SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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INTERDIGITAL COMMUNICATIONS CORPORATION
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(Name of Registrant as Specified in Its Charter)
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INTERDIGITAL COMMUNICATIONS CORPORATION
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 4, 2001
The Board of Directors of InterDigital Communications Corporation, a
Pennsylvania corporation (the "Company"), is furnishing you this proxy statement
to solicit proxies on its behalf to be voted at the Annual Meeting of
Shareholders (the "Meeting"). The Meeting will be held at the Hilton Valley
Forge, King of Prussia, Pennsylvania on June 4, 2001. The proxies may also be
voted at any adjournments or postponements of the Meeting. This Proxy Statement
and the accompanying proxy will be first sent or given to shareholders on
approximately May 4, 2001. The principal executive offices of the Company are
located at 781 Third Avenue, King of Prussia, Pennsylvania 19406-1409.
Only holders of record of shares of Common Stock at the close of
business on April 27, 2001 are entitled to vote at the Meeting or any
adjournments or postponements of the Meeting. On that date there were 53,292,613
shares of the Company's Common Stock outstanding and entitled to vote. Each
share of Common Stock entitles the holder to one vote, and votes may not be
cumulated in the election of directors. Holders of the Company's $2.50
Cumulative Convertible Preferred Stock are not entitled to vote at the Meeting.
Under Pennsylvania law and the By-Laws of the Company, the presence of a quorum
is required for each matter to be acted upon at the Meeting. The presence, in
person or by proxy, of holders of the Common Stock entitled to cast at least a
majority of the votes which all holders of the Common Stock are entitled to cast
will constitute a quorum for purposes of the Meeting. Directors are elected by a
plurality vote and approval of all other matters presented at the Meeting
requires the affirmative vote of a majority of the votes cast by shareholders
present, in person or by proxy, at the Meeting. Votes withheld and abstentions
will be counted in determining the presence of a quorum, but will not be voted
and will have no effect on matters to be voted upon at the Meeting. Broker
non-votes will not be counted as votes cast on a proposal and will have no
effect on matters to be voted upon.
A form of proxy is enclosed for use at the Meeting. Proxies will be
voted in accordance with shareholders' instructions. If no instructions are
indicated on the proxy, all shares represented by valid proxies received
pursuant to the solicitation (and not revoked before they are voted) will be
voted FOR the election of the nominees named below as directors, and FOR the
ratification of the appointment of Arthur Andersen LLP as independent public
accountants to examine the financial statements of the Company for the year
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ending December 31, 2001, and by the proxies in their discretion on any other
matters to come before the Meeting. A proxy may be revoked at any time before it
is voted at the Meeting by delivering another later dated proxy, by sending
written revocation to the Secretary of the Company or by attending the Meeting
and voting in person. To be eligible to vote in person at the Meeting, a
shareholder must be the registered owner of the shares or, if the shares are
held in the name of a broker or bank, bring a legal proxy obtained from such
broker or bank.
The cost of solicitation of proxies by the Board of Directors of the
Company (the "Board") will be borne by the Company. Proxies may be solicited by
mail, electronic mail, personal interview, telephone or telegraph and, in
addition, directors, officers and regular employees of the Company may solicit
proxies by such methods without additional remuneration. In addition, the
Company has retained W.F. Doring & Co. to aid in the solicitation of proxies for
which a fee of approximately $7,000, plus expenses, will be paid. Banks,
brokerage houses and other institutions, nominees or fiduciaries will be
requested to forward the proxy materials to beneficial owners in order to
solicit authorizations for the execution of proxies. The Company will, upon
request, reimburse such banks, brokerage houses and other institutions, nominees
and fiduciaries for their expenses in forwarding such proxy materials to the
beneficial owners of the Company's Common Stock.
ELECTION OF DIRECTORS
(Proposal 1)
The Board presently consists of six members, divided into three classes
each having a term of three years. The Board has nominated two current directors
for election at the Meeting for a term expiring at the year 2004 Annual Meeting
of Shareholders and until their successors are elected and qualified. Unless
authority to vote for the nominees is withheld in the proxy, the persons named
in the accompanying proxy intend to vote the shares represented by the proxy FOR
the election as director of the nominees named below. We have no reason to
believe that the named nominees will be unavailable to serve if elected.
However, if either of the nominees is unavailable to serve for any reason, the
proxies may be voted for another person nominated as a substitute by the Board.
Four incumbent directors will continue to serve as directors following the
Meeting as set forth below, with two directors having a term expiring at the
year 2002 Annual Meeting of Shareholders and two directors having a term
expiring at the year 2003 Annual Meeting of Shareholders.
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The Board recommends a vote FOR Proposal 1 to elect Messrs. Roath and
Colson to the Board of Directors.
The following biographical information is furnished as to the nominees
for election as a director and each of the current directors:
Nominees for Election to the Board of Directors
Three Year Term Expiring at 2004 Annual Meeting
ROBERT S. ROATH, 58, has been a director of the Company since May 1997.
Mr. Roath was Chief Financial Officer and Senior Vice President of RJR Nabisco,
Inc. ("RJR Nabisco") from April 1995 to April 1997 and Corporate Controller and
Senior Vice President at RJR Nabisco from September 1990 to April 1995. Mr.
Roath has been a part-time consultant and Chairman of the Advisory Board to
L.E.K. Consulting, a shareholder-value consulting firm, since May 1997. Mr.
Roath is also a member of the Advisory Board to the Roundabout Theatre, a New
York City not-for-profit classic theater and is a member of the advisory board
of the Robert H. Smith School of Business at the University of Maryland.
JOSEPH S. COLSON, JR., 53, became a director of the Company in April
1998. Mr. Colson has been President of Colson Consulting, Inc., a private
consulting firm located in Cary, North Carolina since July 1998. Mr. Colson
retired as President of International Regions & Professional Services at Lucent
Technologies, Inc. ("Lucent") in April 1998, where he was responsible for sales
of network systems products and services to global service providers since June
1997. Mr. Colson served as President of the AT&T Customer Business Unit at
Lucent from January 1996 to June 1997. Mr. Colson has been a director of
Crescent State Bank since December 1998 and a director of 3TEX since August
2000. Mr. Colson is also on the Board of Trustees of North Carolina State
Engineering Foundation, which supports the School of Engineering at North
Carolina State University, his alma mater.
Members of the Board of Directors Continuing in Office
Three Year Term Expiring at 2003 Annual Meeting
D. RIDGELY BOLGIANO, 68, has been a director of the Company since 1981.
Mr. Bolgiano has been a Vice President and Chief Scientist of the Company since
April 1984, and has served as Chairman of the Board of InterDigital Technology
Corporation, a wholly-owned subsidiary of the Company, since May 1996. Mr.
Bolgiano has been affiliated with the Company in various capacities since 1974.
HOWARD E. GOLDBERG, 55, became a director of the Company in November
2000 when he also became Chief Executive Officer. Mr. Goldberg was also named
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President of the Company in January 2001 and has served as President of
InterDigital Technology Corporation, a wholly-owned subsidiary of the Company,
since January 1999. Mr. Goldberg served as Interim President of the Company from
September 1999 to November 2000, Executive Vice President from May 1995 to
September 1999 and was also Secretary and General Counsel from May 1995 to
October 1998.
Members of the Board of Directors Continuing in Office
Three Year Term Expiring at 2002 Annual Meeting
HARRY G. CAMPAGNA, 62, Chairman of the Board, has been a director of
the Company since April 1994. Mr. Campagna has been the President, Chief
Executive Officer and Chairman of the Board of Qualitex Co. for more than the
past five years. Qualitex is a manufacturer of press pads and related items for
the garment, apparel and textile industries.
STEVEN T. CLONTZ, 50, became a director of the Company in April 1998.
In January 1999 Mr. Clontz became President and Chief Executive Officer of
StarHub Pte., Ltd., a full telecommunications wireline and wireless carrier
located in Singapore. Mr. Clontz has also served as a director of StarHub since
1999. Mr. Clontz was President and Chief Executive Officer of IPC Information
Systems, Inc., an AMEX listed company headquartered in New York which develops,
manufactures and sells specialized telecommunications products and services to
the financial trading industry, and served on the Board of Directors of IPC
Information Systems from December 1995 to December 1998. Mr. Clontz was employed
at BellSouth International, Inc. from September 1987 to December 1995 where from
July 1992 he served as President, Asia Pacific Region, directing business
development and investments in that region.
Committees and Meetings of
the Board of Directors
The Company's Board of Directors has an Audit Committee, a Compensation
and Stock Option Committee, a Finance and Investment Committee and a Nomination
and Search Committee.
The Audit Committee's principal functions are to recommend the
selection of the independent public accountants, approve the scope of the audit
and specification of non-audit services provided by such accountants and the
associated fees for such services, review whether the non-audit services are
compatible with maintaining the principal accountant's independence and review
audit results. Additionally, the Audit Committee reviews internal accounting
procedures and related controls and programs to comply with applicable laws and
regulations relating to financial accountability. The current members of the
Audit Committee are Mr. Roath, Chairman, Mr. Colson and Mr. Clontz. During 2000,
the Audit Committee held 7 meetings.
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The Company's Compensation and Stock Option Committee (the
"Compensation Committee") currently consists of Mr. Campagna, Chairman, and Mr.
Roath. The Compensation Committee held 10 meetings in 2000. Its responsibilities
include establishing compensation, bonus awards and similar matters and granting
awards under the restricted stock and stock option plans of the Company.
The Company's Nomination and Search Committee consists of Mr. Campagna,
Chairman, Mr. Clontz, and Mr. Roath. The Nomination and Search Committee acted
once by unanimous written consent in 2000. Its functions include reviewing and
making recommendations to the full Board concerning nominees for directors.
Although the Nomination and Search Committee will consider nominees recommended
by shareholders, there are no formal procedures for such recommendations.
The Board met 11 times during 2000. During 2000, each of the above
incumbent directors attended at least 75% of the meetings of the Board and the
committees on which they serve.
Compensation of Directors
Each member of the Board who is not an officer or employee of the
Company (an "Outside Director") is entitled, upon his election at the Annual
Meeting of Shareholders, to receive an annual grant of non-qualified stock
options to purchase shares of Common Stock under the Company's 2000 Stock Award
and Incentive Plan. These options are granted automatically in an amount equal
to 10,000 multiplied by the number of years remaining in the Director's term in
office at an exercise price equal to the fair market value of the Common Stock
on the date of grant. The options vest annually on the date of each year's
Annual Meeting of Shareholders at the rate of 10,000 shares per year commencing
on the date of the Annual Meeting following the Annual Meeting of Shareholders
at which the options were granted. Prorated option grants are made to persons
who served for a partial year. The Board has recently increased the amount of
the annual automatic grant from 10,000 to 16,000 shares per year.
Outside Directors are also entitled to an annual monetary director fee
of $15,000 for a full calendar year of service. A pro rata portion of the
$15,000 fee is paid for service of less than a full year. Payment of fees may be
made, at the election of each Director, on January 15 of each year, quarterly or
deferred. The Company also reimburses Outside Directors for certain expenses
incurred in attending Board and committee meetings and travel on behalf of the
Company.
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In connection with his service and extra commitment of time as Chairman
of the Board during 2000, Mr. Campagna was awarded 40,000 restricted stock units
under the Company's 1999 Restricted Stock Plan (RSUs) in 2000 and 100,000 RSUs
in 2001. In connection with his service on the Board during 2000, Mr. Roath was
awarded 10,000 options to purchase Common Stock in 2000 under the Company's 1997
Stock Option Plan for Outside Directors and 20,000 RSUs in 2001. During 2000
each of the Outside Directors was awarded RSUs in exchange for the
relinquishment of a tax gross-up feature associated with previously granted
restricted stock. The number of such RSUs were as follows: Mr. Campagna, 40,000;
Mr. Colson, 12,000; Mr. Clontz, 12,000; and Mr. Roath, 12,000. The RSUs do not
carry voting rights and, if unvested, they are forfeitable by the grantee upon
his departure from service with the Company. As part of a program to increase
ownership of Common Stock by Board members, the following Outside Directors were
granted four (4) fully-vested options to purchase shares of Common Stock for
each share of stock such directors purchased on the open market from December
21, 2000 to January 10, 2001 as follows: Mr. Campagna, 20,000 options; Mr.
Colson, 52,800 options; Mr. Clontz, 48,000 options; and Mr. Roath, 76,190
options. The aggregate purchase price of shares eligible for the option match
was capped at $100,000 for Outside Directors. In addition, Mr. Colson was
granted 20,000 options under the Company's 2000 Stock Award and Incentive Plan
and 5,000 shares of stock under the Company's 1999 Restricted Stock Plan. The
exercise price of all these options was the fair market value of the Common
Stock on the date of grant.
Compliance with Section 16(a)
of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission, initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Executive officers, directors and greater than
ten percent shareholders (collectively, "Reporting Persons") are additionally
required to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations of Reporting
Persons that no other reports were required with respect to fiscal 2000, the
Reporting Persons complied with Section 16(a) filing requirements, with the
exception of one late report filed by Mark Gercenstein.
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Under the rules of the Securities and Exchange Commission (the
"Commission"), the Compensation Committee Report on Executive Compensation
below, the Audit Committee Report appearing on page __ and the Shareholder
Return Performance Graph appearing on page __ of this Proxy Statement are not to
be deemed to be "soliciting material" or to be "filed" with the Commission, or
to be subject to certain of the proxy rules or to the liabilities of Section 18
of the Exchange Act, except to the extent that the Company specifically requests
that such information be treated as "soliciting material" or specifically
incorporates it by reference into a filing under the Securities Act of 1933 (the
"Securities Act") or the Exchange Act. Notwithstanding anything to the contrary
set forth in any of the Company's previous filings under the Securities Act or
the Exchange Act that might incorporate future filings, including this proxy
statement, in whole or in part, the Compensation Committee Report and the
Shareholder Return Performance Graph shall not be incorporated by reference in
such filings.
Executive Compensation
Compensation Committee Report on Executive Compensation
General
The Company's Compensation and Stock Option Committee (the "Committee") has
overall responsibility for the establishment, modification and implementation of
executive compensation and benefit programs of the Company. The Committee's
primary responsibilities include: adopting compensation plans, setting annual
salary, bonus and other direct or indirect benefits of executive officers and
other members of management, and administering Company stock option, restricted
stock and bonus plans including the grant of awards under such plans to all
eligible employees.
Compensation Philosophy
One of the most important duties of the Committee is to determine the
compensation of the Company's executive officers with the goal of ensuring that
shareholder value serves as a primary driver and motivator of executives.
Accordingly, the Committee's philosophy is to ensure that the Company's
executive compensation is shareholder focused, appropriate and competitive.
In determining the amount and composition of executive compensation for the
Named Officers, as defined below, and the Company's Chief Executive Officer, and
in compliance with its independent oversight responsibilities, the Committee is
guided by the following objectives: to assist the Company to attract and retain
qualified executives in a highly competitive industry; to reward executives
consistent with the Company's performance; to recognize individual performance
and responsibility; to strengthen the mutuality of interest between executives
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and the Company's shareholders; and to drive long-term performance. The
principal elements of executive compensation are: base salaries, annual
incentive compensation and long-term stock-based compensation. Executive
benefits and perquisites have not historically been a significant component of
the Company's executive compensation, although as part of its overall strategy
the Committee is focused on providing competitive benefits to meet the health,
welfare and retirement needs of all employees.
The Company had two Chief Executive Officers during 2000. When Mr. Goldberg was
promoted to Chief Executive Officer, the Committee determined that offering him
a compensation package substantially similar to that given his predecessor best
served the general compensation objectives outlined above - retention,
recognition of performance, strengthening the mutuality of interest of the Chief
Executive Officer with shareholders and driving long-term performance.
Base Salary
The Company's policy is to set base salaries for each executive officer and the
Chief Executive Officer in the upper middle range of scales for equivalent jobs
with other similarly situated industrial employers. Annual base salaries are
reviewed from time to time with the assistance of outside compensation
consultants and available marketplace competitive data.
Annual Performance-Based Compensation
The Committee has instituted a bonus plan which provides for the payment of
annual incentives to employees, including the Named Officers and the Chief
Executive Officer, based on two factors: the Company's results measured against
its pre-set business goals and individual performance ratings. Each executive
officer was assigned a target percentage of salary (targets at 57% of salary in
the case of the Chief Executive Officer and 40% of salary in the case of the
other Named Officers.) Under the plan up to 30% of the executive's bonus may be
paid in shares of Common Stock which is not transferable for a period of two
years. Achievement of all goals results in payment of the target bonus. If
actual results vary from the goals set, the bonus paid will be adjusted up or
down based on a pre-set formula to reflect the variation from goals. The
adoption of this plan was part of an overall strategy to create an environment
of collective effort towards common goals, to give employees a stake in the
performance of the Company and to appropriately reward employees when Company
performance meets its desired objectives.
To promote these ends, the corporate business goals were set at aggressive
levels in 2000 to incent and compensate superior performance. The Company's
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actual performance in 2000 with respect to meeting certain of the pre-set
business goals resulted in each of the executive officers and the Chief
Executive Officer, Mr. Goldberg, receiving less than the full amount of their
respective target bonuses. In keeping with the Committee's philosophy to give
executives more of a stake in the performance of the Company, while adding an
equity retention feature, the full 30% of each executive's awards were made in
the form of Common Stock. These shares are restricted as to transferability,
generally for a two-year period, but are not forfeitable (except in the event
that employment is terminated during such two-year period due to intentional
wrong doing). The shares have full voting power and the right to receive
dividends. The Committee also provided additional cash compensation in the form
of a tax gross-up to cover each executives' tax liability associated with the
stock payout.
The amount of Mr. Gercenstein's bonus was negotiated in connection with his
termination of employment and did not include a grant of restricted stock.
During 2000, the Committee engaged Pearl Meyer & Partners, Inc. to selectively
provide recommendations for modifying the Company's performance-based
compensation program to ensure the Company could attract, motivate and retain
appropriate personnel to key positions in the Company while ensuring that the
compensation method would drive shareholder value.
Equity Incentives
Stock options, restricted stock, restricted stock units and shares of Common
Stock having restrictions on transferability have been utilized as long-term
incentives. These instruments function both as effective retention mechanisms
over the medium-term and as methods of focusing executives on shareholder value
in that the value of such forms of equity compensation is either derived from
increases in the Company's stock value or is at-risk based on the value of the
Company's stock.
Restricted stock and restricted stock units issued by the Company generally vest
three years from the original grant date and are forfeited if the recipient
leaves the Company during that period. In 2000, the executive officers and the
Chief Executive Officer were granted RSUs in a number equal to the number of
shares of restricted stock previously granted to them in exchange for the
relinquishment of a tax gross-up feature associated with such shares.
As discussed above, the Committee used Common Stock as a component of executive
bonus compensation for 2000. The use of stock, which is restricted from transfer
for two years, serves to further align executive interests with those of the
shareholders and encourage retention. The Committee may elect, from time to
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time, to grant restricted stock, restricted stock units or Common Stock to
executives under the 2000 Stock Award and Incentive Plan and the 1999 Restricted
Stock Plan.
In 2000, the Committee also adopted a program of annually evaluating and, if
appropriate, granting stock options on a company-wide basis to further align the
financial interests of all employees with the financial interest of the
shareholders. Options are granted at 100% of the fair market value at the date
of grant. The options granted to the Named Executives in 2000 vested in two
equal installments, one at the close of 2000 and the second to vest in June of
2001. Both persons who served as Chief Executive Officer in 2000 received an
option grant upon his appointment to the position.
As part of its philosophy that increased ownership of equity in the Company
facilitates greater alignment of executive interests with shareholder interests,
the Committee, in consultation with outside compensation advisors, instituted a
special short-term program to incentivize executives to purchase the Company's
Common Stock on the open market. For a period of approximately three (3) weeks,
executives (including the Chief Executive Officer) were granted four fully
vested options for each share of Common Stock they purchased. The 4-for-1
matching grant was capped at the point that the aggregate purchase price of
shares bought by an executive reached the executive's then current salary.
Perquisites
Selective perquisites were given to the Chief Executive Officer in 2000. Mr.
Gercenstein was paid allowances for temporary housing expenses and for a car.
Mr. Goldberg, as Chief Executive Officer, has the same car allowance.
In implementing compensation policies, plans, and programs, the Committee will
consider the effects of Section 162(m) of the Internal Revenue Code. Section
162(m) generally disallows a public company's tax deduction for compensation to
its Chief Executive Officer and four other most highly compensated executive
officers in excess of $1 million in any tax year. Under Section 162(m),
compensation that qualifies as "performance-based compensation" is excluded from
the $1 million deductibility cap, and therefore remains fully deductible even
though such compensation may (together with other compensation) exceed $1
million in a given year. The Committee intends to seek to preserve the tax
deductibility of compensation to executive officers, to the extent that this
objective does not impair the operation and effectiveness of the Company's
compensation policies and programs. To this end, the 2000 Stock Award and
Incentive Plan is being submitted to shareholders in order that annual incentive
awards, stock options and certain other awards under the plan can qualify as
"performance-based compensation" that will remain fully deductible by the
Company. The Committee retains the flexibility, however, to enter into
arrangements that may result in non-deductible compensation to executive
officers.
COMPENSATION AND STOCK OPTION COMMITTEE:
Harry G. Campagna
Robert S. Roath
April 27, 2001
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Summary Compensation Table
The following table sets forth certain information concerning the
annual and long-term compensation paid to or for (i) each person who served as
the Company's Chief Executive Officer during the fiscal year ended December 31,
2000, and (ii) the Company's four most highly compensated other executive
officers each of whose total annual salary and bonus exceeded $100,000 in 2000
(collectively, the "Named Officers"), for services rendered to the Company and
its subsidiaries during fiscal years 1998, 1999 and 2000.
Annual Compensation Long-Term Compensation
------------------------------------------------------ ------------------------------
All
Other Restricted Other
Name and Annual Stock Securities Compen-
-------- Fiscal Compensation Awards Underlying sation
Principal Position Year Salary ($) Bonus (1) ($)(2) ($)(3) Options (#) (4)
------------------ ---- ---------- --------- ------ ---------- ----------- ------
Howard E. Goldberg 2000 $293,694 $119,700 $0 $296,250 158,000 $3,119
Chief Executive 1999 $249,167 $140,144 $0 $120,000 0 $3,579
Officer and President 1998 $206,667 $180,000 $0 $0 0 $3,419
(5)
Mark A. Lemmo 2000 $222,600 $53,424 $0 $259,219 44,000 $2,938
Executive Vice 1999 $210,000 $86,150 $0 $105,000 1,500 $2,905
President 1998 $183,333 $73,333 $0 $0 0 $1,983
Charles R. Tilden 2000 $201,400 $48,336 $0 $234,526 35,000 $2,966
Executive Vice 1999 $190,000 $78,706 $0 $94,998 0 $3,121
President 1998 $180,000 $72,000 $0 $0 0 $3,292
William J. Merritt 2000 $190,800 $45,792 $0 $222,188 28,000 $2,531
Executive Vice 1999 $164,167 $75,103 $0 $90,000 100,000 $2,469
President, General 1998 $136,667 $102,500 $0 $0 0 $2,402
Counsel and Secretary
Richard J. Fagan 2000 $190,800 $45,792 $0 $222,188 31,720 $2,677
Executive Vice 1999 $164,167 $74,563 $0 $90,000 50,000 $2,729
President and Chief 1998 $20,000 $5,000 $0 $0 50,000 $48
Financial Officer (6)
Mark Gercenstein 2000 $208,143 $50,000 $31,786 $390,000 150,000 $163,219
Chief Executive
Officer (7)
(1) Amounts listed as bonuses in each fiscal year were accrued but not paid
until the following year for each Named Officer. With the exception of
Mr. Gercenstein, thirty percent of the bonuses accrued for 2000 were paid
in shares of Common Stock which may not be transferred for a period of
two years. 1999 bonus amounts have been adjusted to conform to the 2000
presentation.
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(2) As permitted by rules established by the Commission, no amounts are shown
with respect to certain "perquisites" where such amounts do not exceed
the lesser of 10% of bonus plus salary or $50,000. Mr. Gercenstein's
other annual compensation was comprised of allowances for a car ($11,926)
and housing ($19,860).
(3) At December 31, 2000, each of the following Named Officers owned the
following number of RSVs with the following values: Mr. Goldberg, 20,000
units, $108,700; Mr. Lemmo, 17,500 units, $94,675; Mr. Tilden, 15,833
units, $85,657; Mr. Merritt, 15,000 units, $81,150; Mr. Fagan, 15,000
units, $81,150; Mr. Gercenstein, 5,000; $27,050. The grantees of the
RSVs have the right to receive dividend equivalents to the extent
dividends are paid on the Common Stock. Dividends have never been paid on
the Company's Common Stock nor does the Board have any current intention
to pay dividends.
(4) Amounts listed under "All Other Compensation" for 2000 represent the
dollar value of insurance premiums with respect to term life insurance
(Mr. Goldberg $719; Mr. Lemmo $313; Mr. Tilden $443; Mr. Merritt $278;
Mr. Fagan $278) and 401(k) matching (Mr. Goldberg $2,400; Mr. Lemmo
$2,625; Mr. Tilden $2,523; Mr. Merritt $2,253; Mr. Fagan $2,399; Mr.
Gercenstein $875); except that the amount listed for Mr. Gercenstein also
represents a salary continuation payment of $39,774, a vacation pay-out
of $22,270 and a $100,000 signing bonus.
(5) Mr. Goldberg served as Interim President of the Company from September
1999 until November 2000 when he was named Chief Executive Officer. He
became President in January 2001.
(6) Mr. Fagan joined the Company as Chief Financial Officer in November 1998.
(7) Mr. Gercenstein joined the Company as Chief Executive Officer in April
2000; he left the Company in November 2000. Upon his departure all 25,000
unvested RSUs granted to him terminated and 125,000 unvested stock
options terminated.
Each of the current Named Officers has entered into an employment
agreement with the Company (the "Employment Agreements") that provides severance
pay benefits, among other things, in certain events of termination of
employment. The Employment Agreements (except in the case of the Chief Executive
Officer) generally provide that the Company may enforce up to a one year
covenant not to compete by paying severance of up to one year's salary and one
year's continuation of medical and dental benefits during which time the
individual is subject to non-compete provisions. Such agreements also provide a
one-year covenant-not-to-compete without payment of severance following
termination by the Company for "cause", as defined in the Employment Agreements.
In addition, in the event of a termination within one year after a change of
control, which is defined as the acquisition, including by merger or
consolidation, or by the issuance by the Company of its securities, by one or
more persons in one transaction or a series of related transactions, of more
than fifty percent of the voting power represented by the outstanding stock of
the Company or a sale of substantially all the assets of the Company, the
12
employee would generally receive two years salary, all of his target bonus
(except in the case of the Chief Executive Officer) and the immediate vesting of
all stock options and restricted stock. The Agreements also provide that if any
amount payable to the officers is subject to a federal exise tax imposed on
"excess parachute payments", the officer shall be entitled to a cash payment
sufficient to indemnify him for such tax.
Under the terms of his Employment Agreement, Mr. Goldberg's service as
director of the company is conditioned upon his retention as Chief Executive
Officer. Mr. Goldberg's agreement also provides for a one-year
covenant-not-to-compete regardless of the reason for termination and independent
of any obligation the Company may have to pay severance.
In connection with his departure from the Company in November 2000, Mr.
Gercenstein executed a separation and confidentiality agreement. The agreement
provides, in part, for salary continuation ($350,000 per annum) for eighteen
months, a bonus payment which was paid in December 2000 and the continuation of
medical and dental benefits which ceased when he became eligible to participate
in a new employer's plan. Under the terms of Mr. Gercenstein's Employment
Agreement, Mr. Gercenstein is subject to a one-year covenant-not-to-compete
regardless of the reason for termination and independent of any obligation the
Company may have to pay severence.
The Employment Agreements (originally executed between October 1996 and
November 1998) provide for the payment of annual salaries to said Executive
Officers which may be increased from time to time. Current salaries paid
pursuant to the Employment Agreements are: Mr. Goldberg, $350,000; Mr. Lemmo, $
233,730; Mr. Merritt, $200,340; Mr. Fagan, $200,340; and Mr. Tilden, $211,470.
Stock Option Grants, Exercises and Holdings
The following tables set forth certain information concerning stock
options granted to and exercised by the Named Officers and each person serving
as Chief Executive Officer of the Company during fiscal 2000 and unexercised
stock options held by them at the end of fiscal 2000.
13
Individual Grants
------------------
Number of Percent of Potential Realizable
Securities Total Options Value at Assumed
Underlying Granted to Exercise or Annual Rates of Stock
Option Employees Base Price Expiration Price Appreciation
Name Granted In Fiscal Year ($/Sh) Date For Option Term (1)
---- ------- -------------- ------ ---------- ------------------------
5% 10%
-- ---
Howard E. Goldberg 30,000 1.26% $25.25 03/30/10 $ 476,223 $1,206,747
120,000 5.07% $ 8.81 11/20/10 $ 664,867 $1,684,905
8,000 0.34% $ 5.25 12/27/10 $ 26,414 $ 66,937
Mark A. Lemmo 20,000 0.84% $25.25 03/30/10 $ 317,482 $ 804,498
16,000 0.08% $ 5.19 12/26/10 $ 14,163 $ 35,891
2,000 0.17% $ 5.25 12/27/10 $ 6,805 $ 17,244
4,000 0.67% $ 5.63 12/28/10 $ 52,223 $ 132,344
2,000 0.08% $ 5.41 12/29/10 $ 6,603 $ 16,734
Charles R. Tilden 15,000 0.63% $25.25 03/30/10 $ 238,111 $ 603,373
20,000 0.84% $ 5.25 12/27/10 $ 66,034 $ 167,343
William J. Merritt 20,000 0.84% $25.25 03/30/10 $ 317,482 $ 804,498
8,000 0.34% $ 5.25 12/27/10 $ 26,414 $ 66,937
Richard J. Fagan 20,000 0.84% $25.25 03/30/10 $ 317,482 $ 804,498
7,720 0.03% $ 5.19 12/26/10 $ 25,198 $ 63,856
800 0.13% $ 5.25 12/27/10 $ 2,641 $ 6,694
3,200 0.33% $ 5.41 12/29/10 $ 10,887 $ 27,591
Mark Gercenstein 150,000 6.33% $13.00 (2) $1,225,920 $3,106,477
(1) Potential Realizable Value is reported net of the option exercise
price, but before taxes associated with the exercise. These amounts
represent certain assumed rates of appreciation only and are not
necessarily reflective of gains actually achievable. Actual gains, if
any, on stock option exercises are dependent upon the future
performance of the Company's Common Stock.
(2) All unvested options (125,000) terminated on the date Mr. Gercenstein
left the Company. On February 20, 2001, 3,846 of his incentive stock
options expired. On May 20, 2001, the remaining 21,154 non-qualified
stock options will expire.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Shares
Acquired on Value
Exercise Realized Number of Securities Value of Unexercised
----------- -------- Underlying Unexercised Options In-the-Money Options
Name (#) ($) At Fiscal Year-End (#) At Fiscal Year-End ($)(1)
---- --- --- ---------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Howard E. Goldberg 0 $0 313,000 115,000 $71,705 $0
Mark A. Lemmo 0 $0 205,000 10,000 $5,914 $0
Charles R. Tilden 33,000 $903,087 159,000 7,500 $3,200 $0
William J. Merritt 10,000 $286,575 130,499 47,501 $15,180 $8,687
Richard J. Fagan 0 $0 88,385 43,335 $1,826 $0
Mark Gercenstein 0 $0 25,000 0 $0 $0
(1) The values in this column are based on the closing sale price of the
Common Stock ($5.41) on December 29, 2000, the last trading day of the
Company's 2000 fiscal year.
14
Shareholder Return Performance Graph
The following graph compares for years 1996 through 2000 the yearly
change in the cumulative total return to holders of the Company's Common Stock
with the cumulative total return of the CRSP Index for Nasdaq Market U.S.
Companies, as compiled by the Center for Research in Security Prices, The
University of Chicago, Graduate School of Business, and the Nasdaq industry
group consisting of telecommunications companies.
REPORT
Comparison of Five-Year Cumulative Total Returns
Performance Report for
InterDigital Communications Corporation
Prepared by the Center for Research in Security Prices
Produced on 03/05/2001 including data to 12/29/2000
Company Index: CUSIP Ticker Class Sic Exchange
45866A10 IDCC 6794 NASDAQ
Fiscal Year-end is 12/31/2000
Market Index: Nasdaq Stock Market (US Companies)
Peer Index: Nasdaq Telecommunications Stocks
SIC 4800-4899 US & Foreign
Date Company Index Market Index Peer Index
12/29/1995 100.000 100.000 100.000
01/31/1996 124.576 100.501 102.442
02/29/1996 135.593 104.334 105.072
03/29/1996 118.644 104.683 105.161
04/30/1996 110.169 113.356 109.165
05/31/1996 128.814 118.554 111.798
06/28/1996 115.254 113.208 108.488
07/31/1996 93.220 103.132 94.538
08/30/1996 112.712 108.926 99.094
09/30/1996 105.085 117.256 102.117
10/31/1996 88.136 115.952 97.881
11/29/1996 98.305 123.140 99.476
12/31/1996 80.508 123.036 102.251
01/31/1997 91.525 131.766 104.730
02/28/1997 81.356 124.473 101.551
03/31/1997 72.881 116.356 94.803
04/30/1997 62.712 119.983 98.407
05/30/1997 89.830 133.572 110.497
06/30/1997 74.576 137.679 118.816
07/31/1997 76.271 152.184 126.127
08/29/1997 79.661 151.956 121.818
09/30/1997 72.881 160.961 137.603
10/31/1997 66.949 152.576 141.533
11/28/1997 58.475 153.381 142.768
12/31/1997 41.525 150.693 149.259
01/30/1998 40.678 155.465 159.199
02/27/1998 53.390 170.074 173.362
03/31/1998 77.966 176.360 189.982
10306
Copyright (C) 2001
15
REPORT
Comparison of Five-Year Cumulative Total Returns
Performance Report for
InterDigital Communications Corporation
Prepared by the Center for Research in Security Prices
Produced on 03/05/2001 including data to 12/29/2000
Date Company Index Market Index Peer Index
04/30/1998 93.220 179.341 187.354
05/29/1998 74.576 169.377 183.593
06/30/1998 72.881 181.227 200.949
07/31/1998 72.881 179.113 208.960
08/31/1998 44.915 143.609 157.303
09/30/1998 56.780 163.533 177.405
10/30/1998 67.797 170.717 194.385
11/30/1998 64.407 188.075 206.829
12/31/1998 61.864 212.509 247.024
01/29/1999 80.508 243.354 285.380
02/26/1999 66.102 221.562 282.537
03/31/1999 58.475 238.327 310.694
04/30/1999 61.864 246.004 330.590
05/28/1999 62.712 239.191 331.689
06/30/1999 61.017 260.712 329.562
07/30/1999 71.186 256.011 321.239
08/31/1999 82.203 266.837 303.247
09/30/1999 74.576 267.204 300.806
10/29/1999 75.424 288.620 356.232
11/30/1999 137.288 323.735 379.578
12/31/1999 1016.948 394.942 438.277
01/31/2000 393.220 380.325 436.944
02/29/2000 433.050 452.623 479.348
03/31/2000 338.983 443.301 465.892
04/28/2000 280.508 372.872 379.610
05/31/2000 217.796 327.892 317.483
06/30/2000 224.576 385.428 367.472
07/31/2000 244.068 364.554 327.478
08/31/2000 242.373 407.642 333.146
09/29/2000 189.830 354.697 294.329
10/31/2000 148.305 325.427 257.026
11/30/2000 81.780 250.886 187.273
12/29/2000 73.305 237.676 188.477
The index level for all series was set to 100.0 on 12/29/1995
10306
Copyright (C) 2001
16
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
InterDigital Communications Corporation
Produced on 03/05/2001 including data to 12/29/2000
[GRAPHIC OMITTED]
-----------------------------------------------------------------------------------------------------------------------------------
Legend
Symbol CRSP Total Returns Index for: 12/1995 12/1996 12/1997 12/1998 12/1999 12/2000
------ ----------------------------- ------- ------- ------- ------- ------- -------
_______ Box InterDigital Communications Corporation 100.0 80.5 41.5 61.9 1016.9 73.3
___ ___ Star Nasdaq Stock Market (US Companies) 100.0 123.0 150.7 212.5 394.9 237.7
------- Diamond Nasdaq Telecommunications Stocks 100.0 102.3 149.3 247.0 438.3 188.5
SIC 4800 - 4899 US & Foreign
Notes:
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/29/1995.
-----------------------------------------------------------------------------------------------------------------------------------
The above graph assumes that the value of the investment in
InterDigital Communications Corporation, the AMEX Index companies, the Published
Industry Group Index companies and the Nasdaq Telecom Index companies was $100
at the market close on December 31, 1995 (the last trading day in 1995), and
that all dividends paid by companies included in the AMEX Index and the
Published Industry Group Index were reinvested. During this period the Company
has not declared or paid any dividends on its Common Stock.
17
Security Ownership Of
Certain Beneficial Owners
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of January 15, 2001 by each person
known to the Company to be the beneficial owner of more than 5% of any class of
the Company's outstanding Common Stock. The following information is based
solely upon such shareholder's Schedule 13G, Amendment No. 6, dated January 15,
2001, as filed with the Commission.
Name and Address of Amount and Percent of
Beneficial Nature of Common Stock
Owner Ownership (1) Outstanding
------------------- ------------- -------------
Heartland Advisors, Inc. 2,749,250 5.1%
790 North Milwaukee Street
Milwaukee, WI 53202
William J. Nasgovitz
c/o Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202
(1) Heartland Advisors, Inc. has sole voting and dispositive power as to
1,039,050 shares and sole dispositive, but no voting power as to
1,710,200 shares. All of such shares are held in various investment
advisory accounts of Heartland Investors. No such account is known to
have such an interest relating to more than 5% of the class. The
2,749,250 shares may also be deemed beneficially owned by Mr. William
J. Nasgovitz, President and principal shareholder of Heartland
Advisors, Inc., as a result of his position with and stock ownership of
Heartland Advisors, Inc., which could be deemed to confer upon him
voting and/or investment power over such shares. Of the 2,749,250
shares, 1,556,800 shares may also be deemed beneficially owned by Mr.
Nasgovitz as a result of his position as an officer and director of
Heartland Group, Inc., which could be deemed to confer upon him voting
power over shares Heartland Group, Inc. beneficially owns.
Security Ownership of Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of April 6, 2001, by each of the
Company's directors, by each of the Named Officers, and by all executive
officers and directors of the Company as a group. Unless otherwise indicated,
the shareholders listed possess sole voting and investment power with respect to
the shares listed.
18
Amount and Percent of Common
Name of Nature of Stock Outstanding
Beneficial Owner Ownership(1)(2) (if greater than 1%)(3)
---------------- -----------------------------------------------------
D. Ridgely Bolgiano.................. 384,201 -
Harry G. Campagna.................... 845,725 (4) 1.5%
Joseph S. Colson, Jr................. 155,523 -
Steven T. Clontz..................... 125,448 -
Richard J. Fagan .................... 113,995 -
Mark Gercenstein..................... 29,154 -
Howard E. Goldberg................... 345,522 (4) -
Mark A. Lemmo......................... 233,385 -
William J. Merritt................... 155,424 -
Robert S. Roath...................... 216,306 -
Charles R. Tilden.................... 185,263 -
All directors and officers
as a group (13 persons)............... 3,063,943(4) 5.3%
---------------------
(1) Includes the following number of shares of Common Stock which may be
acquired by the persons and group identified in the table (or members of
the immediate family or other persons or entities affiliated with such
persons or members of such group), through the exercise of options or
warrants which were exercisable as of April 6, 2001 or will become
exercisable within 60 days of such date: Mr. Bolgiano, 273,050; Mr.
Campagna, 770,725; Mr. Colson, 123,248; Mr. Clontz, 98,448; Mr. Fagan,
92,485; Mr. Gercenstein, 21,154; Mr. Goldberg, 313,000; Mr. Lemmo, 205,000;
Mr. Merritt, 130,499; Mr. Roath, 174,190; Mr. Tilden, 159,500; all
directors and executive officers as a group, 2,156,299.
(2) Does not include ownership of RSUs which constitute rights to receive
Common Stock under the Company's 1999 Restricted Stock Plan at a future
date. Such RSUs are forfeitable, do not have voting rights and are not
deemed to be outstanding shares. Ownership of RSUs by the named beneficial
owners at April 6, 2001 is as follows: Mr. Bolgiano, 9,583; Mr. Campagna,
180,000; Mr. Colson, 12,000; Mr. Clontz, 12,000; Mr. Fagan, 15,000; Mr.
Gercenstein, 0; Mr. Goldberg, 20,000; Mr. Lemmo, 17,500; Mr. Merritt,
15,000; Mr. Roath, 32,000; Mr. Tilden, 15,833.
(3) Based upon 55,520,892 shares of Common Stock issued and outstanding at
April 6, 2001.
(4) Investment and voting power with respect to certain of such securities may
be shared with members of the immediate family or other persons or entities
affiliated with the listed person or members of the listed group.
Compensation Committee Interlocks
and Insider Participation
During 2000 the following directors served on the Compensation and
Stock Option Committee of the Board: Mr. Campagna and Mr. Roath. None of the
aforementioned Committee members was an officer or employee of the Company or
any of its subsidiaries during 2000, or was formerly an officer of the Company
or any of its subsidiaries.
19
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(Proposal 2)
The Board of Directors, upon recommendation of the Audit Committee, has
appointed Arthur Andersen LLP as independent public accountants to examine the
financial statements of the Company for the year ending December 31, 2001.
Arthur Andersen LLP has served as the independent public accountants for the
Company since 1982.
Audit Fees; Financial Information Systems Design and Implementation Fees; All
Other Fees
Arthur Andersen LLP's aggregate fees for professional services rendered
to the Company in connection with its audit of our annual financial statements
for the year ending December 31, 2000 and reviews of quarterly financials
reported on Form 10-Q totaled: $115,000.
Arthur Andersen LLP's aggregate fees for professional services rendered
to the Company in connection with financial information systems design and
implementation during fiscal 2000 totaled approximately $855,000.
The Company also paid Arthur Andersen LLP approximately $45,000 for tax
advisory services through 2000.
Representatives of Arthur Andersen LLP will be present at the meeting
to make a statement if they desire to do so and to respond to appropriate
questions.
Although the submission of the appointment of Arthur Andersen LLP is
not required by law or the By-Laws of the Company, the Board is submitting it to
the shareholders to ascertain their views. If the shareholders do not ratify the
appointment, the Board will not be bound to seek other independent public
accountants for 2001, but the selection of other independent public accountants
will be considered in future years. To be ratified, the appointment must be
approved by a majority of the votes cast by all holders of the Common Stock
present, in person or by proxy, and entitled to vote at the meeting.
The Board recommends a vote FOR Proposal 2 to ratify the appointment of
Arthur Andersen LLP.
Report of the Audit Committee
The Audit Committee's primary function is to oversee the Company's financial
reporting process on behalf of the Board of Directors. In fulfilling its
oversight responsibilities, the Audit Committee reviewed and discussed with
management the Company's audited financial statements for the year ended
December 31, 2000.
20
The Audit Committee has discussed with Arthur Andersen LLP, the Company's
independent public accountants, the matters required to be discussed by
Statement of Auditing Standards No. 61, Communication with Audit Committees,
which includes, among other items, matters related to the conduct of the Audit
of the Company's financial statements. The Committee has also received and
reviewed the written disclosures and the letter from Arthur Andersen LLP
required by the Independence Standards Board Standard No.1, Independent
Discussion with Audit Committees, which relates to the accountant's independence
from the Company and its related entities, and has discussed with Arthur
Andersen LLP their independence from the Company. The Committee also gave due
consideration as to whether the tax advisory services, services relating to an
ERP system implementation project and other consulting work performed by Arthur
Andersen LLP is compatible with maintaining the auditors' independence.
The Audit Committee acts pursuant to the Audit Committee Charter, a copy of
which is attached to this Proxy Statement as Appendix A. Each of the members of
the Audit Committee qualifies as an "independent" director within the meaning of
Rule 4200 of the Nasdaq Marketplace Rules.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors, and the Board approved, that the audited
financial statements be included in the Company's Annual Report of Form 10-K for
the year ended December 31, 2000 for filing with the Securities and Exchange
Commission. The Committee has also recommended to the Board of Directors the
engagement of Arthur Andersen LLP as the Company's independent auditors for
fiscal year 2001.
AUDIT COMMITTEE:
Robert S. Roath, Chairman
Joseph S. Colson, Jr.
Steven T. Clontz
SHAREHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy materials for the
2002 Annual Meeting of Shareholders, a proposal intended to be presented by a
shareholder for action at that meeting must, in addition to meeting the
shareholder eligibility requirements of the Securities and Exchange Commission's
rules governing such proposals, be received not later than December 27, 2001 by
the Secretary of the Company at the Company's principal executive offices, 781
Third Avenue, King of Prussia, PA 19406-1409. The execution of a proxy solicited
by the Company in connection with its 2002 Annual Meeting of Shareholders shall
confer on the designated proxy holders discretionary voting authority to vote on
any matter for which the Company has not received notice on or prior to March
20, 2002.
21
OTHER MATTERS
As of the date of this Proxy Statement, we do not know of any items,
other than those identified in the Notice of Annual Meeting of Shareholders,
which may properly come before the Meeting. However, if other matters should
properly come before the Meeting or any adjournment thereof, it is the intention
of the persons named in the proxy to vote the proxy in accordance with their
judgment in such matters.
THE COMPANY HAS PROVIDED TO EACH PERSON SOLICITED, A COPY OF ITS ANNUAL
REPORT ON FORM 10-K INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES, BUT EXCLUDING EXHIBITS, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000. REQUESTS FOR EXHIBITS,
FOR WHICH THE COMPANY WILL IMPOSE A CHARGE, SHOULD BE DIRECTED IN WRITING TO
WILLIAM J. MERRITT, SECRETARY, INTERDIGITAL COMMUNICATIONS CORPORATION, 781
THIRD AVENUE, KING OF PRUSSIA, PENNSYLVANIA 19406-1409. COPIES OF THE ANNUAL
REPORT MAY ALSO BE ACCESSED ELECTRONICALLY AT THE COMMISSION'S HOME PAGE ON THE
INTERNET AT WWW.SEC.GOV.
By Order of the Board of Directors
William J. Merritt, Secretary
King of Prussia, Pennsylvania
April 30, 2001
22
APPENDIX A
InterDigital Communications Corporation
Audit Committee Charter
Function
The primary function of the Audit Committee (Committee) is to assist the Board
of Directors (Board) in fulfilling its oversight responsibilities related to
corporate accounting, financial reporting practices and integrity of financial
reports as well as legal and regulatory compliance therewith. The Committee
shall provide support for management's efforts to enhance the quality of the
Company's internal control structure and help to facilitate effective
communication between the Board and the Company's independent public
accountants.
Organization
The Committee will be comprised of three or more directors of the Board. Each
member of the Committee shall be an independent director and meet the
independence requirements of any stock exchange on which the Company's shares
are traded as interpreted by the Board in its business judgment. Further, all
members of the Committee must have a working familiarity with basic finance and
accounting practices, and at least one member must also have accounting or
related financial expertise.
Meetings
o The Committee will meet at least quarterly each year, and at any additional
time as either the Board or Committee deems necessary. The Committee
chairman has the power to call a Committee meeting whenever he or she
thinks there is a need. A Committee member should not vote on any matter in
which he or she is not independent. In addition, the Committee has the
right to engage any outside party or consultant that it deems appropriate
to assist the Committee in the execution of its responsibilities. Meetings
will follow an agenda and approved minutes of the meeting shall be
maintained.
o The Company's independent public accountants will generally be requested to
attend Committee meetings. The Committee may request members of management
or others to attend meetings and to provide pertinent information as
necessary. The Committee shall provide management and the independent
public accountants with appropriate opportunities to meet privately with
the Committee.
Responsibilities
o General Responsibilities
>> The Committee provides open avenues of communication with management,
the independent public accountants and the Board.
>> The Committee must report Committee actions to the full Board and may
make appropriate recommendations.
23
o Responsibilities for Engaging Independent Public Accountants
>> The Committee will recommend to the Board the selection of the
independent public accountants for Company audits.
>> The Committee will discuss with the independent public accountants all
significant relationships and services the independent public
accountants have with the Company to determine the independent public
accountants' independence. The Committee will also require from the
independent public accountants an annual statement delineating all
relationships between the independent public accountants, related
companies and the Company.
>> The Committee will also review the performance of the independent public
accountants, and, if so determined by the Committee, recommend that the
Board replace the independent public accountants. The Committee, the
Board and the Shareholders, collectively, have the ultimate authority
and responsibility to select, evaluate and where appropriate, replace
the Company's independent public accountants.
>> The Committee will consult with the independent public accountants and
financial management of the Company to review the scope of the annual
external audit.
>> The Committee will review and approve the fees to be paid to the
independent public accountants.
>> The Committee will consider and determine the advisability of having the
independent public accountants make specified studies and reports as to
auditing matters, accounting procedures, tax, or other matters.
o Responsibilities for Reviewing the Annual Audit and the Review of Quarterly
and Annual Financial Statements
>> The Committee will ascertain that the independent public accountants
will be available to the full Board at least annually and will provide
the Committee with a timely analysis of significant financial reporting
issues.
>> The Committee will ask management and the independent public accountants
about significant risks and exposures and will assess management's steps
to minimize them.
>> The Committee will review the following with the independent public
accountants and financial management, if applicable:
- The adequacy of the Company's internal accounting controls and
financial reporting process.
- Any significant findings and recommendations made by the Company's
independent public accountants, together with management's responses
to them.
>> Shortly after the annual examination is completed, the Committee will
review the following with management and the independent public
accountants:
- The Company's annual financial statements and related footnotes.
- The impact of pronouncements by the Financial Accounting Standards
Board, releases of the Securities and Exchange Commission, and any
other pertinent regulations that might have an effect on the Company's
audited financial statements.
- The independent public accountants' audit of and report on the
financial statements.
- Any matters the independent public accountants determine that are
required to be discussed with the Committee pursuant to Statement of
Auditing Standards No. 61.
- Any serious difficulties or disputes with management encountered
during the course of the audit.
- The Company's Annual Report on Form 10-K.
24
- The management recommendation letter on accounting procedures and
controls prepared by the Company's independent public accountants and
any other reports and management's responses concerning such reports.
- Anything else about the audit procedures or findings that Generally
Accepted Auditing Standards requires the independent public
accountants to discuss with the Committee.
>> The Committee will consider and review with management:
- Any significant findings related to financial reporting, internal
controls or other corporate matters of importance to the Committee
during the year and management's responses to them.
- Any difficulties encountered by the independent public accountants
while conducting audits, including any restrictions on the scope of
their work or access to required information.
>> With respect to quarterly results, the Committee will meet quarterly
with the independent public accountants and management to discuss if
significant events, transactions and changes in accounting estimates
were considered by the independent public accountants (after performing
their required quarterly review) to have affected the quality of the
Company's financial reporting. This meeting will take place prior to
filing Form 10-Q with the Securities and Exchange Commission and
preferably before the quarterly earnings release.
o Certification and Disclosure Responsibilities
>> The Committee will insure that the Company has complied with
requirements of any market on which its securities are traded with
respect to certifications required of its Audit Committee.
>> The Committee will insure that the Company has complied with required
Securities and Exchange Commission proxy disclosures regarding:
- Committee member independence, an indication of whether the Committee
is governed by a written charter, and if so, include a copy of the
charter at least once every three years.
- Annual inclusion in the proxy of a report of the Committee's findings
that resulted from its financial reporting oversight responsibilities.
o Periodic Responsibilities
>> Review and update the Committee's charter as circumstances may warrant.
>> Review with appropriate management and outside resources, if necessary,
legal and regulatory matters that may have a material effect on the
organization's financial statements, compliance policies and programs
and reports from regulators.
>> Meet with the independent public accountants and management in private
separate sessions to discuss any matters the Committee or these groups
believe should be discussed privately.
>> Review any other matters that may be appropriate such as corporate
insurance coverage.
o Scope of Responsibilities
While the Committee has the responsibilities and powers set forth in this
charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and
accurate and in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent public
accountants. Additionally, it is not the duty of the Committee to assure
compliance with laws and regulations affecting the Company or to conduct
investigations to resolve disagreements, if any, between management and the
independent public accountants. The Committee shall also undertake such
additional activities within the scope of its primary function as the
Committee from time to time determines.
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