)(2)
---- Exercise (#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
------------ -------------- -------------------------- -------------------------
Joseph A. Esposito ..................... -- -- 303,375/148,127 $3,490,264/$1,816,416
Jeffrey S. Litwin, M.D ................. 2,000 $22,020 20,500/67,500 $224,394/$756,281
Robert S. Brown ........................ 12,015 $91,554 33,750/54,375 $326,756/$577,388
Bruce Johnson .......................... -- -- 81,252/68,749 $729,133/$706,825
Scott Grisanti ......................... -- -- 18,750/56,250 $228,188/$684,563
---------------
(1) Value realized is the difference between the market price of a share of
Common Stock on the date of exercise and the exercise price of the option,
multiplied by the number of shares underlying the option.
(2) Value of unexercised "in-the-money" options is the difference between the
market price of a share of the Company's Common Stock on December 31, 2002
and the exercise price of the option, multiplied by the number of shares of
Common Stock underlying the option.
9
Stockholder Return Performance Graph
The following graph compares the cumulative total stockholder return on the
Company's Common Stock against the cumulative total return on the NASDAQ Stock
Market (U.S.) Index and NASDAQ Health Service Index for the period commencing
December 31, 1997 and ending December 31, 2002. The graph assumes that at the
beginning of the period indicated, $100 was invested in the Company's Common
Stock and the stock of the companies comprising the NASDAQ Stock Market (U.S.)
Index and the NASDAQ Health Services Index, and that all dividends, if any,
were reinvested.
[graphic omitted]
12/97 12/98 12/99 12/00 12/01 12/02
-----------------------------------------------------
ERESEARCHTECHNOLOGY, INC 100.00 38.42 82.64 64.21 98.69 211.57
NASDAQ STOCK MARKET (U.S.) 100.00 140.99 261.48 157.42 124.99 86.33
NASDAQ HEALTH SERVICES 100.00 84.77 68.19 93.60 101.20 87.20
10
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of March 12, 2003,
with respect to the beneficial ownership of the Common Stock of the Company by
(i) the Company's directors and Named Executive Officers, (ii) the Company's
directors and executive officers as a group, and (iii) each person known to
the Company to own beneficially more than 5% of the Common Stock.
Shares
Beneficially Percentage
Name of Beneficial Owner Owned Owned
------------------------ ------------ ----------
Joel Morganroth, M.D. (1) (5) ..................... 1,295,962 11.8%
Jack Silver (2) ................................... 600,000 5.5
The Pinnacle Fund, L.P. (3) ....................... 573,385 5.3
Joseph A. Esposito (5) ............................ 223,801 2.0
Bruce Johnson (5) ................................. 127,501 1.2
Stephen S. Phillips (4) ........................... 95,300 *
Robert S. Brown (5) ............................... 68,812 *
John M. Ryan (5) .................................. 66,150 *
Jeffrey S. Litwin, M.D. (5) ....................... 38,625 *
Scott Grisanti (5) ................................ 37,500 *
Sheldon M. Bonovitz (5) ........................... 32,807 *
Arthur H. Hayes, Jr., M.D. (5) .................... 30,000 *
All directors and executive officers as a Group
(12 persons) (5)................................. 2,088,683 18.2
---------------
*Less than 1.0%
(1) Dr. Morganroth's address is 30 S. 17th Street, Philadelphia, Pennsylvania
19103. Includes (i) 600,000 shares directly owned by Dr. Morganroth, as to
which he has sole voting and dispositive power; (ii) 600,000 shares held in
a trust, the trustee of which is Dr. Morganroth's wife and the
beneficiaries of which are Dr. Morganroth's children, as to which Dr.
Morganroth disclaims beneficial ownership; and (iii) 14,400 shares owned by
a pension plan, as to which Dr. Morganroth has shared voting and
dispositive power.
(2) Mr. Silver's address is 660 Madison Ave., New York, New York 10021.
Includes: (i) 83,250 shares held by the Sherleigh Associates Defined
Benefit Pension Plan, a trust of which Mr. Silver is the trustee; (ii)
32,250 shares held by Sherleigh Associates LLC, a New York limited
liability company of which Mr. Silver is the President; and (iii) 484,500
shares held by the Sherleigh Associates Profit Sharing Plan, a trust of
which the Mr. Silver is trustee. This information is as reported by Mr.
Silver in a Schedule 13G dated January 29, 2003 filed with the Securities
and Exchange Commission.
(3) The Pinnacle Fund, L.P's address is Suite 240, 4965 Preston Park Blvd.,
Plano, TX 75093. Excludes 900 shares owned by Mr. Barry Kitt's three minor
children. Mr. Kitt is the general partner of the Pinnacle Fund, L.P. Mr.
Kitt disclaims beneficial ownership of shares owned by his minor children
and the Pinnacle Fund, L.P. This information is as reported by the Pinnacle
Fund, L.P. and Mr. Barry Kitt, each in a Schedule 13G dated February 14,
2003 filed with the Securities and Exchange Commission.
(4) Includes 750 shares owned by Mr. Phillips' minor children, of which Mr.
Phillips acts as custodian.
(5) Includes the following shares issuable with respect to options granted
pursuant to the Company's 1996 Stock Option Plan, which are currently
exercisable or exercisable within the next 60 days:
Name
---- Number of options
-----------------
Joel Morganroth, M.D. ...................................... 81,562
Joseph A. Esposito ......................................... 141,061
Bruce Johnson .............................................. 127,501
Robert S. Brown ............................................ 55,312
John M. Ryan ............................................... 33,600
Jeffrey S. Litwin, M.D. .................................... 33,625
Scott Grisanti ............................................. 37,500
Sheldon M. Bonovitz ........................................ 30,000
Arthur H. Hayes, Jr., M.D. ................................. 30,000
Other executive officers ................................... 71,625
All directors and executive officers as a group ............ 641,786
11
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of its Common Stock,
to file reports of ownership and changes in ownership of the Common Stock with
the Securities and Exchange Commission and the NASDAQ Stock Market. Based upon
a review of the forms and written representations that it received, the
Company believes that all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners have been timely satisfied,
with the exception of one Form 5 filing that was filed thirteen days after its
due date of February 14, 2003.
APPROVAL OF 2003 STOCK OPTION PLAN
(Proposal No. 2)
General
On March 5, 2003, the Board of Directors of the Company, based on the
recommendation of the Compensation and Stock Option Committee (the
"Committee"), adopted, subject to stockholder approval at the Annual Meeting,
the Company's 2003 Stock Option Plan (the "Plan"). The Company adopted the
Plan because its 1996 Stock Option Plan will expire in three years and the
number of shares available for the grant of options thereunder was not
adequate in view of the Company's current plans.
A total of 850,000 shares of Common Stock are reserved for issuance under
the Plan. Including the 850,000 shares reserved for issuance under the Plan,
if the stockholders approve the Plan at the Annual Meeting, as of March 11,
2003, there would have been an aggregate of ________________ shares of Common
Stock reserved for issuance under all of the Company's plans, including
outstanding options granted under those plans or shares available for future
option grants under those plans. This total would represent _____% of the
shares outstanding as of March 11, 2003, after giving effect to the issuance
of these ______________ shares upon the exercise of options granted or to be
granted under the plans.
The Plan permits the granting of options ("Options") to purchase Common
Stock of the Company, including Options intended to qualify as incentive
options ("Incentive Options") under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") and Options not intended to so qualify
("Nonqualified Options"), to directors and such employees and other
individuals who provide services to or otherwise have a relationship with the
Company or its subsidiaries as the Committee may determine.
Proposal
At the Annual Meeting, stockholders entitled to vote are being asked to
approve and adopt the Plan. The affirmative vote of a majority of the
outstanding Common Stock present in person or by proxy at the Annual Meeting
is required to approve the Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE PLAN. The Plan is summarized below.
Purpose
The purpose of the Plan is to provide a means by which certain employees and
directors of, and others providing services to or having a relationship with,
the Company and its subsidiaries may be given an opportunity to purchase
shares of the Company's Common Stock. The Company intends that the Plan will
promote the interests of the Company by encouraging stock ownership on the
part of such individuals, by enabling the Company and its subsidiaries to
secure and retain the services of highly qualified persons and by providing
such individuals with an additional incentive to advance the success of the
Company and its subsidiaries.
Administration
The Plan is administered by the Committee, which is a committee consisting
of not less than two directors appointed from time to time by the Company's
Board of Directors (the "Board"). The Committee has full and final authority,
in its sole discretion, to interpret the provisions of the Plan and to decide
all questions of fact arising in its application; to determine the people to
whom Options shall be granted under the Plan; to determine the type of Options
to be made and the amount, size and terms of each such Option; to determine
when an Option
12
shall be granted; and to make all other determinations necessary or advisable
for the administration of the Plan. The Committee may also establish subplans
under the Plan to the extent it determines it necessary or appropriate to
conform to the applicable requirements of jurisdictions other than the United
States in order to achieve the material purposes of awarding Options in those
jurisdictions. Notwithstanding the foregoing, the Board may, in its
discretion, itself exercise the authority granted under the Plan to the
Committee. The members of the Committee must be Non-Employee Directors (within
the meaning of Rule 16b-3(b)(3) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or any successor provision thereto),
and "outside directors" within the meaning of Treas. Reg. 1.162-27(e)(3).
Eligibility
Persons eligible to receive Options under the Plan are limited to the
directors and such employees and other individuals who provide services to or
otherwise have a relationship with the Company or its subsidiaries as the
Committee determines from time to time.
Annual Limitations
No employee may be granted, in any given one-year period, Options with
respect to more than 150,000 shares of Common Stock.
Terms of Options
The terms of Options granted under the Plan are determined by the Committee
at the time of granting an Option. Each Option granted under the Plan is
evidenced by a written stock option agreement between the Company and the
optionee and is subject to the following terms and conditions.
Exercise of Options. The Committee determines on the date of grant when
Options granted under the Plan become exercisable. Unless otherwise determined
by the Committee in its sole discretion and except for Options automatically
granted to outside directors as discussed below, no Option is exercisable
until the expiration of at least six months from the date of grant. An Option
is exercisable by giving written notice of exercise to the Company specifying
the number of shares of Common Stock to be purchased and tendering payment to
the Company of the purchase price. The acceptable methods of payment for
shares issued upon exercise of an Option are set forth in the option agreement
but may include cash, shares of the Company's Common Stock (including shares
of Common Stock issuable upon the exercise of the Option) or any combination
thereof as determined by the Committee.
Exercise Price. The exercise price of Options granted under the Plan is
determined by the Committee. The exercise price of Options may not be less
than 100% of the fair market value of the Common Stock on the date of grant.
However, in the case of Incentive Options granted to an optionee who owns more
than 10% of the voting power of all classes of stock of the Company, the
exercise price must not be less than 110% of the fair market value of the
Common Stock on the date of grant. For so long as the Common Stock is traded
on the NASDAQ Stock Market or listed on a stock exchange, the fair market
value per share will be the closing price on such market or exchange on the
date of grant or, if such date is not a business day, on the immediately
preceding business day.
Termination of Employment. If an optionee ceases to serve as an employee of
the Company or any subsidiary for any reason other than death or disability,
Options may be exercised within three months (or such other period of time as
is determined by the Committee) after such termination, but only to the extent
that the Options were exercisable on the date of termination.
Death or Disability. Upon the death or disability of an optionee, Options
may be exercised by the optionee or his successor or estate within one year
(or such other period of time as is determined by the Committee) from the date
of death or disability, but only to the extent that the Options were
exercisable on such date.
Term and Termination of Options. Options expire on the date determined by
the Committee as set forth in the agreement, but no option will be exercisable
after ten years from the date of grant. An Incentive Option granted to an
optionee who owns more than 10% of the voting power of all classes of stock of
the Company may
13
not have a term of more than five years. No Option may be exercised by any
person after the expiration of its term.
Limitation on Transferability. No Option granted under the Plan may be
transferred other than by will or the laws of descent and distribution. During
the optionee's lifetime, each Option will be exercisable only by the optionee
or any permitted transferee.
Sale or Merger of the Company. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Committee, in the exercise of its sole
discretion, may take such action as it deems desirable, including, but not
limited to: (i) causing an Option to be assumed or an equivalent Option to be
substituted by the successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that each option holder shall have the
right to exercise the option holder's Option as to all of the shares of Common
Stock covered by the Option, including shares as to which the Option would not
otherwise be exercisable, or (iii) declaring that an Option shall terminate at
a date fixed by the Committee provided that the option holder is given notice
and opportunity to exercise the then exercisable portion of the option
holder's Option prior to such date.
Grants to Outside Directors. Each person who is or becomes a director of
the Company and is neither an employee of the Company, the beneficial owner of
more than 10% of the Company's outstanding Common Stock (a "Significant
Holder") nor a stockholder, member or partner of any Significant Holder (an
"Outside Director") is entitled to receive Nonqualified Options ("Director
Options") under the Plan. Individuals who first become Outside Directors after
adoption of the Plan will receive Options to purchase 10,000 shares upon first
being elected to the Board. Each Outside Director who is a member of the Board
immediately after each annual meeting of stockholders is entitled to receive
Options to purchase 10,000 shares on the date of such annual meeting, provided
that an Outside Director first elected to the Board at such annual meeting or
within six months prior thereto will not be eligible for the annual grant
otherwise to be made on the date of the Annual Meeting and will instead
receive only the initial grant upon first being elected to the Board. The
exercise price for all Director Options is 100% of the fair market value of
the Common Stock on the date of grant. Director Options are fully exercisable
on the date of grant. Director Options terminate upon the earlier to occur of:
ten years from the grant date; or three months after the optionee ceases to
serve as an Outside Director for any reason.
Other Provisions. The option agreements may contain such other terms,
provisions and conditions not inconsistent with the terms of the Plan as may
be determined by the Committee.
Federal Income Tax Consequences
Based on the advice of counsel, the Company believes that the normal
operation of the Plan should generally have, under the Code and the
regulations thereunder, all as in effect on the date of this Proxy Statement,
the principal federal income tax consequences described below. The tax
treatment described below does not take into account any changes in the Code
or the regulations thereunder that may occur after the date of this Proxy
Statement. The following discussion is only a summary; it is not intended to
be all-inclusive or to constitute tax advice, and, among other things, does
not cover possible state or local or other federal tax consequences. This
description may differ from the actual tax consequences of participation in
the Plan.
An optionee will not have taxable income upon the grant of an Option. In the
case of Nonqualified Options, the optionee will recognize ordinary income upon
the exercise of the Option in an amount equal to the excess, if any, of the
then fair market value of the shares acquired over the exercise price. The
Company will generally be able to take a deduction with respect to this amount
as compensation expense for federal income tax purposes. The optionee's tax
basis in the shares acquired will equal the exercise price plus the amount
taxable as compensation to the optionee. Upon a sale of the shares acquired
upon exercise, any gain or loss is generally long-term or short-term capital
gain or loss, depending on how long the shares are held. The required holding
period for long-term capital gain is presently one year. The optionee's
holding period for shares acquired upon exercise will begin on the date of
exercise.
An optionee who receives Incentive Options generally incurs no federal
income tax liability at the time of grant or upon exercise of the options.
However, the spread will be an item of tax preference, which may give rise to
alternative minimum tax liability at the time of exercise. If the optionee
does not dispose of the shares before
14
the date that is two years from the date of grant and one year from the date
of exercise, the difference between the exercise price and the amount realized
upon disposition of the shares will constitute long-term capital gain or loss,
as the case may be. Assuming both holding periods are satisfied, the Company
will not be entitled to a deduction in connection with the Option. If, within
two years from the date of grant or one year from the date of exercise, the
holder of shares acquired upon exercise of an Incentive Option disposes of the
shares (a "Disqualifying Disposition"), the optionee will generally realize
ordinary income at the time of the Disqualifying Disposition equal to the
difference between the exercise price and the lesser of the fair market value
of the shares on the date of exercise or the amount realized on the
Disqualifying Disposition. The amount realized upon such a Disqualifying
Disposition will generally be deductible by the Company for federal income tax
purposes.
If the purchase price upon exercise of an Option is paid with shares already
owned by the optionee, generally no gain or loss will be recognized with
respect to the shares used for payment, and the additional shares received
will be taxed as described herein. However, if payment of the purchase price
upon exercise of an Incentive Option is made with shares acquired upon
exercise of an Incentive Option before the shares used for payment have been
held for the two-year and one-year periods described above, use of such shares
as payment will be treated as a Disqualifying Disposition as described above.
The Company has the right to deduct from all grants paid in cash or other
compensation any taxes required to be withheld with respect to Options under
the Plan. The Company may require that the participant pay to it the amount of
any required withholding. The Committee may permit the participant to elect to
have withheld from any shares issuable to him in connection with the Plan a
number of shares with a value equal to the required tax withholding amount,
subject to certain conditions and limitations.
Option Grants Under the Plan
Under the terms of the Plan, if the Plan is approved by the Company's
stockholders at the Annual Meeting, each of Sheldon M. Bonovitz, David D.
Gathman, Arthur H. Hayes, Jr., M.D., Stephen S. Phillips and John M. Ryan will
be granted 10,000 Options under the Plan on the date of the Annual Meeting
pursuant to the provisions of the Plan providing for automatic grants to Outside
Directors. All such grants will be made at 100% of the fair market value on the
date of grant. The Committee has made no other determination as to the Options
to be granted, or the number or identity of optionees under the Plan. On March
11, 2003, the closing price of the Company's Common Stock was $_____ as reported
on the NASDAQ Stock Market.
Amendment and Termination
The Committee may terminate or amend the Plan at any time, except that
without stockholder approval the Committee may not increase the maximum number
of shares which may be issued under the Plan, extend the maximum period during
which any Option may be exercised, extend the term of the Plan, amend the
employees or classes of employees eligible to receive Options under the Plan,
change the minimum Option price or approve any other amendment which would
require stockholder approval pursuant to Treasury Regulations Section 1.162-
27(e)(4)(vi). The termination or any modification or amendment of the Plan
shall not, without the consent of a participant, affect the participant's
rights under an Option previously granted. The Plan terminates upon the
earlier of the day preceding the tenth anniversary of the date of its adoption
by the stockholders at the Annual Meeting or the date on which all shares
available for issuance under the Plan shall have been issued pursuant to the
exercise or cancellation of Options granted under the Plan.
15
Existing Equity Compensation Plans
The following table presents certain information as of December 31, 2002
regarding compensation plans other than the Plan under which shares of the
Company's Common Stock are authorized for issuance:
Number of securities
to be issued upon Weighted-average
exercise of exercise price of Number of securities
outstanding options, outstanding options, remaining available for
Plan category warrants and rights warrants and rights future issuance
------------- -------------------- -------------------- -----------------------
Equity compensation plans approved by security holders... 1,790,153 $6.42 37,635
Equity compensation plans not approved by security
holders................................................ -- -- --
------------- ----------- ------------
Total.................................................... 1,790,153 $ 6.42 37,635
============= =========== ============
APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
AUTHORIZING AN ADDITIONAL 35,000,000 SHARES
OF COMMON STOCK, $0.01 PAR VALUE
(Proposal No. 3)
Description of the Amendment
The Company's Restated Certificate of Incorporation (the "Certificate")
provides that the Company is authorized to issue two classes of stock
consisting of 15,000,000 shares of Common Stock, $.01 par value per share, and
500,000 shares of preferred stock, $10.00 par value per share. On February 4,
2003, the Board of Directors determined by resolution that it is in the best
interests of the Company and its stockholders to increase the number of
authorized shares of the Company's Common Stock from 15,000,000 to 50,000,000
and authorized an amendment to the Certificate to effect the proposed
increase. You are being asked to approve the amendment to increase the number
of authorized shares of the Company's Common Stock from 15,000,000 to
50,000,000. If this Proposal is approved and the amendment to the Restated
Certificate of Incorporation becomes effective, the first paragraph of Article
IV of the Restated Certificate of Incorporation, which sets forth the
Company's presently authorized capital stock, will be amended to read as
follows:
"The aggregate number of shares which the corporation shall have authority
to issue is 50,500,000, by classes and par value of shares as follows:
Par Value
Class No. of Shares Per Share
----- ------------- ---------
Common ............................................ 50,000,000 $ 0.01
Preferred ......................................... 500,000 $10.00
Approval of the proposal will require the favorable vote of a majority of
the stockholders present in person or by proxy and voting at the Annual
Meeting. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE AMENDMENT.
Purpose of the Amendment
At the close of business on March 11, 2003 there were _______ shares of the
Company's Common Stock issued and outstanding and no shares of the Company's
preferred stock issued and outstanding. ________ shares of Common Stock were
also reserved for options as of the same date. As a result, only ________
shares of Common Stock remained available for future corporate purposes.
In the opinion of the Board of Directors, the additional authorized shares
of Common Stock will benefit the Company by providing flexibility to the Board
of Directors, without requiring further action or authorization by the
stockholders (except as may be required by applicable law or stock exchange
requirements), to issue
16
additional shares of Common Stock from time to time to respond to business
needs and opportunities as they arise, or for other proper corporate purposes.
These needs, opportunities and purposes might include, for example obtaining
capital funds through public and private offerings of shares of Common Stock
or securities convertible into shares of Common Stock and using shares of
Common Stock in connection with structuring possible acquisitions of
businesses and assets. Additionally, the Board of Directors, in its
discretion, could in the future declare stock splits or stock dividends or,
subject to stockholder approval, increase, establish or extend stock option or
stock award plans. If the amendment were postponed until specific needs arose
for an amount of shares in excess of the amount of Common Stock authorized for
issuance, the Company's ability to respond promptly and effectively might be
adversely impacted by the additional expenses and delay resulting from the
stockholder approval process.
If approval of the amendment to the Certificate is received from the
Company's stockholders, the Board of Directors anticipates reserving 850,000
shares for grants under the 2003 Stock Option Plan, which is the subject of
Proposal 2 in this proxy statement. Though from time to time the Company's
Board of Directors considers transactions involving the issuance of shares of
Common Stock, except for the foregoing, as of the date of this Proxy
Statement, our Board of Directors has no agreement, arrangement or intention
to issue any of the shares for which approval is sought. If the proposed
amendment to our Restated Certificate of Incorporation is approved by the
stockholders, our Board of Directors does not intend to solicit further
stockholder approval prior to the issuance of any additional shares of Common
Stock, except as may be required by applicable law, the rules of the NASDAQ
Stock Market or other applicable requirements. Further, any such transactions
are necessarily contingent upon numerous factors, including without
limitation, the number of shares of Common Stock of the Company authorized for
issuance, fluctuations in the stock market, the prevailing condition of the
overall economy and the market price of the Common Stock.
Effect of the Amendment
Increasing the number of authorized shares of Common Stock will not have any
immediate effect on the rights of current stockholders. However, the Board of
Directors will have the authority to issue authorized shares of Common Stock
without requiring future stockholder approval of those issuances (except as
may be required by applicable law or stock exchange requirements). If the
Board of Directors determines that an issuance of shares of the Company's
Common Stock is in the best interests of the Company and its stockholders, the
issuance of additional shares could have the effect of diluting the earning
per share or the book value per share of the outstanding shares of Common
Stock or the stock ownership or voting rights of a stockholder. The holders of
the Company's Common Stock have no preemptive right to purchase any of the
additional shares of Common Stock when issued.
The increase in the number of authorized shares of Common Stock and the
subsequent issuance of all or a portion of those shares could have the effect
of delaying or preventing a change of control of the Company without further
action by the stockholders. Subject to applicable law and stock exchange
requirements, the Company could issue shares of authorized and unissued Common
Stock in one or more transactions that would make a change of the control of
the Company more difficult and therefore less likely. Any issuance of
additional shares could have the effect of diluting the earnings per share and
book value per share of the outstanding shares of Common Stock or the stock
ownership and voting rights of a person seeking to obtain control of the
Company. The Company is not aware of any pending or proposed transaction
involving a change of control of the Company.
Implementing the Proposed Amendment
If approved by the stockholders at the Annual Meeting, the proposed
amendment to our Restated Certificate of Incorporation will become effective
upon the filing of a certificate of amendment with the Secretary of State of
the State of Delaware. Although our Board of Directors intends to file the
certificate of amendment as soon as practicable after the Annual Meeting, if,
in the judgment of our Board of Directors, any circumstances exist that would
make consummation of the proposed amendment inadvisable, then, in accordance
with Delaware law and notwithstanding approval of the proposed amendment to
the Restated Certificate of Incorporation by the stockholders, our Board of
Directors may abandon the proposed amendment, either before or after approval
and authorization thereof by the stockholders, at any time prior to the
effectiveness of the filing of the certificate of amendment.
17
RATIFICATION OF INDEPENDENT ACCOUNTANTS
(Proposal No. 4)
Upon the authority granted by the Board of Directors, the Audit Committee
has designated KPMG LLP to be the independent accountants for the year ending
December 31, 2003. The Board of Directors will offer a resolution at the
Annual Meeting to ratify this designation. The Company's organizational
documents do not require that the Company's stockholders ratify the selection
of KPMG LLP as the Company's independent accountants. The Company is doing so
because the Board of Directors of the Company believes it is a matter of good
corporate practice. If the Company's stockholders do not ratify the selection,
the Audit Committee will reconsider whether or not to retain KPMG LLP, but
still may retain them. Even if the selection is ratified, the Audit Committee,
in its discretion, may change the appointment at any time during the year if
it determines that such a change would be in the best interests of the Company
and its stockholders.
Approval of the proposal will require the favorable vote of a majority of
the stockholders present in person or by proxy and voting at the Annual
Meeting. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION OF KPMG LLP AS THE INDEPENDENT ACCOUNTANTS FOR FISCAL 2003. It is
anticipated that representatives of KPMG LLP will be present at the meeting to
respond to appropriate questions and, if they desire, to made a statement.
18
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 2004 Annual Meeting
of Stockholders must be received by eRT no later than November 20, 2003. Such
proposals may be included in next year's proxy statement if they comply with
certain rules and regulations promulgated by the Securities and Exchange
Commission.
In accordance with Rule 14a-4(c) promulgated by the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended, the
holders of proxies solicited by the Board of Directors in connection with the
2004 Annual Meeting may vote such proxies in their discretion on certain
matters as more fully described in such rule, including without limitation on
any matter coming before the meeting as to which the Company does not have
notice on or before February 3, 2004.
The Board knows of no other matters that may be presented for action at the
meeting. However, if any other matter properly comes before the meeting, the
proxy holders will vote in accordance with their judgment on such matter.
Stockholders are urged to vote, sign and return the enclosed form of proxy
promptly in the enclosed envelope.
By Order of the Board of Directors,
/s/ ANNA MARIE PAGLIACCETTI
ANNA MARIE PAGLIACCETTI
Vice President, General Counsel and
Secretary
March 20, 2003
19
APPENDIX A
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO ITEM 10 OF
SCHEDULE 14A. THIS APPENDIX WILL NOT BE PROVIDED TO SHAREHOLDERS.
eResearchTechnology, Inc.
2003 Stock Option Plan
1. Purpose
The purpose of the 2003 Stock Option Plan (referred to herein as the
"Plan") of eResearchTechnology, Inc. (the "Company") is to provide a means by
which certain employees and directors of, and others providing services to or
having a relationship with, the Company and its subsidiaries (as such term is
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code")) may be given an opportunity to purchase shares of common stock of the
Company ("Common Stock"). The Plan is intended to promote the interests of the
Company by encouraging stock ownership on the part of such individuals, by
enabling the Company and its subsidiaries to secure and retain the services of
highly qualified persons, and by providing such individuals with an additional
incentive to advance the success of the Company and its subsidiaries.
2. Administration
A. General. The Plan shall be administered by a Committee consisting of
not less than two directors (the "Committee") to be appointed from time to time
by the Board of Directors. Membership on the Committee shall in any event be
limited to those members of the Board who (i) are "Non-Employee Directors" as
defined in the regulations promulgated by the Securities and Exchange Commission
pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or any successor statute or regulation, and (ii) "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). The Committee shall have the power to select
option holders, to establish the number of shares and other terms applicable to
each such option, to construe the provisions of the Plan and to adopt rules and
regulations governing the administration of the Plan. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all holders of stock options ("Stock Options") granted under the Plan. All
power and authority granted hereunder to the Committee may, at the discretion of
the Board of Directors, be exercised by the Board of Directors, and unless the
context clearly indicates otherwise, all references herein to the "Committee"
shall be deemed to refer to the Board of Directors in the absence of the
appointment of the Committee or in the event of the exercise by the Board of
Directors of the Committee's power and authority. The members of the Board of
Directors or the Committee shall not be liable for any action or determination
made in good faith with respect to the Plan or to any Stock Option granted
pursuant thereto.
B. Additional Powers. The Committee may: (i) modify or restrict
exercise procedures and any other Plan procedures; (ii) establish local country
plans as subplans to this Plan, each of which may be attached as an Appendix
hereto and to the extent that the Committee determines that the restrictions
imposed by the Plan preclude the achievement of the material purposes of
awarding Stock Options in jurisdictions outside the United States under such a
subplan, the Committee will have the authority and discretion to modify those
restrictions as the Committee determines to be necessary or appropriate to
conform to applicable requirements or practices of jurisdictions outside the
United States; (iii) take any action, before or after a Stock Option is granted,
which it deems advisable to obtain or comply with any necessary local government
regulatory exemptions or approvals; provided that the Committee may not take any
action hereunder which would violate any securities law or any governing
statute.
3. Eligibility
The persons who shall be eligible to participate in this Plan and
receive Stock Options hereunder shall be the Company's directors and such
employees and other individuals who provide services to or otherwise have a
relationship with the Company or its subsidiaries as the Committee shall from
time to time determine. An eligible individual may receive more than one award
of stock options under the Plan.
4. Allotment of Shares
Subject to Section 6.A(v) of the Plan, the shares of the Common Stock,
$0.01 par value, of the Company that may be issued under the Plan shall be
850,000 shares. Such shares may be authorized and unissued shares (that are not
reserved for any other purpose) or shares issued and subsequently reacquired by
the Company. Without limiting the generality of the foregoing, whenever the
Company receives shares of Common Stock in connection with the exercise of or
payment for any Stock Options granted under the Plan, only the net number of
shares actually issued shall be counted against the foregoing limit. Shares that
by reason of the expiration of a Stock Option or otherwise are no longer subject
to purchase pursuant to a Stock Option granted under the Plan may be available
for subsequent grants of Stock Options under the Plan. Notwithstanding anything
to the contrary set forth in the Plan, the maximum number of shares of Common
Stock for which Stock Options may be granted to any employee in any calendar
year shall be 150,000 shares.
5. Effective Date and Term of Plan
The effective date of the Plan is the date on which it is approved by
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Company present or represented by proxy and entitled to vote at a meeting
of stockholders or, if action is by written consent in lieu of a meeting of
stockholders, by the consent of the holders of a majority of the outstanding
shares of Common Stock of the Company. The Plan shall terminate one day before
the tenth anniversary of the effective date, but the Board of Directors may
terminate the Plan at any time prior thereto. Termination of the Plan shall not
alter or impair, without the consent of the option holder, any of the rights or
obligations of any Stock Option theretofore granted under the Plan, except or
specifically authorized herein.
6. Terms and Conditions
A. All Stock Options
Stock Options granted pursuant to this Plan shall be evidenced
by Stock Option agreements in such form not inconsistent with the Plan as the
Committee shall from time to time approve. Nothing in this Plan or any Stock
Option granted hereunder shall govern the employment rights and duties between
the option holder and the Company or subsidiary. Neither this Plan, nor any
grant or exercise pursuant thereto, shall constitute an employment agreement
among such parties. The following shall also apply to all Stock Options granted
under the Plan.
2
(i) Option Price
The option price per share of Common Stock for each
Stock Option shall be determined by the Committee,
consistent with the provisions of this Plan.
(ii) Time of Exercise of Option
Except as otherwise set forth herein, the Committee
shall establish the option period and time or times within the option period
when the Stock Option may be exercised in whole or in such parts as may be
specified from time to time by the Committee, provided that no Stock Option
shall be exercisable after ten years from the date of grant thereof. Unless
otherwise determined by the Committee in its sole discretion, no Stock Option
shall be exercisable until after the expiration of six months from the date of
grant. The Committee may in its discretion accelerate the time or times when any
particular Stock Option held by said option holder may be so exercised so that
such time or times are earlier than those originally provided in the Stock
Option agreement, upon such circumstances and subject to such terms and
conditions as the Committee deems appropriate. In all cases, exercise of a Stock
Option shall be subject to the provisions of Section 6A(vi).
(iii) Payment and Manner of Exercise
The entire option price shall be paid at the time the
Stock Option is exercised. To the extent that the right to purchase shares of
Common Stock has accrued hereunder, Stock Options may be exercised from time to
time by written notice to the Company stating the full number of shares with
respect to which the Stock Option is being exercised and the time of delivery
thereof, in accordance with such administrative procedures as may from time to
time be specified by the Committee. Such notice of exercise shall be accompanied
by full payment for the shares by: (1) certified or official bank check or the
equivalent thereof acceptable to Company; (2) at the sole discretion of the
Committee, by tendering to the Company shares of Common Stock, or requesting the
Company to accept shares to be acquired by exercising the Stock Option, having
an aggregate fair market value, determined by the Company at the date of
payment, equal to the option price, provided that such shares are not subject to
any pledge or other security interest; (3) at the sole discretion of the
Committee, by permitting the option holder to deliver written notice to the
Company and a broker, with irrevocable instructions to the broker promptly to
deliver to the Company the amount of sale or loan proceeds necessary to pay the
option price; or (4) at sole discretion of the Committee, any combination of the
foregoing.
Upon exercise, the Company shall deliver to the
option holder (or other person entitled to exercise the Stock Option), at the
principal office of the Company, or such other place as shall be mutually agreed
upon, a certificate or certificates for such shares; provided, however, that the
time of delivery may be postponed by the Company for such periods as may be
required for it with reasonable diligence to comply with any requirements of
law; and provided further that in the event the Common Stock that is issuable
upon exercise is not registered under the Securities Act of 1933 (the "Act"),
then the Company may require that the registered owner deliver an investment
representation in form acceptable to the Company and its counsel, and the
Company will place a legend on the certificate for such Common Stock restricting
the transfer of same. There shall be no obligation or duty for the Company to
register under the Act at any time the Common Stock issuable upon exercise of
the Stock Option. If the option holder (or other person entitled to exercise the
Stock Option) fails to accept delivery, the option holder's payment shall be
returned and the right to exercise the Stock Option with respect to such
undelivered shares shall be terminated.
3
The Committee may also, in its discretion and subject
to prior notification to the Company by an option holder, permit an option
holder to enter into an agreement with the Company's transfer agent or a
brokerage firm of national standing whereby the option holder will
simultaneously exercise the Stock Option and sell the shares acquired thereby
through the Company's transfer agent or such brokerage firm and either the
Company's transfer agent or the brokerage firm executing the sale will remit to
the Company from the proceeds of sale the exercise price of the shares as to
which the Stock Option has been exercised.
The Company may, at any time, offer to buy out one or
more Stock Options for payment in cash, based on such terms and conditions as
the Committee shall establish and communicate to the option holder at the time
that such offer is made.
(iv) Non-Transferability of Stock Option
A Stock Option by its terms shall not be assignable
or transferable by the option holder otherwise than by will or by the laws of
descent and distribution.
(v) Adjustment in Event of Recapitalization of the Company
(a) Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Stock Option and the number of shares
of Common Stock that have been authorized for issuance under the Plan but as to
which no Stock Options have yet been granted or which have been returned to the
Plan upon cancellation or expiration of a Stock Option, including the maximum
number of shares of Common Stock for which Stock Options may be granted to any
employee in any calendar year, as well as the price per share of Common Stock
covered by each such outstanding Stock Option, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company, or other similar event that affects the Common
Stock such that an adjustment is required to preserve or prevent enlargement of
the benefits or potential benefits made available under the Plan. Such
adjustment shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to a Stock Option.
4
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, all outstanding Stock
Options will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Committee. The Committee may, in the
exercise of its discretion in such instances, declare that any Stock Option
shall terminate as of a date fixed by the Committee and give each option holder
the right to exercise the option holder's Stock Option as to all or any part of
the shares of Common Stock covered by the Stock Option, including shares as to
which the Stock Option would not otherwise be exercisable.
(c) Sale or Merger. In the event of a proposed sale
of all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Committee, in the exercise of its
sole discretion, may take such action as it deems desirable, including, but not
limited to: (i) causing a Stock Option to be assumed or an equivalent Stock
Option to be substituted by the successor corporation or a parent or subsidiary
of such successor corporation, (ii) providing that each option holder shall have
the right to exercise the option holder's Stock Option as to all of the shares
of Common Stock covered by the Stock Option, including shares as to which the
Stock Option would not otherwise be exercisable, or (iii) declaring that a Stock
Option shall terminate at a date fixed by the Committee provided that the option
holder is given notice and opportunity to exercise the then exercisable portion
of the option holder's Stock Option prior to such date.
(vi) Rights after Termination of Employment
In the event of termination of employment due to any
cause other than death or disability, rights to exercise the Stock Option to the
extent otherwise exercisable on the date of termination of employment, or to any
greater extent permitted by the Committee, shall terminate three months
following cessation of employment. In the event of termination of employment due
to disability (within the meaning of Section 22(e)(3) of the Code) or death,
such option holder or executor, administrator or devisee of an option holder,
shall have the right to exercise such Stock Option (to the extent otherwise
exercisable on the date of death or disability) at any time within one year
after cessation of employment by reason of such disability or death. In the
event of termination of employment for any reason, including death or
disability, any portion of the Stock Option not exercisable on the date of such
termination of employment shall expire unless otherwise provided by this Plan or
the Committee in its sole discretion.
(vii) Fair Market Value
"Fair Market Value" on any date means: (a) if the
Common Stock is listed on a national securities exchange, the closing price
reported as having occurred on the primary exchange with which the Common Stock
is listed and traded; (b) if the Common Stock is not listed on any national
securities exchange but is quoted in the Nasdaq Stock Market on a last sale
basis, the last sale reported on such date, or, if there is no such sale on that
date, then on the last preceding date on which a sale was reported; or (c) if
the Common Stock is not listed on a national securities exchange nor quoted in
the Nasdaq Stock Market on a last sale basis, the amount determined by the
Committee to be the fair market value based upon a good faith attempt to value
the Common Stock in accordance with the Code and regulations promulgated
thereunder.
5
B. Non-Qualified Stock Options
The Committee may, in its discretion, grant Stock Options
under the Plan which, in whole or in part, do not qualify as incentive stock
options under Section 422 of the Code ("Non-Qualified Options"). The terms and
conditions of the Non-Qualified Options shall be governed by Section 6A above.
(i) Option Price
The option price per share for each Non-Qualified
Option shall not be less than 100% of the fair market value of the Common Stock
on the date the Stock Option is granted. The fair market value shall be
determined as set forth in Section 6A(vii) above.
C. Incentive Stock Options
The Committee may, in its discretion, grant Stock Options
under the Plan, which qualify, in whole or in part, as incentive stock options
("Incentive Stock Option") under Section 422 of the Code. In addition to the
terms and conditions set forth in Section 6A above, the following terms and
conditions shall govern any Incentive Stock Option issued under the Plan.
(i) Maximum Fair Market Value of Incentive Stock Options
No option holder may have Incentive Stock Options
that become exercisable for the first time in any calendar year (under all
Incentive Stock Option plans of the Company and its subsidiary corporations)
with an aggregate fair market value (determined as of the time such Incentive
Stock Option is granted) in excess of $100,000.
(ii) Option Price
The option price per share for each Incentive Stock
Option shall be 100% of the Fair Market Value of the Common Stock on the date
the Stock Option is granted; provided, however, that in the case of the grant to
an option holder who owns Common Stock of the Company possessing more than 10%
of the total combined voting power of all classes of stock of the Company or its
subsidiaries, the option price of such Stock Option shall be at least 110% of
the Fair Market Value of the Common Stock on the date the Stock Option is
granted. The Fair Market Value shall be determined as prescribed in Section
6A(vii) above.
6
(iii) Period of Stock Option
Each Incentive Stock Option shall expire ten years
from the date it is granted or at the end of such shorter period as may be
designated by the Committee on the date of grant; provided, however, that in the
case of the grant of an Incentive Stock Option to an option holder who owns
Common Stock of the Company possessing more than 10% of the total combined
voting power of all classes of stock of the Company or its subsidiaries, such
Stock Option shall not be exercisable after the expiration of five years from
the date it is granted.
(iv) Eligible Participants
Incentive Stock Options may be issued only to
employees of the Company or its parent or subsidiary corporation or
corporations.
(v) Interpretation
No term of the Plan relating to Incentive Stock
Options shall be interpreted, amended, or altered, nor shall any direct
discretion or authority granted under the Plan be so exercised, so as to
disqualify the Plan under Section 422 of the Code.
D. Substitution of Options.
Options may be granted under the Plan from time to time in
substitution for Stock Options held by employees of other corporations who are
about to become, and who do concurrently with the grant of such Stock Options
become, employees of the Company or a subsidiary of the Company as a result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or the acquisition by the Company or a subsidiary of
the Company of the assets of the employing corporation or the acquisition by the
Company or a subsidiary of the Company of stock of the employing corporation.
The terms and conditions of the substitute Options so granted may vary from the
terms and conditions set forth in this Section 6 to such extent as the Committee
at the time of grant may deem appropriate to conform, in whole or in part, to
the provisions of the Stock Options in substitution for which they are granted.
7. Fixed Option Grants to Outside Directors.
A. Defined Terms
(i) The term "Outside Directors" as utilized herein refers to
any individual who serves as a member of the Board of Directors of the Company
and who is neither (a) an employee of the Company, (c) the beneficial owner of
10% or more of the outstanding Common Stock of the Company (a "Significant
Holder"), or (c) a stockholder, member or partner of any entity which itself is
a Significant Holder
(ii) The term "Annual Meeting" as utilized herein refers to an
Annual Meeting of Stockholders of the Company.
B. Initial Grants
Each Outside Director initially elected to the Board of
Directors after the effective date of the Plan shall be automatically granted,
on the date of such election, an option to acquire 10,000 shares of the Common
Stock of the Company.
7
C. Annual Grants
Commencing with the 2003 Annual Meeting, each Outside Director
who is a member of the Company's Board of Directors immediately following an
Annual Meeting shall be automatically granted, on the date of the Annual
Meeting, an option to acquire 10,000 shares of the Common Stock of the Company,
provided that an Outside Director first elected to the Board of Directors at
such Annual Meeting or within six months prior to such Annual Meeting shall not
be eligible for the annual grant otherwise to be issued at the date of such
Annual Meeting.
D. Terms of Fixed Option Grants
Stock Options granted pursuant to this Section 7 will be
subject to all of the terms and conditions of the Plan. In addition, each such
Stock Option granted pursuant to this Section 7 shall also be subject to the
following terms and conditions:
(i) The option price per share shall be 100% of the Fair
Market Value of the Common Stock on the date the Stock Option is granted. The
Fair Market Value shall be determined as prescribed in Section 6A(vii) above;
(ii) Each option will be immediately exercisable upon grant;
(iii) Shares of Common Stock received upon exercise of the
option granted pursuant to this Section 7 may not be sold, transferred,
assigned, pledged or otherwise disposed of until at least six months and one day
after the date of grant;
(iv) Each option will expire upon the earlier of (a) ten years
from the date of grant or (b) three months after the Outside Director ceases to
serve as a director for any reason; and
(v) No Stock Option granted under this Section 7 shall
constitute an Incentive Stock Option.
8. Amendment of Plan
The Committee, within its discretion, shall have authority to amend the
Plan and the terms of any Stock Option issued hereunder at any time, subject to
any required stockholder approval or any stockholder approval that the Committee
may deem advisable for any reason, such as for the purpose of obtaining or
retaining the statutory or regulatory benefits under tax, securities or other
laws as satisfying any applicable stock exchange or Nasdaq listing requirement.
The Committee may not, without the consent of the option holder alter or impair
any right or obligation under any Stock Option previously granted under the
Plan, except as specifically authorized herein.
8
9. Rights of a Shareholder
The recipient of any Stock Option under the Plan, unless otherwise
provided by the Plan or the Stock Option agreement, shall have no rights as a
shareholder unless and until certificates for shares of Common Stock are issued
and delivered to him.
10. No Guaranty of Employment or Participation
Nothing contained in the Plan or in any Stock Option agreement entered
into pursuant to the Plan shall confer upon any option holder the right to
continue in the employment of the Company or any subsidiary of the Company or
affect any right that the Company or any subsidiary of the Company may have to
terminate the employment of such option holder. No person shall have a right to
be selected to participate in the Plan or, having been so selected, to receive
any future Stock Option grants.
11. Withholding
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient to satisfy
any federal, state, local or foreign withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If and to the
extent authorized by the Committee, in its sole discretion, an option holder may
make an election, by means of a form of election to be prescribed by the
Committee, to have shares of Common Stock that are acquired upon exercise of a
Stock Option withheld by the Company or to tender other shares of Common Stock
or other securities of the Company owned by the option holder to the Company at
the time of exercise of a Stock Option to pay the amount of tax that would
otherwise be required by law to be withheld by the Company as a result of any
exercise of a Stock Option. Any such election shall be irrevocable and shall be
subject to termination by the Committee, in its sole discretion, at any time.
Any securities so withheld or tendered will be valued by the Committee as of the
date of exercise.
12. Non-Uniform Determinations
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive options, the form, amount
and timing of such grants, the terms and provisions of options and the
agreements evidencing same) need not be uniform and may be made selectively
among persons who receive, or are eligible to receive, grants of Stock Options
under the Plan whether or not such persons are similarly situated.
13. Reservation of Shares
The Company, during the term of the Plan, will at all times reserve and
keep available such number of shares as shall be sufficient to satisfy the
requirements of the Plan. 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 and sale of any shares hereunder,
shall relieve the Company of any liability for the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained.
9
14. Effect on Other Plans
Participation in the Plan shall not affect an employee's eligibility to
participate in any other benefit or incentive plan of the Company or any
subsidiary of the Company. Any Stock Options granted pursuant to the Plan shall
not be used in determining the benefits provided under any other plan of the
Company or any subsidiary of the Company unless specifically provided.
15. Forfeiture
Notwithstanding anything to the contrary in the Plan, if the Committee
finds, by a majority vote, after full consideration of the facts presented on
behalf of both the Company and any option holder, that the option holder has
been engaged in fraud, embezzlement, theft or commission of a felony or
retention by the Company or any subsidiary of the Company or that the option
holder has willfully disclosed confidential information of the Company or any
subsidiary of the Company and that such disclosure damaged the Company or any
subsidiary of the Company, the option holder shall forfeit all unexercised Stock
Options and all exercised Stock Options under which the Company has not yet
delivered the certificates. The decision of the Committee in interpreting and
applying the provisions of this Section 14 shall be final. No decision of the
Committee, however, shall affect the finality of the discharge or termination of
such option holder by the Company or any subsidiary of the Company in any
manner.
16. No Prohibition on Corporate Action
No provision of the Plan shall be construed to prevent the Company or
any officer or director thereof from taking any action deemed by the Company or
such officer or director to be appropriate or in the Company's best interest,
whether or not such action could have an adverse effect on the Plan or any Stock
Options granted hereunder, and no option holder or option holder's estate,
personal representative or beneficiary shall have any claim against the Company
or any officer or director thereof as a result of the taking of such action.
17. Indemnification
With respect to the administration of the Plan, the Company shall
indemnify each present and future member of the Committee and the Board against,
and each member of the Committee and the Board shall be entitled without further
action on his or her part to indemnity from the Company for, all expenses
(including the amount of judgments and the amount of approved settlements made
with a view to the curtailment of costs of litigation, other than amounts paid
to the Company itself) reasonably incurred by him in connection with or arising
out of, any action, suit or proceeding in which he may be involved by reason of
his or her being or having been a member of the Committee or the Board, whether
or not he continues to be such member at the time of incurring such expenses;
provided, however, that such indemnity shall not include any expenses incurred
by any such member of the Committee or the Board (i) in respect of matters as to
which he shall be finally adjudged in any such action, suit or proceeding to
have been guilty of gross negligence or willful misconduct in the performance of
his or her duty as such member of the Committee or the Board; or (ii) in respect
of any matter in which any settlement is effected for an amount in excess of the
amount approved by the Company on the advice of its legal counsel; and provided
further that no right of indemnification under the provisions set forth herein
shall be available to or enforceable by any such member of the Committee or the
Board unless, within 60 days after institution of any such action, suit or
proceeding, he shall have offered the Company in writing the opportunity to
handle and defend same at its own expense. The foregoing right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Committee or the Board and shall be in
addition to all other rights to which such member may be entitled as a matter of
law, contract or otherwise.
10
18. Miscellaneous Provisions
A. Compliance with Plan Provisions. No option holder or other person
shall have any right with respect to the Plan, the Common Stock reserved for
issuance under the Plan or in any Stock Option until a written option agreement
shall have been executed by the Company and the option holder and all the terms,
conditions and provisions of the Plan and the Stock Option applicable to such
option holder (and each person claiming under or through him) have been met.
B. Approval by Company. In the discretion of the Committee, no shares
of Common Stock, other securities or property of the Company or other forms of
payment shall be issued hereunder with respect to any Stock Option unless the
Company's General Counsel or Chief Financial Officer shall be satisfied that
such issuance will be in compliance with applicable federal, state, local and
foreign legal, securities exchange and other applicable requirements.
C. Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the
Exchange Act applies to awards granted under the Plan, it is the intention of
the Company that the Plan comply in all respects with the requirements of Rule
16b-3, that any ambiguities or inconsistencies in construction of the Plan be
interpreted to give effect to such intention and that, if the Plan shall not so
comply, whether on the date of adoption or by reason of any later amendment to
or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to
be automatically amended so as to bring them into full compliance with such
rule.
D. Unfunded Plan. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregations of assets under the Plan.
E. Effects of Acceptance of Stock Option. By accepting any option or
other benefit under the Plan, each option holder and each person claiming under
or through him shall be conclusively deemed to have indicated his or her
acceptance and ratification of, and consent to, any action taken under the Plan
by the Company, the Board and/or the Committee or its delegates.
F. Construction. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.
G. Compliance with Legal and Exchange Requirements. The Plan, the
granting and exercising of Stock Options hereunder, and the other obligations of
the Company hereunder shall be subject to all applicable federal and state laws,
rules and regulations, and to such approval by all regulatory or governmental
agencies as may be required. The Company, in its discretion, may postpone the
granting and exercising of Stock Options, the issuance or delivery of Common
Stock under any Stock Option, or any other action sanctioned under the Plan to
permit the Company, with reasonable diligence, to complete such stock exchange
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
option holder 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 Stock Option 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 Stock Option under this provision shall not extend
the term of such Stock Option. The Company, the Committee and the other
directors or officers of the Company shall not have any obligation or liability
to an option holder with respect to any Stock Option (or Common Stock issuable
thereunder) that shall lapse because of such postponement. Likewise, the
Committee may postpone the exercise of Stock Options, the issuance or delivery
of Common Stock under any Stock Option, and any action sanctioned under the Plan
to prevent the Company or any affiliate from being denied a federal income
deduction with respect to any Stock Option other than an Incentive Stock Option.
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H. Governing Law. The Plan and all stock option agreements hereunder
shall be construed in accordance with and governed by the laws of the State of
Delaware.
I. No Impact on Benefits. Except as may otherwise be specifically
stated under any employee benefit plan, policy or program, no amount payable in
connection with any Stock Option shall be treated as compensation for purposes
of calculating an option holder's rights and benefits under such plan, policy or
program.
J. No Constraint on Corporation Action. Nothing in this Plan shall be
construed to limit, impair or otherwise affect the Company's right or power to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, or to merge or consolidate, or dissolve, liquidate, sell
or transfer all or any part of its business or assets or, except as provided in
Section 8, to limit the power or right of the Company or any affiliate to take
any action which such entity deems to be necessary or appropriate.
K. Beneficiary Designation. Each option holder 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 the event of the
option holder's death. Each designation will revoke all prior designations by
the same option holder, must be in a form prescribed by the Committee, and will
be effective only when filed by the option holder in writing with the Committee
during the option holder's lifetime. In the absence of any such designation,
benefits remaining unpaid at an option holder's death shall be paid to or
exercised by the option holder's surviving spouse, if any, or otherwise to or by
his or her estate.
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