def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
eResearchTechnology, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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TABLE OF CONTENTS
eResearchTechnology,
Inc.
30 South 17th Street
Philadelphia, PA 19103
March 26, 2007
Dear eResearchTechnology, Inc. Stockholder:
You are cordially invited to the Annual Meeting of Stockholders
to be held at 2:00 P.M. on April 26, 2007 at the
Companys 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,
JOEL MORGANROTH, MD
Chairman of the Board of Directors
eResearchTechnology, Inc.
eResearchTechnology,
Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 26, 2007
To the Stockholders:
The Annual Meeting of Stockholders of eResearchTechnology, Inc.
(the Company) will be held at the Companys
executive offices located at 30 South 17th Street,
Philadelphia, PA 19103, at 2:00 P.M. on April 26, 2007
for the following purposes:
1. To elect three directors to serve three-year terms.
2. To approve and adopt the Companys Amended and
Restated 2003 Equity Incentive Plan.
3. To ratify the selection by the Audit Committee of the
Board of Directors of the firm of KPMG LLP as independent
registered public accountants for 2007.
4. 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
February 27, 2007 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,
RICHARD A. BARON
Executive Vice President, Chief Financial Officer and Secretary
Philadelphia, PA
March 26, 2007
eResearchTechnology,
Inc.
30 South 17th Street
Philadelphia, PA 19103
These proxy materials are furnished in connection with
solicitation of proxies by the Board of Directors (the
Board of Directors or the Board) of
eResearchTechnology, Inc., a Delaware corporation
(eRT or the Company), for the Annual
Meeting of Stockholders of eRT to be held at 2:00 P.M. on
April 26, 2007 at the Companys executive offices
located at 30 South 17th Street, Philadelphia, PA 19103,
and any adjournments or postponements of such meeting. These
proxy materials are being mailed to stockholders on or about
March 26, 2007. Sending a signed proxy will not affect the
stockholders right to attend the Annual Meeting and vote
in person. Every stockholder has the power to revoke such
stockholders 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 on February 27, 2007 was the record
date for stockholders entitled to notice of and to vote at the
Annual Meeting. As of the record date, there were 50,229,832
outstanding shares of the common stock, $.01 par value (the
Common Stock), of eRT.
Voting;
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 and
adoption of the Companys Amended and Restated 2003 Equity
Incentive Plan and for ratification of KPMG LLP as independent
registered public accountants for the year ending
December 31, 2007, 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 this proxy solicitation will be borne by eRT.
The Company may make arrangements with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and
proxy materials to the beneficial owners of stock, and it may
reimburse expenses for doing so. Directors, officers or regular
employees of eRT may solicit proxies in person or by telephone,
but will not receive additional compensation therefor.
ELECTION
OF DIRECTORS
(Proposal No. 1)
The Board of Directors currently consists of nine directors
divided into three classes. Three directors are to be elected at
the Annual Meeting to serve until the 2010 Annual Meeting. The
nominees for election as directors are Sheldon M. Bonovitz,
Gerald A. Faich, MD, MPH and Elam M. Hitchner, all of whom
currently serve on the Board. The Companys remaining six
directors will continue in office for the terms specified below.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE ELECTION OF MR. BONOVITZ, DR. FAICH AND
MR. HITCHNER.
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 six directors of the Company whose terms of office will
continue after the Annual Meeting, and the year in which each
directors term of office will expire (assuming, in the
case of each of the nominees, such nominees are elected at the
Annual Meeting).
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Year of
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Age as of
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Expiration of
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Name
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3/1/07
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Term as Director
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Nominees for Election
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Sheldon M. Bonovitz
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69
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2010
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Gerald A. Faich, MD, MPH
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64
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2010
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Elam M. Hitchner
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60
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2010
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Directors Continuing in
Office
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David D. Gathman
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59
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2009
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Michael J. McKelvey, Ph.D
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54
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2009
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Joel Morganroth, MD
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61
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2008
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John H. Park
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39
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2008
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Stephen S. Phillips
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2008
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Stephen M. Scheppmann
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51
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2009
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Mr. Bonovitz has been nominated by the
Companys Board of Directors, with the recommendation of
the Governance and Nominating Committee, to serve as a member of
the Board for a three-year term beginning in April 2007.
Mr. Bonovitz has served on our Board of Directors since
1999. Mr. Bonovitz has been the Chairman and Chief
Executive Officer of Duane Morris LLP for more than five years.
Mr. Bonovitz is also a director of Comcast Corporation. In
addition, he serves on the advisory boards of several
privately-held companies and he serves on the Board of Trustees
of The Curtis Institute of Music, The Philadelphia Museum of Art
and The Barnes Foundation. He also serves on the Boards of The
Free Library of Philadelphia Foundation and The Philadelphia
Orchestra.
Dr. Faich has been nominated by the Companys
Board of Directors, with the recommendation of the Governance
and Nominating Committee, to serve as a member of the Board for
a three-year term beginning in April 2007. Dr. Faich has
served on our Board of Directors since 2004. Dr. Faich has
served as Senior Vice President of UBC Epidemiology and Risk
Management since June 2005. Dr. Faich served as the
President of Pharmaceutical Safety Assessments, a consulting
firm, from 1994 until June 2005. Dr. Faich co-chaired the
original CIOMS International Adverse Reaction Working Group and
was a founding board member of the International Society of
Pharmacoepidemiology. Dr. Faich is a Fellow of the American
Colleges of Physicians, Preventive Medicine and Epidemiology and
has authored over 90 scientific papers and received numerous
awards. He is currently an Adjunct Scholar for the Center for
Clinical Epidemiology at the University of Pennsylvania.
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Mr. Hitchner has been nominated by the
Companys Board of Directors, with the recommendation of
the Governance and Nominating Committee, to serve as a member of
the Board for a three-year term beginning in April 2007.
Mr. Hitchner has served on our Board of Directors since
2004. Mr. Hitchner was a partner in the law firm of Pepper
Hamilton LLP from May 1992 to June 1999, and returned to the
firm in January 2001 as a partner and, subsequently, counsel
through 2004. Commencing in 2005, Mr. Hitchner began
providing consulting services to the firm. Mr. Hitchner is
also a director of Mothers Work, Inc., for which he has served
on the Audit Committee since 1993 and as chairman of that
committee since 2000.
Mr. Gathman has served on our Board of Directors
since 2003. Mr. Gathman has been a business consultant
since January 2007. From May 2004 to January 2007,
Mr. Gathman served as Senior Vice President and Chief
Financial Officer for SunGard Higher Education, Inc.
Mr. Gathman provided consulting services for Targeted
Diagnostics & Therapeutics, Inc. from December 2003
until May 2004 and served as its Vice President and Chief
Financial Officer from May 2002 until December 2003. 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. Mr. Gathman is also a
director of Neoware, Inc., for which he has served on the Audit
Committee since 2003 and as chairman of that committee since
2004.
Dr. McKelvey has served as our President and Chief
Executive Officer (CEO) since June 2006 and has
served on our Board of Directors since July 2006. Prior to
joining us, Dr. McKelvey was employed by PAREXEL
International, one of the largest biopharmaceutical outsourcing
organizations in the world, for five years where he served as
Corporate Senior Vice President, Clinical Research Services.
Dr. Morganroth has served as the Chairman of our
Board of Directors since 1999 and a member of our Board of
Directors since 1997. He has served as our Chief Scientific
Officer since April 2006. Prior to that, he served as our Chief
Scientist from March 2001 to December 2005 and our CEO from 1993
to March 2001. In addition, Dr. Morganroth has consulted
for us since 1977. 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
U.S. Food and Drug Administration.
Mr. Park has served on our Board of Directors since
April 2005. Mr. Park has been a Partner of Blum Capital
Partners, L.P. since May 2004. Prior to joining Blum Capital
Partners, L.P., Mr. Park spent 11 years with Columbia
Wanger Asset Management, L.P. where he was a Partner and the
Portfolio Manager of the Columbia Acorn Select Fund and a
Co-Portfolio Manager of the Columbia Acorn Fund.
Mr. Phillips has served on our Board of Directors
since August 2002. Mr. Phillips has served as Special
Counsel to Medtronic, Inc. since 1999. 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 its
acquisition in 1999 by Medtronic. Mr. Phillips serves on
the advisory boards of several privately-held companies.
Mr. Scheppmann has served on our Board of Directors
since January 2006. Since May 2006, Mr. Scheppmann has
served as Chief Financial Officer for Per-Se Technologies, Inc.,
a healthcare business services and information technology
company and a wholly-owned subsidiary of McKesson Corporation.
From May 2000 to May 2006, Mr. Scheppmann served as
Executive Vice President and Chief Financial Officer for NOVA
Information Systems, Inc., a leading payments processing
company. Mr. Scheppmann is a certified public accountant.
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 twelve
meetings during 2006, including the opportunity at the four
regularly scheduled quarterly meetings to meet in executive
session. Each director attended more than 75% of the meetings of
the Board of Directors and of any committee of which he was a
member. The Board has not adopted a formal policy regarding
Board member attendance at our Annual Meeting of Stockholders,
but the Board highly encourages all Board members to attend such
meetings. In April 2006, all members of the Board standing for
reelection or continuing in office were present at the Annual
Meeting of Stockholders with the exception of Dr. Faich.
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The Board of Directors has a Compensation Committee, an Audit
Committee and a Governance and Nominating Committee.
Compensation
Committee
The Compensation Committee is currently composed of four members
of the Companys Board of Directors, all of whom, in the
judgment of the Board, (i) are independent in accordance
with Rule 4200(a)(15) of the listing standards of The
Nasdaq Stock Market, Inc. (Nasdaq); (ii) are
Non-employee Directors for purposes of
Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the
Exchange Act); and (iii) satisfy the
requirements of an outside director for purposes of
Section 162(m) of the Internal Revenue Code. The
Compensation Committee is primarily responsible for determining
the compensation payable to the executive officers of the
Company and for recommending to the Board of Directors
compensation of directors and additions, deletions and
alterations with respect to the various employee benefit plans
and other fringe benefits provided by the Company. The
Compensation Committee also is primarily responsible for
administering the Companys equity compensation plans,
awarding equity compensation to employees of the Company and
determining the terms and conditions on which the equity
compensation is granted. See Executive
Compensation Compensation Discussion and
Analysis for further information. The Compensation
Committee has the responsibility and authority described in its
written charter, which has been adopted and approved by the
Board of Directors and made available on the Companys
website at www.ert.com. The Compensation Committee, which
currently consists of Dr. Faich, Mr. Hitchner,
Mr. Park and Mr. Phillips, held six meetings during
2006. Mr. Hitchner serves as chairman of the Compensation
Committee.
Audit
Committee
The Audit Committee, which was established in accordance with
Section 3(a)(58)(A) of the Exchange Act, is currently
composed of three members of the Companys Board of
Directors, all of whom, in the judgment of the Board, are
independent in accordance with Rule 4200(a)(15) of the
Nasdaq listing standards and satisfy the criteria in
Rule 4350(d)(2) of the Nasdaq listing standards. The Audit
Committee is primarily responsible for engaging and approving
the services performed by the Companys independent
registered public accountants and reviewing and evaluating the
Companys accounting principles and reporting practices and
its system of internal accounting controls. The Audit Committee
has the responsibility and authority described in its written
charter, which has been adopted and approved by the Board of
Directors and made available on the Companys website at
www.ert.com. The Audit Committee, which currently
consists of Mr. Gathman, Mr. Hitchner and
Mr. Scheppmann, held eleven meetings during 2006.
Mr. Gathman was the chairman of the Audit Committee from
December 2003 to July 2006. He was replaced as chairman of the
Audit Committee by Mr. Scheppmann who currently serves as
chairman of the Audit Committee. The Board has determined that
Mr. Gathman and Mr. Scheppmann are audit
committee financial experts as defined in Item 402 of
Regulation S-K.
Governance
and Nominating Committee
The Governance and Nominating Committee is currently composed of
four members of the Companys Board of Directors, all of
whom, in the judgment of the Board, are independent in
accordance with Rule 4200(a)(15) of the Nasdaq listing
standards. The Governance and Nominating Committee is primarily
responsible for recommending to the Board governance policies
for the Company, the appropriate size, function and needs of the
Board to perform that governance, and qualified candidates for
the Companys Board. The Governance and Nominating
Committee has the responsibility and authority described in its
written charter, which has been adopted and approved by the
Board and made available on the Companys website at
www.ert.com. The Governance and Nominating Committee,
which currently consists of Mr. Bonovitz,
Mr. Hitchner, Mr. Park and Mr. Phillips, held
three meetings during 2006. Mr. Phillips serves as chairman
of the Governance and Nominating Committee.
Director
Nominations
In accordance with the policy of the Governance and Nominating
Committee, a stockholder desiring to propose a candidate for the
Board of Directors to the Governance and Nominating Committee
should submit a written recommendation, together with
biographical information concerning the individual, to the
Chairman of the
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Governance and Nominating Committee at eResearchTechnology,
Inc., 30 South 17th Street, Philadelphia, PA 19103. While
recommendations 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 Companys next
Annual Meeting of Stockholders. Once the Governance and
Nominating Committee has identified a prospective nominee,
including candidates proposed by stockholders, it makes an
initial determination as to whether to conduct a full evaluation
of the candidate. This initial determination is based on
whatever information is provided to the Governance and
Nominating Committee with the recommendation of the prospective
candidate, as well as the Governance and Nominating
Committees own knowledge of the prospective candidate,
which may be supplemented by inquiries to the person making the
recommendation or others. The preliminary determination is based
primarily on the need for additional Board members to fill
vacancies or expand the size of the Board and the likelihood
that the prospective nominee can satisfy the evaluation factors
described below. If the Governance and Nominating Committee
determines, in consultation with the Chairman of the Board and
other Board members as appropriate, that additional
consideration is warranted, it will then evaluate the
prospective nominee against the standards and qualifications it
has established, including:
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Except as noted below, the director candidate must be
independent in accordance with Rule 4200(a)(15) of the
Nasdaq listing standards.
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The Board of Directors will consider appointing a limited number
of individuals who are not independent to serve as directors.
The Company currently has, and historically has had, directors
who are or were not independent in accordance with
Rule 4200(a)(15) of the Nasdaq listing standards. The
consideration of these individuals will include consideration of
the items listed below while also maintaining an appropriate
level of management service on the Board of Directors.
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Must have business experience that includes leading or occupying
a senior position in the operations of a significant business or
occupying a senior executive or advisory position in business
strategy, investing or mergers and acquisitions of a significant
business. While not required, experience in health care,
particularly pharmaceuticals, biotechnology or medical devices,
is preferred.
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Must have prior board experience. While public company board
experience is not required, it is highly preferred.
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Must have an excellent business and personal reputation for
accomplishment and integrity. Personal characteristics that
include a deliberative style and being a good listener,
articulate, direct, succinct and able to accept/respect other
Board members opinions are preferred.
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Must have personal and business references from people upon
whose recommendations the Governance and Nominating Committee
can rely.
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Must be able to commit adequate time to the Board of Directors
and its committees to attend at least 75% of Board and committee
meetings in person and to be a significant contributor to each.
At a minimum, this means, on average, not less than one full day
every month for ordinary matters, a full day for regularly
scheduled quarterly meetings and occasional unscheduled hours of
accessibility. Living or working within 90 minutes of
Philadelphia is not required but is highly preferred.
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The Board of Directors will also consider, in its choice of
candidates, the need for specific expertise needed for service
with its various committees such as the Governance and
Nominating, Compensation and Audit Committees. Such expertise
would include experience serving on such committees on other
Boards of Directors or specific experience with the substantive
responsibilities of those committees.
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The Governance and Nominating Committee also considers such
other relevant factors as it deems appropriate, including the
current composition of the Boards committees, expertise,
diversity and the evaluations of other prospective nominees.
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In connection with the evaluation of prospective nominees, the
Governance and Nominating Committee determines whether to
interview the prospective nominee. If warranted, one or more
members of the Governance and Nominating Committee, and others
as appropriate, interview prospective nominees in person or by
telephone. After completing this evaluation and interview, the
Governance and Nominating Committee makes a
5
recommendation to the full Board as to the persons who should be
nominated by the Board, and the Board determines the nominees
after considering the recommendation and report of the
Governance and Nominating Committee. The Company does not
currently employ an executive search firm, or pay a fee to any
other third party, to locate qualified candidates for director
positions.
Director
Independence
The Board recognizes the importance of director independence.
The Company is subject to the listing standards of Nasdaq, which
require that a majority of our directors be independent. Under
the Nasdaq listing standards, a director is independent if he is
not an executive officer or employee of the Company and does not
have any relationship that, in the opinion of our Board of
Directors, would interfere with his exercise of independent
judgment in carrying out his responsibilities as a director. The
listing standards also identify a variety of relationships that,
if they exist, prevent a director from being considered
independent.
The Board has determined that seven of the Companys nine
directors are independent under these standards. The independent
directors are as follows: Sheldon M. Bonovitz, Gerald A. Faich,
David D. Gathman, Elam M. Hitchner, John H. Park, Stephen S.
Phillips and Stephen M. Scheppmann. The other two directors are
Michael J. McKelvey, Ph.D, the Companys current President
and CEO, and Joel Morganroth, MD, the Companys Chief
Scientific Officer who currently serves as Chairman of the
Board. In making the determination of independence, the Company
considered Mr. Bonovitzs status as Chairman and Chief
Executive Officer of the law firm of Duane Morris LLP, which
performs legal services for the Company, but concluded that this
relationship did not interfere with his exercise of independent
judgment. The Board had also determined that John M. Ryan, who
served as a director until April 25, 2006, was independent
under these standards.
In addition, each of the directors serving on the Audit,
Compensation and Governance and Nominating Committees is one of
the independent directors noted above.
On an annual basis, each director and executive officer is
obligated to complete a director and officer questionnaire which
requires disclosure of any transactions with the Company in
which the director or executive officer, or any member of his or
her immediate family, has a direct or indirect material
interest. Directors have an affirmative obligation to notify the
Board of any material changes in their relationships, which may
affect their independence status as determined by the Board. The
obligation encompasses all relationships between directors and
the Company or members of senior management and their affiliates.
Stockholder
Communications with Board of Directors
Stockholders who wish to communicate with the Board of Directors
or with a particular director may send a letter to the Secretary
of the Company at eResearchTechnology, Inc., 30 South
17th Street, Eighth Floor, Philadelphia, PA 19103 or
post a question via www.ethicspoint.com. Any
communication should clearly specify that it is intended to be
made to the entire Board of Directors or to one or more
particular director(s). The Secretary of the Company reviews all
such correspondence and will forward to the Board of Directors a
summary of all such correspondence and copies of all
correspondence that, in the opinion of the Secretary, deals with
the functions of the Board of Directors or committees thereof or
that he otherwise determines requires their attention. If there
is a question regarding an item of correspondence and the
distribution of the communication to a member of the Board, the
Secretary will consult with the Chairman of Board or the
chairman of the applicable committee to establish the
appropriate distribution. Directors may at any time review a log
of all correspondence received by the Company that is addressed
to members of the Board of Directors and request copies of any
such correspondence. Concerns relating to accounting, internal
accounting controls or auditing matters are immediately brought
to the attention of the chairman of the Audit Committee and
handled in accordance with procedures established by the Audit
Committee with respect to such matters. A copy of the Audit
Committees procedures for the submission and handling of
complaints or concerns regarding accounting, internal accounting
controls or auditing matters is available within the
Companys Code of Ethics and Business Conduct on the
Companys website at www.ert.com.
6
Audit
Committee Report on Audited Consolidated Financial
Statements
The Audit Committee of the Board of Directors assists the Board
with the oversight of the Companys system of internal
control, integrity of financial reporting, adequacy of
disclosures and compliance with legal and regulatory
requirements. The Audit Committee is directly responsible for
the engagement, compensation, oversight and evaluation of the
Companys independent registered public accountants and,
once retained, consults with and reviews recommendations made by
the independent registered public accountants with respect to
the consolidated financial statements, financial records and
financial controls of the Company.
Accordingly, the Audit Committee has (i) reviewed and
discussed the audited consolidated financial statements with
management and the Companys independent registered public
accountants; (ii) discussed with the Companys
independent registered public accountants the matters required
to be discussed by Statement on Auditing Standards No. 61
(Communications with Audit Committees); (iii) received the
written disclosures and the letter from the Companys
independent registered public accountants required by
Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees); and (iv) discussed with
the Companys independent registered public 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
Companys independent registered public accountants the
overall scope and plans for its audit. The Audit Committee met
both separately and jointly with management and the
Companys independent registered public accountants to
discuss the results of the accountants examination, their
evaluation of the Companys internal control over financial
reporting and the overall quality of the Companys
financial reporting.
Based 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
consolidated financial statements be included in the
Companys annual report on
Form 10-K
for the year ended December 31, 2006.
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 (the Securities
Act), or the Exchange Act, except to the extent that eRT
specifically incorporates this report by reference therein.
Members of the Audit Committee
Stephen M. Scheppmann (Chair)
David D. Gathman
Elam M. Hitchner
Compensation
of Directors
A director who is neither (a) an employee of the Company,
(b) the beneficial owner of 10% or more of the outstanding
Common Stock of the Company (a Significant Holder)
nor (c) a stockholder, member or partner of any entity
which itself is a Significant Holder, receives a fee of $1,500
for each Board meeting attended, $1,000 for each Audit Committee
meeting attended and $500 for each Compensation Committee and
Governance and Nominating Committee meeting attended. In
addition, each such director receives an annual retainer of
$7,500, the Chairman of the Audit Committee receives an
additional annual retainer of $4,000 and the Chairman of the
Governance and Nominating Committee and the Compensation
Committee each receives an additional annual retainer of $1,500.
The Board of Directors establishes fees payable for service on
any other committees that may be established from time to time
at the time such committees are established. During 2006, a
special committee was established by the Board of Directors and
operated for part of the year. For the special committee, the
Chairman of such committee received a one-time retainer fee of
$25,000 and $750 per meeting attended and each member
received $500 for each meeting attended.
Upon the initial election of any outside director
(as defined), such individual receives at the time of election
an automatic one-time option grant of 10,000 shares of
Common Stock, and each outside director receives a fixed annual
option grant of 10,000 shares of Common Stock. See
Proposal to Approve and Adopt Amended and Restated 2003
Equity Incentive Plan Awards Under the
Plan Options Grants to Outside
Directors. Each
7
director is also reimbursed for
out-of-pocket
expenses incurred in connection with attending meetings and
providing other services as a director.
The table below summarizes the compensation paid by the Company
to non-employee directors for the fiscal year ended
December 31, 2006.
Director
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Option
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Awards
|
|
|
Total
|
|
Name(1)
|
|
($)
|
|
|
($)(2)
|
|
|
($)
|
|
|
Sheldon M. Bonovitz
|
|
$
|
25,000
|
|
|
$
|
66,284
|
|
|
$
|
91,284
|
|
Gerald A. Faich, MD,
MPH
|
|
$
|
24,500
|
|
|
$
|
66,284
|
|
|
$
|
90,784
|
|
David D. Gathman
|
|
$
|
32,500
|
|
|
$
|
66,284
|
|
|
$
|
98,784
|
|
Elam M. Hitchner
|
|
$
|
78,250
|
|
|
$
|
66,284
|
|
|
$
|
144,534
|
|
John H. Park(3)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Stephen S. Phillips
|
|
$
|
39,000
|
|
|
$
|
66,284
|
|
|
$
|
105,284
|
|
John M. Ryan(4)
|
|
$
|
6,000
|
|
|
$
|
0
|
|
|
$
|
6,000
|
|
Stephen M. Scheppman
|
|
$
|
42,514
|
|
|
$
|
81,815
|
|
|
$
|
124,329
|
|
|
|
|
(1) |
|
Michael J. McKelvey, Ph.D, President and CEO, and Joel
Morganroth, MD, the Companys Chairman of the Board and
Chief Scientific Officer are not included in this table as they
are employees of the Company and thus receive no compensation
for their service as directors. The compensation received by
Drs. McKelvey and Morganroth as employees of the Company is
shown in the Summary Compensation Table on page 15. |
|
(2) |
|
Reflects the dollar amount recognized for financial statement
reporting purposes, exclusive of the effect of estimated
forfeitures, for the fiscal year ended December 31, 2006 in
accordance with Statement of Financial Accounting Standards No.
123R, Share-Based Payment (SFAS No.
123R), and thus includes amounts from awards granted in
2006, and where applicable, prior to 2006. Note 1 to the
Companys consolidated financial statements included in the
2006 Annual Report on
Form 10-K
contains more information about the Companys accounting
for stock-based compensation arrangements, including the
assumptions made in valuing such option awards. As of
December 31, 2006, each individual listed in the table had
the following number of options outstanding: Sheldon M.
Bonovitz 55,000; Gerald A. Faich, MD,
MPH 25,000; David D. Gathman 80,000;
Elam M. Hitchner 35,000; Stephen S.
Phillips 80,000; John M. Ryan 0; and
Stephen M. Scheppman 10,000. |
|
(3) |
|
John H. Park is a partner of Blum Capital Partners, L.P. and is
therefore not considered an outside director (as
defined) and thus is not eligible for compensation paid to
outside directors. |
|
(4) |
|
John M. Ryan did not stand for reelection to the Board of
Directors at the 2006 annual meeting and his term expired on
April 25, 2006. |
Certain
Relationships and Related Party Transactions
Certain of the Companys diagnostic testing and clinical
research contracts require that specified medical professional
services be provided by Joel Morganroth, MD, the Companys
Chairman. The Company has retained Joel Morganroth,
MD, 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 Companys Cardiac Safety division. This professional
corporation received fees for these services of $282,000 for
2006, which included no bonus award. The consulting agreement
continues on a year to year basis unless terminated. See
Executive Compensation Compensation Discussion
and Analysis Compensation of Individual Named
Executive Officers below for more information about
Dr. Morganroths consulting agreement.
Sheldon M. Bonovitz, a director of eRT, is the Chairman and
Chief Executive Officer of the law firm of Duane Morris LLP,
which performs legal services for the Company.
8
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the
Companys 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 Nasdaq. 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.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The following discussion and analysis focuses on the 2006
compensation of our principal executive and financial officers,
including both our current principal executive and financial
officers and those who served in those capacities until their
retirement during 2006, together with our three other most
highly compensated executive officers. Throughout this proxy
statement, we refer to these seven individuals as our named
executive officers. This discussion and analysis should be read
together with the compensation tables and related disclosures
set forth below. This discussion contains forward-looking
statements that are based on our current plans, considerations,
expectations and determinations regarding future compensation
programs. Actual compensation programs that we adopt may differ
materially from currently planned programs as summarized in this
discussion.
Role
of Compensation Committee
The Compensation Committee of the Board of Directors sets the
compensation for our executive officers, which, as of
December 31, 2006, includes nine officers of the Company,
including the five named executive officers who continue to be
officers of the Company beyond 2006. Throughout this proxy
statement, we refer to these five individuals as our continuing
named executive officers. The Compensation Committee makes
recommendations to the Board of Directors concerning
compensation and benefit policies for the Company. In
establishing compensation levels and policy, it is the belief of
the Compensation Committee and the Board that the most effective
compensation program is one that provides executives competitive
base salaries and significant incentives to achieve both current
and long-term strategic business goals of the Company.
The Compensation Committee makes all compensation decisions for
the executive officers, including equity awards to our
newly-appointed named executive officers. Both the CEO and the
Compensation Committee have utilized outside compensation
consultants to assist in establishing base-lines for salary,
bonuses and non-cash compensation for the executive officers.
See Review of External Data for more
information about the role of compensation consultants in
developing the Companys compensation programs. The CEO
annually reviews the performance of each named executive officer
(other than the CEO and the Chairman and Chief Scientific
Officer, whose performance is reviewed by the Compensation
Committee). The CEO presents his conclusions and recommendations
based on these reviews, including his proposed salary
adjustments, incentive compensation and annual award amounts, to
the Compensation Committee. After the Compensation Committee
reviews the recommendations with the CEO, the Compensation
Committee exercises its discretion in accepting or modifying any
recommended adjustments or awards to executives.
The aforementioned process generally is performed annually in
the December through February time frame. The Compensation
Committee typically makes its final decisions with respect to
salary, bonus and non-cash compensation in February and presents
them for the Boards information at the February Board
meeting. Salary adjustments approved at the February meeting of
the Compensation Committee are generally made retroactive to
January first of the year of the meeting. Annual equity
compensation awards for all employees, including the named
executive officers, are also generally approved at the February
meeting of the Compensation Committee. Option grants approved at
the February meeting are given an effective date of two business
days after the Company releases its annual results of operations
for the prior fiscal year and financial guidance for the current
fiscal year. This is done to allow current financial information
to be absorbed by the market before the exercise price for those
options is established.
9
Compensation
Philosophy
Our compensation philosophy was developed to balance and align
the goals of executive management and our stockholders. The
program is intended to attract, motivate, reward and retain the
management talent required to achieve our corporate objectives
and increase stockholder value, while at the same time making
the most efficient use of stockholder resources. To this end,
the compensation philosophy puts a strong emphasis on pay for
performance, to correlate the long-term growth of stockholder
value with managements most significant compensation
opportunities.
The three primary components of compensation for our continuing
named executive officers are base salary, cash incentive bonus
plan and long-term incentive compensation. The relative
weighting of each of the three components is designed to
strongly reward long-term performance. Base pay for 2006
represented approximately 40% to 50% percent of total
compensation. The base pay is targeted at the
75th percentile of our peer group of public contract
research organizations and other companies. These companies have
been identified by our outside consultants and discussed with
the Compensation Committee. See Review of
External Data below for discussion of the use of the
outside consultants. If performance objectives are met, this
component would represent approximately 20% to 25% of total
compensation. The long-term equity component is approximately
25% to 40% of total annual compensation and represents an
opportunity to earn value in future years for our executives,
but only to the extent there is long-term growth in stockholder
value through stock appreciation.
The long-term component of compensation has historically been
provided in the form of stock options that vest ratably over
four years. The Compensation Committee has used stock options,
rather than other forms of long-term incentives, because they
create value for the executive only if stockholder value is
increased through an increased share price. We believe this
creates strong alignment between the interests of management and
stockholders. We also believe stock options help us attract and
retain talented executives. As part of the Companys
re-evaluation of the stock-based compensation program, the
Company has proposed an amendment and restatement of the
Companys 2003 Stock Option Plan. Subject to approval of
this amendment, future forms of stock-based compensation may
include options, restricted shares and other forms of
stock-based compensation as permitted by our plan. New executive
officers may receive a grant of long-term equity incentives as
part of their negotiated compensation package.
Our cash incentive bonus plan is designed to reward employees
for achieving financial and operating goals that are key to the
success of our business and aligned with the near and long-term
interests of our stockholders. Non-commissioned employees who
are employed through the time of payout are eligible to
participate in the bonus plan. The goal of our bonus plan is to
reward, retain and provide a clear focus on what is most
important to the near and long-term success of our Company. At
the beginning of each year, management suggests bonus targets
for each eligible employee as a percentage of base salary based
on their position. At the beginning of each fiscal year, the
Compensation Committee, working with management, sets revenue
and net income or operating income goals for our Company and
finalizes the bonus targets. In 2006, goals were set at
above-budgeted levels. Each individuals share of his
functional areas or corporate Bonus Pool will
be based upon the Companys performance for both revenue
and net income. In 2006, the bonus targets for our continuing
named executive officers ranged from 50% to 55% of base salary.
The exception to this bonus structure is for executives with
responsibilities which involve selling efforts. For such
individuals, a portion of their bonus is tied to the achievement
of predetermined sales metrics, including the value of new
contracts into which the Company enters with customers during
the applicable bonus period (bookings), mix of
bookings and new compounds. The Executive Vice President and
Chief Medical Officer and the Senior Vice President, Americas
Sales are the named executive officers with this element of
bonus included in their compensation plan.
During fiscal 2006, we did not meet our goals for revenue or for
net income. Therefore, no bonuses were paid for such areas.
Dr. Litwin and Mr. Tiger had a portion of their
compensation based upon sales and bookings targets and earned
approximately $22,201 and $59,691, respectively.
10
Review
of External Data
During 2006, the Compensation Committee used two sources of
external data to assist in the setting and the evaluation of
compensation for our executive officers. Due to the transition
of our CEO and Chief Financial Officer (CFO) during
the year, the Board of Directors and the Compensation Committee
engaged Heidrick and Struggles, Inc. (Heidrick), an
executive recruiting firm to assist in the hiring process. As
part of the engagement, Heidrick provided information that
permitted the Compensation Committee and the Board to provide
offers to the prospective CEO and CFO which were in line with
the philosophy described above for the base salary, incentive
and long-term compensation components.
Periodically, as part of the annual review of compensation, the
Company has, in the past, engaged third party compensation
consulting firms to establish guidelines for its executive
officers. The information provided during this process helped
establish guidelines for compensation within the performance
levels of the Company. In late 2005, the Company engaged Mercer
Human Resource Consulting LLC (Mercer) to provide an
executive compensation study for the Company. The Company set
its compensation levels for in-place executive officers at
levels consistent with the prior year, with an increase
commensurate with the performance of the individual executive
officer. In setting 2006 compensation, the Compensation
Committee received confirmation from Mercer based on its review
of the proposed compensation package that the compensation
package for the executive officers was within the range of the
peer group.
As part of the compensation program for 2007, the Compensation
Committee once again hired Mercer to review the Companys
executive officer compensation policies and the material terms
of the related employment agreements. As a result of this
consultation, the Compensation Committee and the Board of
Directors has recommended amendments to our 2003 Stock Option
Plan to permit the use of restricted shares and other forms of
stock-based compensation in the future. Additionally, the
Compensation Committee has established bonus incentive
compensation goals which include the results of sales, operating
income and management-based objectives as part of the evaluation
for bonus payouts.
Elements
of Compensation
In 2006, the basic components of named executive officer
compensation consisted of base salary, a cash incentive bonus
plan tied to measurements based on Company performance and
long-term incentives in the form of stock options. The named
executive officers also participated in employee benefit plans
available generally to the Companys employees. The named
executive officers also received a car allowance which varied by
individual position and ranged from $770 to $1,000 per
month.
Base Salary. We face competition for qualified
employees, and the Compensation Committee believes it is
important that executive officer compensation levels be
competitive with contract research organizations and other
comparable companies. The base salary is set based on
competitive benchmarks for the position and location. In 2006,
these benchmarks were based on the study that Mercer did for the
Company, as described above in Review of
External Data.
Incentive Compensation Program. In 2006, the
Company offered an incentive compensation program permitting our
executive officers to earn cash bonuses based on achieving
targeted financial goals. The purpose of this program was to
promote the interests of the Company and its stockholders by
providing our executive officers with financial rewards based
upon the achievement of specified business objectives, as well
as help the Company retain those continuing executive officers
by providing attractive compensation opportunities linked to
performance results. Each executive officer was eligible to
participate the program. The range of available bonuses was
determined by the Compensation Committee. Bonuses were payable
to eligible participants based on a variety of factors. The
objective criteria consist of targets for revenue, net income
and bookings.
A percentage of the bonus was based on the extent to which the
Company achieved specified revenue targets and a second
percentage is based upon the Companys achievement of
specified net income targets. For certain of the continuing
named executive officers, a third percentage was based upon the
extent to which the Company achieved specified bookings. The
range indicated above for each of the bonus elements varies by
executive as deemed to be appropriate given the executives
responsibilities within the organization. Bonuses are payable
based
11
on the extent to which targets are achieved. Bonuses are
normally payable within forty-five (45) days after the end
of the fiscal quarter or calendar year in which the bonuses are
earned.
The specified financial targets under the 2006 program were not
achieved. As a result, there was no incentive compensation
earned in 2006 for most executive officers. Certain of our
executive officers, including two named executive officers, with
direct responsibility for business development were compensated,
at least partially, based upon achieving individual targeted
contract bookings goals. The bonus pool in 2006 for named
executive officers under this component of the plan was $82,000,
with the named executive officers earning incentive compensation
ranging from 9% to 32% of base salary. The Compensation
Committee believes that these incentive compensation programs
aid in ensuring that the Companys overall levels of
compensation remain competitive with other companies of equal
size within the industry and benefit 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
Companys stockholders.
Other Bonuses and Compensation. During 2006,
we replaced our retiring CEO and CFO. We paid $1,295,699 in
severance related salary and bonus to our former CEO. This was
paid as part of a negotiated severance package which included
salary, bonus and continuation of benefits. The new CEO received
a $150,000 signing bonus as part of his compensation package.
This bonus was to compensate the new CEO for the loss of a bonus
opportunity at his prior company due to the start date of the
position at our Company. The former CFO announced his retirement
in the fourth quarter of 2005. In an effort to incent the former
CFO to stay with the Company through a transitional period, the
Compensation Committee provided for a stay bonus of $200,000
provided the former CFO stayed until December 31, 2006 and
agreed to provide assistance, when requested, to the current CFO
throughout the year. As a result, the former CFO earned a bonus
of $200,000 during 2006.
Long-Term Incentive in Form of Stock
Options. The Compensation Committee believes that
appropriate management ownership of the Companys stock is
an effective tool to assist in the process of building
stockholder value. Additionally, this compensation tool is
utilized to assist in aligning the interests of management and
the Companys stockholders. The Companys named
executive officers, including one named executive officer who
retired during 2006, received option grants totaling
315,000 shares of Common Stock during 2006 under the terms
of the Companys 2003 Stock Option Plan at a per share
exercise price equal to the market price of the Companys
Common Stock 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
officers continued employment with the Company.
Other Benefits. Our named executive officers
also participated in benefit programs in which all of our
employees, or all employees in certain categories of employees
that included our named executive officers, were eligible to
participate. All employees in the United States were eligible to
participate in the 401K Retirement Savings Plan (the 401K
Plan). The 401K Plan is a tax-qualified retirement savings
plan pursuant to which all United States-based employees were
able to contribute the lesser of up to 25%, or in the case of
highly compensated employees, which would include all of our
named executive officers, up to 9% of their annual salary or the
limit prescribed by the Internal Revenue Service to the 401K
Plan on a before-tax basis. The Company matched 25%, 50%, 75%
and 100% of the first 6% of pay that was contributed to the 401K
Plan for service with the Company of less than five years,
five to nine years, 10 to 14 years and 15 years
or greater, respectively. Except for Dr. Morganroth, all of
our named executive officers participated in the 401K Plan. In
2007, the Company will match 50% of the first 6% of pay for all
employees regardless of the length of service with the Company.
All employee contributions to the 401K Plan vested immediately
upon contribution and all Company matching contributions vest at
a rate of 25% per year such that they are fully-vested
after four years of service with the Company. All employees
at the level of vice president and higher, which included all of
our named executive officers, received a monthly car allowance
of $770 per month except for Mr. Esposito,
Dr. McKelvey and Dr. Morganroth, who each received a
monthly car allowance of $1,000. All employees are offered life
insurance at two times their respective salary, up to a maximum
of $450,000, for which the Company pays the premium which, in
2006, amounted to $0.13 per month per $1,000 of coverage
for each employee. The Company has entered into employment
agreements with all of its executive officers which include
change of control and severance payments under certain
circumstances that are designed to promote stability and
continuity of senior management. For further information
regarding amounts paid or payable under such agreements for the
named executive officers, see Payments Made
Upon Termination or Change of Control.
12
Compensation
of Individual Named Executive Officers
As described above, the core components of 2006 compensation for
each of our named executive officers consisted of base salary,
cash incentive bonus and long-term incentive equity awards. The
level for each of these components was determined by the
Compensation Committee consistent with the principles described
in this Compensation Discussion and Analysis.
Dr. McKelvey started with eRT on June 23, 2006.
At the time, his base annual salary was $350,000. During the
approximately six months he was with the Company in 2006,
Dr. McKelvey was paid $176,346 in base salary. As part of
Dr. McKelveys negotiated compensation package, he
received a $150,000 signing bonus. Additionally,
Dr. McKelvey received a stock option grant of 150,000 stock
options valued at $3.94 per share, or a total of $590,715
at the time of the grant based upon the Black-Scholes valuation
method.
Mr. Baron started with the Company on May 17,
2006. At the time, his base annual salary was $260,000. During
the approximately seven months Mr. Baron was with the
Company in 2006, he was paid $158,000 in base salary. In
addition, Mr. Baron received a stock option grant of 75,000
stock options valued at $4.59 per share, or a total of
$344,415 at the time of the grant based upon the Black-Scholes
valuation method.
Mr. Esposito was our President and CEO until
June 23, 2006. At the time, his base annual salary was
$385,000. During the approximately six months that
Mr. Esposito was President and CEO and for the subsequent
period during which he assisted in the transition of
responsibilities to Dr. McKelvey, Mr. Esposito earned
$300,041. Mr. Esposito also received compensation in
accordance with a severance arrangement which was established
prior to his retirement. The severance package was based upon
the recognition of Mr. Espositos contribution to the
Company in his five years as CEO. The total value of the
severance and bonus payments under this package was $1,295,699.
Mr. Esposito also continues to receive health benefits
until September 2008 with a total value of $27,083. The
severance package also contained the acceleration of the vesting
of options held by Mr. Esposito. The acceleration of the
options resulted in additional compensation expense of $319,527
in 2006.
Mr. Johnson was the CFO until May 17, 2006. At
the time, his base annual salary was $250,000. As of
July 1, 2006, his base annual salary was reduced to
$125,000. During the approximately five months that
Mr. Johnson was CFO and for the subsequent period during
which he assisted in the transition of responsibilities to
Mr. Baron, Mr. Johnson earned $189,903. Additionally,
Mr. Johnson received a $200,000 incentive to continue to
assist the Company in the transition through December 31,
2006. The incentive was paid in the first quarter of 2007.
Mr. Johnson also received a stock option grant of 20,000
stock options valued at $7.02 per share, or a total of
$140,306 at the time of the grant based upon the Black-Scholes
valuation method.
Dr. Morganroth was the Chairman of the Board and
Chief Scientific Officer for the Company for the year ended
December 31, 2006. In compensation for those
responsibilities, Dr. Morganroth was paid $194,000. In
addition, certain of the Companys diagnostic testing and
clinical research contracts require that specified medical
professional services be provided. The Company has retained Joel
Morganroth, MD. 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 Companys Cardiac Safety division. This professional
corporation received fees for these services of $282,000 from
our Company. The professional corporation also received other
compensation for other services it rendered to clients other
than our Company. In 2007, this arrangement was changed so that,
when possible, the fees for these other services are also billed
and collected by the Company rather than by
Dr. Morganroths professional corporation, and his
professional corporation will receive between 80% to 90% of such
amounts. In addition, Dr. Morganroth received a stock
option grant of 30,000 stock options valued at $7.02 per
share, or a total of $210,459 at the time of the grant based
upon the Black-Scholes valuation method.
Dr. Litwin was the Chief Medical Officer for the
Company for the year ended December 31, 2006. Dr. Litwin
was paid a salary of $249,999 in 2006. During a portion of 2006,
Dr. Litwins responsibilities included the executive
responsibilities for the sales organization. Accordingly
Dr. Litwins bonus opportunity was a combination of
three factors: revenue, net income and bookings. Dr. Litwin
achieved a bonus of $22,201 based on the bookings achieved. No
other bonus was paid during the year. In addition,
Dr. Litwin received a stock option grant of 20,000 stock
options valued at $7.02 per share, or a total of $140,306
at the time of the grant based upon the Black-Scholes valuation
method.
13
Mr. Tiger was promoted to Senior Vice President,
Americas Sales in September of 2006. Prior to this he was the
Senior Vice President of International Sales. For the year ended
December 31, 2006, Mr. Tiger received a salary of
$190,001. As a Senior Vice President, Mr. Tigers
bonus was based upon the success of the contract bookings for
each quarter and he received an incentive bonus payment of
$59,691 based on the bookings achieved. Mr. Tiger received
a reimbursement of $15,128 for higher personal tax obligations
due to his performance of services in our office in the United
Kingdom. In addition, Mr. Tiger received a stock option
grant of 20,000 stock options valued at $7.02 per share, or
a total of $140,306 at the time of the grant based upon the
Black-Scholes valuation method.
Tax
Considerations
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 Companys executive officers for
2006 did not exceed the $1,000,000 limit per officer, and the
Compensation Committee does not anticipate that the
non-performance-based compensation to be paid the Companys
executive officers in the foreseeable future will exceed that
limit.
Compensation
Committee Report
The Compensation Committee of the Company has reviewed and
discussed the compensation discussion and analysis that appears
under the caption Executive Compensation
Compensation Discussion and Analysis with management and,
based on such review and discussions, the Compensation Committee
recommended to the Board that the disclosure set forth above
under the caption Executive Compensation
Compensation Discussion and Analysis be included in this
proxy statement and incorporated by reference in our annual
report on
Form 10-K
for the year ended December 31, 2006.
This report of the Compensation 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 or the Exchange Act, except to the extent that
eRT specifically incorporates this report by reference therein.
Members of the Compensation Committee
Elam M. Hitchner (Chair)
Gerald A. Faich, MD, MPH
John H. Park
Stephen S. Phillips
Compensation
Committee Interlocks and Insider Participation
As of January 1, 2006, the Compensation Committee was
composed of Messrs. Hitchner, Gathman and Phillips and
Dr. Faich. From January 18, 2006 through
December 31, 2006, the Compensation Committee was composed
of Messrs. Hitchner, Park and Phillips and Dr. Faich.
None 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 404 of
Regulation S-K.
Director
Compensation
For information regarding Director Compensation, see
Election of Directors Compensation of
Directors, which is incorporated by reference herein as if
set forth in full herein.
14
Summary
Compensation Table
The table below summarizes the total compensation paid or earned
by each of the named executive officers for the fiscal year
ended December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Option Awards
|
|
|
Non-Equity
|
|
|
All Other
|
|
|
Total
|
|
Principal Position
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)(1)
|
|
|
Incentive Plan
|
|
|
Compensation(2)
|
|
|
($)
|
|
|
Michael J. McKelvey,
Ph.D
|
|
|
2006
|
|
|
$
|
176,346
|
|
|
$
|
150,000
|
|
|
$
|
77,469
|
|
|
$
|
0
|
|
|
$
|
7,130
|
|
|
$
|
410,945
|
|
President and Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard A. Baron
|
|
|
2006
|
|
|
$
|
158,000
|
|
|
$
|
0
|
|
|
$
|
53,874
|
|
|
$
|
0
|
|
|
$
|
7,995
|
|
|
$
|
219,869
|
|
Executive Vice President and Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph A. Esposito
|
|
|
2006
|
|
|
$
|
300,041
|
|
|
$
|
0
|
|
|
$
|
475,303
|
|
|
$
|
0
|
|
|
$
|
1,312,206
|
(3)
|
|
$
|
2,087,550
|
|
President and Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Johnson
|
|
|
2006
|
|
|
$
|
189,903
|
|
|
$
|
0
|
|
|
$
|
98,033
|
|
|
$
|
0
|
|
|
$
|
216,846
|
(4)
|
|
$
|
504,782
|
|
Executive Vice President
and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joel Morganroth, MD
|
|
|
2006
|
|
|
$
|
194,000
|
|
|
$
|
0
|
|
|
$
|
147,548
|
|
|
$
|
0
|
|
|
$
|
294,507
|
(5)
|
|
$
|
636,055
|
|
Chairman of the Board
and Chief Scientific Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey S. Litwin, MD
|
|
|
2006
|
|
|
$
|
249,999
|
|
|
$
|
0
|
|
|
$
|
98,033
|
|
|
$
|
22,201
|
|
|
$
|
17,247
|
|
|
$
|
387,480
|
|
Executive Vice President and Chief
Medical Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George Tiger
|
|
|
2006
|
|
|
$
|
190,001
|
|
|
$
|
0
|
|
|
$
|
88,088
|
|
|
$
|
59,691
|
|
|
$
|
32,491
|
(6)
|
|
$
|
370,271
|
|
Senior Vice President,
Americas Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the dollar amount recognized for financial statement
reporting purposes, exclusive of the effect of estimated
forfeitures, for the fiscal year ended December 31, 2006 in
accordance with SFAS No. 123R, and thus includes
amounts from awards granted in and, where applicable, prior to
2006. Note 1 to the Companys consolidated financial
statements included in the 2006 annual report on
Form 10-K
contains more information about the Companys accounting
for stock-based compensation arrangements, including the
assumptions made in valuing such option awards. |
|
(2) |
|
Includes the sum of the Companys 401K Plan contributions,
the dollar value of the insurance premiums paid by the Company
and the automobile allowance paid by the Company. |
|
(3) |
|
Includes $1,295,699 severance payment in connection with
Mr. Espositos retirement pursuant to the terms of his
employment agreement. Note 10 to the Companys
consolidated financial statements included in the 2006 annual
report on
Form 10-K
contains more information about Mr. Espositos
severance agreement. |
|
(4) |
|
Includes $200,000 incentive payment in connection with
Mr. Johnsons retirement pursuant to the terms of his
employment agreement. Note 10 to the Companys
consolidated financial statements included in the 2006 annual
report on
Form 10-K
contains more information about Mr. Johnsons
severance agreement. |
|
(5) |
|
Includes $282,000 paid to Dr. Morganroths
wholly-owned professional corporation in accordance with the
Companys consulting agreement with the professional
corporation for consulting services provided by
Dr. Morganroth. Note 10 to the Companys
consolidated financial statements included in the 2006 annual
report on
Form 10-K
contains more information about the consulting agreement. |
|
(6) |
|
Includes $15,128 paid to Mr. Tiger as a reimbursement for
higher personal tax obligations due to his performance of
services in our office in the United Kingdom. |
15
Grants of
Plan Based Awards
The table below provides certain information with respect to
stock options granted to our named executive officers during
2006.
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|
|
|
|
|
|
|
|
|
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|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Exercise or
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Base Price of
|
|
|
Stock and
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Option Awards
|
|
|
Option
|
|
|
|
|
Name
|
|
Grant Date
|
|
|
Action Date(1)
|
|
|
Options (#)(2)
|
|
|
($/sh)
|
|
|
Awards
|
|
|
|
|
|
Michael J.
McKelvey, Ph.D
|
|
|
6/23/2006
|
|
|
|
5/22/2006
|
|
|
|
150,000
|
|
|
$
|
8.51
|
|
|
$
|
590,715
|
|
|
|
|
|
Richard A. Baron
|
|
|
5/17/2006
|
|
|
|
4/25/2006
|
|
|
|
75,000
|
|
|
$
|
9.90
|
|
|
$
|
344,415
|
|
|
|
|
|
Joseph A. Esposito
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Bruce Johnson
|
|
|
2/10/2006
|
|
|
|
2/7/2006
|
|
|
|
20,000
|
|
|
$
|
14.70
|
|
|
$
|
140,306
|
|
|
|
|
|
Joel Morganroth, MD
|
|
|
2/10/2006
|
|
|
|
2/7/2006
|
|
|
|
30,000
|
|
|
$
|
14.70
|
|
|
$
|
210,459
|
|
|
|
|
|
Jeffrey S. Litwin, MD
|
|
|
2/10/2006
|
|
|
|
2/7/2006
|
|
|
|
20,000
|
|
|
$
|
14.70
|
|
|
$
|
140,306
|
|
|
|
|
|
George Tiger
|
|
|
2/10/2006
|
|
|
|
2/7/2006
|
|
|
|
20,000
|
|
|
$
|
14.70
|
|
|
$
|
140,306
|
|
|
|
|
|
|
|
|
(1) |
|
The action date for Dr. McKelvey represents the date that
the Board of Directors approved the offer of employment
including his compensation package. The action date for
Mr. Baron represents the date that the Compensation
Committee approved the offer of employment including his
compensation package. In each of these two cases, the grant date
specified at the time the option grants were approved was the
executives start date with the Company. In each other
case, the Compensation Committee established a grant date that
was two business days after the release by the Company of its
2006 results of operations and 2007 financial guidance. See
Compensation Discussion and
Analysis Role of Compensation Committee. |
|
(2) |
|
All stock option awards were made under the terms of the
Companys 2003 Stock Option Plan. All options become
exercisable over four years, in equal annual increments
beginning one year after the date of grant, contingent upon the
officers continued employment with the Company, unless
otherwise hereinafter modified by the Compensation Committee.
The options expire seven years following the date of the grant
or 90 days from the date the executive terminates
employment. |
16
Outstanding
Equity Awards at Fiscal Year-End
The table below provides certain information with respect to
stock options held by our named executive officers at
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Unexercised
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Options (#)
|
|
|
Option
|
|
|
Option
|
|
|
|
Options (#)
|
|
|
Unexercisable
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
(1)
|
|
|
Price
|
|
|
Date
|
|
|
Michael J. McKelvey,
Ph.D
|
|
|
|
|
|
|
150,000
|
|
|
$
|
8.51
|
|
|
|
6/23/2013
|
|
Richard A. Baron
|
|
|
|
|
|
|
75,000
|
|
|
$
|
9.90
|
|
|
|
5/17/2013
|
|
Joseph A. Esposito
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Johnson
|
|
|
50,625
|
|
|
|
|
|
|
$
|
6.29
|
|
|
|
3/31/2007
|
|
|
|
|
27,001
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
3/31/2007
|
|
|
|
|
5,000
|
|
|
|
|
|
|
$
|
15.46
|
|
|
|
3/31/2007
|
|
Joel Morganroth, MD
|
|
|
67,500
|
|
|
|
|
|
|
$
|
1.95
|
|
|
|
3/17/2007
|
|
|
|
|
84,375
|
|
|
|
|
|
|
$
|
1.13
|
|
|
|
2/4/2009
|
|
|
|
|
168,750
|
|
|
|
|
|
|
$
|
1.39
|
|
|
|
12/1/2009
|
|
|
|
|
421,875
|
|
|
|
|
|
|
$
|
0.75
|
|
|
|
5/21/2011
|
|
|
|
|
101,250
|
|
|
|
|
|
|
$
|
1.69
|
|
|
|
12/20/2011
|
|
|
|
|
67,500
|
|
|
|
22,500
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
|
37,500
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
7,500
|
|
|
|
22,500
|
|
|
$
|
15.46
|
|
|
|
2/9/2014
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
Jeffrey S. Litwin, MD
|
|
|
36,250
|
|
|
|
|
|
|
$
|
1.02
|
|
|
|
3/5/2011
|
|
|
|
|
73,750
|
|
|
|
|
|
|
$
|
1.69
|
|
|
|
12/20/2011
|
|
|
|
|
35,625
|
|
|
|
16,875
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
|
27,001
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
5,000
|
|
|
|
15,000
|
|
|
$
|
15.46
|
|
|
|
2/14/2012
|
|
|
|
|
|
|
|
|
20,000
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
George Tiger
|
|
|
16,875
|
|
|
|
5,625
|
|
|
$
|
6.29
|
|
|
|
4/22/2013
|
|
|
|
|
9,001
|
|
|
|
|
|
|
$
|
22.09
|
|
|
|
2/9/2014
|
|
|
|
|
22,500
|
|
|
|
|
|
|
$
|
28.57
|
|
|
|
7/20/2014
|
|
|
|
|
5,000
|
|
|
|
15,000
|
|
|
$
|
15.46
|
|
|
|
2/14/2012
|
|
|
|
|
|
|
|
|
20,000
|
|
|
$
|
14.70
|
|
|
|
2/10/2013
|
|
|
|
|
(1) |
|
All options listed above vest at a rate of 25% per year
over the first four years of the option term, subject to
acceleration under certain circumstances in accordance with the
terms of the named executive officers employment agreement
or as determined by the Compensation Committee as authorized
under the 2003 Stock Option Plan. |
17
Option
Exercises
The following table provides certain information with respect to
stock options exercised by our named executive officers during
2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Value Realized
|
|
|
|
|
Name
|
|
on Exercise (#)
|
|
|
on Exercise ($)(1)
|
|
|
|
|
|
Michael J. McKelvey,
Ph.D
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Richard A. Baron
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Joseph A. Esposito
|
|
|
559,918
|
|
|
|
5,126,174
|
|
|
|
|
|
Bruce Johnson
|
|
|
236,007
|
|
|
|
1,703,082
|
|
|
|
|
|
Joel Morganroth, MD
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Jeffrey S. Litwin, MD
|
|
|
53,500
|
|
|
|
521,806
|
|
|
|
|
|
George Tiger
|
|
|
24,132
|
|
|
|
139,613
|
|
|
|
|
|
|
|
|
(1) |
|
Value realized equals the fair market value of the shares on the
date of exercise less the exercise price. |
Payments
Upon Termination or Change of Control
The Company has entered into employment agreements with each of
its named executive officers under which certain severance
benefits and other benefits are payable by the Company under
certain circumstances following termination of employment or
changes of control of the Company.
Continuing
Named Executive Officers
For the named executive officers who were serving in those
capacities at the end of 2006 (i.e., Drs. Morganroth,
McKelvey and Litwin and Messrs. Baron and Tiger), the
agreements provide two potential benefits; one payable in
connection with terminations upon death or disability or other
than for cause, and one payable under certain circumstances in
connection with a change of control of the Company.
Termination Upon Death or Disability or Other than For
Cause. If any such officers employment is
terminated upon death or disability or other than for cause, he
will be entitled to a lump sum cash payment equal to a multiple
of his then-applicable base salary plus bonus, if any, together
with continuation of benefits for a period specified in his
agreement. Dr. Morganroths employment agreement does
not provide for a bonus; his multiple is 2.3 times his base
salary plus continuation of benefits for a period of
2.3 years. For Drs. McKelvey and Litwin and
Messrs. Baron and Tiger, the multiple is one times their
respective base salaries and bonus plus continuation of benefits
for a period of one year.
For purposes of these provisions, including the change of
control benefits discussed below, benefits means the
Companys standard health, dental, disability, life and
accident insurance benefits as in force at the time the benefit
is calculated together with the executives automobile
allowance. In addition, any bonus is calculated as if the
executives entire bonus opportunity was achieved and then
pro-rated based on the number of days of service during the
applicable incentive period.
Change of Control. Upon a change of control in
the Company, the continuing named executive officers are
entitled to certain benefits only if one of three additional
criteria is satisfied:
|
|
|
|
|
the executive is terminated other than for cause;
|
|
|
|
the executive resigns within 60 days after the change of
control because neither the Company nor the other party to the
change of control transaction (the Buyer) offers the
executive a position with comparable responsibilities,
authority, location and compensation; or
|
|
|
|
for each such executive other than Dr. McKelvey, the
executive remains employed by the Company or the Buyer (or any
of its divisions or subsidiaries) for one year after the change
of control.
|
18
For purposes of these provisions, a change of control means any
of the following:
|
|
|
|
|
a change of control of a nature that would be required to be
reported in the Companys proxy statement under the
Exchange Act;
|
|
|
|
the approval by the Companys Board of Directors of a sale,
transfer or disposition of all or substantially all of the
Companys assets and business to an unrelated third party
and the consummation thereof; or
|
|
|
|
the approval by the Companys Board of Directors of any
merger, consolidation or similar business combination or
reorganization of the Company that, if consummated, would have
the effect described in either the foregoing bullet points, and
the consummation thereof.
|
Under those circumstances, each such executive would be entitled
to a lump sum payment equal to a multiple of his salary and
bonus, if any, plus continuation of benefits for a specified
period of time and the acceleration of vesting for any stock
options that were not otherwise exercisable.
Dr. Morganroths agreement does not provide for a
bonus; his multiple is 2.3 times his base salary plus
continuation of benefits for a period of six months. For each
other continuing named executive officer, the multiple is
currently one times base salary plus bonus plus continuation of
benefits for a period of one year.
Conditions on Payment. Each continuing named
executive officers agreement includes a customary
confidentiality covenant that survives termination of service
together with a one-year (two-year for Dr. Morganroth)
noninterference and nonsolicitation covenant with respect to
vendors, customers, suppliers, employees and agents of the
Company and a one-year (two years for Dr. Morganroth)
covenant not to compete with the Company in the United States or
in any foreign country in which any customer to which the
Company is providing services or technology is located. Under
the terms of the agreements, any breach of these covenants
results in the forfeiture of any payments the Company may be
obligated to make as described above after the occurrence of the
breach.
Joseph
A. Esposito
In June 2006, the Company announced that it had appointed
Dr. McKelvey to succeed Mr. Esposito as President and
CEO, and Mr. Espositos employment with the Company
terminated on September 11, 2006.
Under the terms of his employment agreement, upon such
termination, Mr. Esposito became entitled to a lump sum
cash payment equal to $1,160,000 plus a pro-rated portion of his
$195,000 annual bonus based on the number of days he was
employed during 2006. In addition, he became entitled to
continue his benefits for a period of two years, and all stock
options that were not then exercisable became exercisable in
full. For Mr. Esposito, benefits meant the employee
insurance benefits he was receiving on the date of his
agreement, including health, dental, life, accident and
disability insurance.
As a condition to receiving such benefits, Mr. Esposito was
required to and did deliver a general release of claims against
the Company that included a nondisparagement covenant. In
addition, Mr. Espositos agreement included a
customary confidentiality covenant that survived termination of
service together with a one-year noninterference and
nonsolicitation covenant with respect to vendors, customers,
suppliers, employees and agents of the Company and a one-year
covenant not to compete with the Company in the United States or
in any foreign country in which any customer to which the
Company is providing services or technology is located. Under
the terms of his agreement, any breach of these covenants
results in the forfeiture of any payment the Company may be
obligated to make or described above after the occurrence of the
breach.
Bruce
Johnson
In April 2006, the Company announced that it had appointed
Mr. Baron to succeed Mr. Johnson as Executive Vice
President and CFO effective in May 2006, and
Mr. Johnsons employment with the Company terminated
on December 31, 2006 upon the expiration of the term of his
employment agreement. Upon such expiration, Mr. Johnson
became entitled to a lump sum cash payment in the amount of
$200,000.
19
Tabular
Presentation
The table below reflects the amount of compensation to each of
our named executive officers in the event they become entitled
to the benefits described above. The amounts shown assume that
they became entitled to such benefits effective as of
December 31, 2006 except that, in the cases of
Messrs. Esposito and Johnson, the amounts shown reflect
their actual termination dates of September 11, 2006 and
December 31, 2006, respectively. The amounts shown also
assume that the criteria for earning a change of control
benefits were satisfied as of December 31, 2006. The actual
amounts to be paid out for the named executive officers other
than Messrs. Esposito and Johnson can only be determined at
the time of such executives separation from the Company or
other entitlement to benefits in connection with a change of
control.
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of
|
|
|
Other Benefits
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
401K Plan
|
|
|
Automobile
|
|
|
|
|
Name
|
|
Cash Payment
|
|
|
(2)
|
|
|
Insurance
|
|
|
Match
|
|
|
Allowance
|
|
|
|
|
|
Michael J. McKelvey,
Ph.D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination upon death,
disability or other than for cause
|
|
$
|
438,173
|
|
|
$
|
|
|
|
$
|
15,083
|
|
|
$
|
7,750
|
|
|
$
|
12,000
|
|
|
|
|
|
Change of control
|
|
|
438,173
|
(1)
|
|
|
|
|
|
|
15,083
|
|
|
|
7,750
|
|
|
|
12,000
|
|
|
|
|
|
Richard A. Baron
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination upon death,
disability or other than for cause
|
|
|
339,000
|
|
|
|
|
|
|
|
15,083
|
|
|
|
7,750
|
|
|
|
9,240
|
|
|
|
|
|
Change of control
|
|
|
339,000
|
|
|
|
|
|
|
|
15,083
|
|
|
|
7,750
|
|
|
|
9,240
|
|
|
|
|
|
Joseph A. Esposito
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
1,295,699
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|
|
|
73,238
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|
|
|
23,698
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|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Johnson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
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|
200,000
|
|
|
|
|
|
|
|
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|
|
|
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|
Joel
Morganroth, MD
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|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
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|
|
Termination upon death,
disability or other than for cause
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418,600
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|
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|
|
|
|
|
13,800
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|
|
|
|
|
|
|
13,800
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|
|
|
|
|
Change of control
|
|
|
418,600
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|
|
|
9,900
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|
|
|
6,000
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|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
Jeffrey S.
Litwin, MD
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Termination upon death,
disability or other than for cause
|
|
|
255,000
|
|
|
|
|
|
|
|
7,542
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|
|
|
7,750
|
|
|
|
4,620
|
|
|
|
|
|
Change of control
|
|
|
255,000
|
|
|
|
7,425
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|
|
|
7,542
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|
|
|
7,750
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|
|
|
4,620
|
|
|
|
|
|
George Tiger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination upon death,
disability or other than for cause
|
|
|
200,000
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|
|
|
|
|
|
|
7,542
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|
|
|
7,750
|
|
|
|
4,620
|
|
|
|
|
|
Change of control
|
|
|
200,000
|
|
|
|
2,475
|
|
|
|
7,542
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|
|
|
7,750
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|
|
|
4,620
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|
|
|
|
|
|
|
|
(1) |
|
Under Dr. McKelveys employment agreement, if the
trigger event following a change of control had occurred before
February 23, 2007, Dr. McKelvey would have been
entitled to a lump sum cash payment equal to two times his base
salary and bonus, or a total of $876,346. Because no such
trigger event occurred, the cash payment to which
Dr. McKelvey would be entitled upon a trigger event
following a change of control would be one times his base salary
and bonus. The information in the table reflects only this
one-time multiple payment. |
|
(2) |
|
With the exception of Mr. Esposito, this value was
calculated based on the difference between the closing price of
the underlying stock at December 31, 2006 and the exercise
price of the applicable stock option multiplied by the number of
unvested options that first would have become exercisable on
December 31, 2006 as a result of this benefit. For
Mr. Esposito, the closing price of the underlying stock
that first became exercisable on September 11, 2006 and the
number of unvested options at September 11, 2006 as a
result of this benefit was used as this was his termination
date. Where the closing price of the underlying stock was or
would have been less than the exercise price of the applicable
stock option, no value was assigned to the accelerated options. |
20
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of
February 27, 2007, with respect to the beneficial ownership
of the Common Stock of the Company by (i) each of the
Companys directors, director nominees and named executive
officers; (ii) the Companys 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.
|
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|
Shares
|
|
|
|
|
|
|
Beneficially
|
|
|
Percentage
|
|
Name of Beneficial Owner
|
|
Owned
|
|
|
Owned
|
|
|
Blum Capital Partners, L.P.(1)
|
|
|
8,529,236
|
|
|
|
17.0
|
%
|
RS Investment Management Co. LLC(2)
|
|
|
7,356,935
|
|
|
|
14.7
|
|
Royce & Associates, LLC(3)
|
|
|
6,226,150
|
|
|
|
12.4
|
|
Mazama Capital Management, Inc.(4)
|
|
|
4,476,291
|
|
|
|
8.9
|
|
Joel Morganroth, MD(5)(6)
|
|
|
3,266,475
|
|
|
|
6.4
|
|
Stephen S. Phillips(6)(7)
|
|
|
267,700
|
|
|
|
*
|
|
Jeffrey S. Litwin, MD(6)
|
|
|
248,001
|
|
|
|
*
|
|
David D. Gathman(6)
|
|
|
87,200
|
|
|
|
*
|
|
George Tiger(6)
|
|
|
69,001
|
|
|
|
*
|
|
Sheldon M. Bonovitz(6)
|
|
|
61,832
|
|
|
|
*
|
|
Elam M. Hitchner(6)
|
|
|
42,500
|
|
|
|
*
|
|
Gerald A. Faich, MD, MPH(6)
|
|
|
35,000
|
|
|
|
*
|
|
Bruce Johnson(6)
|
|
|
32,001
|
|
|
|
*
|
|
Stephen M. Scheppmann(6)
|
|
|
10,000
|
|
|
|
*
|
|
Michael J. McKelvey, Ph.D
|
|
|
10,000
|
|
|
|
*
|
|
Richard A. Baron
|
|
|
|
|
|
|
|
|
Joseph A. Esposito
|
|
|
|
|
|
|
|
|
John H. Park(8)
|
|
|
|
|
|
|
|
|
All directors and executive
officers as a group (16 persons)(6)(8)
|
|
|
4,621,627
|
|
|
|
8.9
|
|
|
|
|
* |
|
Less than 1.0% |
|
(1) |
|
Blum Capital Partners, L.P. (Blum L.P.) is located
at 909 Montgomery Street, Suite 400, San Francisco,
California 94133. This information is as reported by Blum L.P.
in a Form 4 dated January 4, 2007 filed with the
Securities and Exchange Commission. The Form 4 was filed by
Blum L.P., a California limited partnership; Richard C.
Blum & Associates, Inc., a California corporation; Blum
Strategic GP II, L.L.C., a Delaware limited liability
company; Blum Strategic GP III, L.L.C., a Delaware limited
liability company; and Saddlepoint Partners GP, L.L.C., a
Delaware limited liability company. Blum L.P.s principal
business is acting as general partner for investment
partnerships and providing investment advisory services. Blum
L.P. is an investment advisor registered with the Securities and
Exchange Commission. John H. Park, a director of the Company, is
a partner of Blum L.P. |
|
(2) |
|
RS Investment Management Co. LLC (RS Investment) is
a Delaware limited liability company with an address at 388
Market Street, Suite 1700, San Francisco, CA 94111.
The information presented in the table and in this footnote is
as reported in a Schedule 13G/A filed on February 9,
2007 by RS Investment, The Guardian Life Insurance Company of
America (Guardian Life), Guardian Investor Services
LLC (Guardian Investor) and RS Partners Fund
(RS Partners). RS Investment, Guardian Life and
Guardian Investor each reported beneficial ownership of these
shares, while RS Partners reported beneficial ownership of
5,048,430 of these shares. RS Investment is a registered
investment advisor whose clients have the right to receive or
the power to direct the receipt of dividends from, or the
proceeds from the sale of, the reported shares. RS Partners is
the only client of RS Investment that holds more than 5% of the
outstanding shares of the Companys Common Stock. Guardian
Investor is the parent company of RS Investment, and Guardian
Life is the parent company of Guardian Investor and RS
Investment. |
21
|
|
|
(3) |
|
Royce & Associates, LLC (Royce) is located
at 1414 Avenue of the Americas, New York, New York 10019. This
information is as reported by Royce in a Schedule 13G/A
dated January 19, 2007 filed with the Securities and
Exchange Commission. |
|
(4) |
|
Mazama Capital Management, Inc. (Mazama) is located
at One Southwest Columbia Street, Suite 1500, Portland,
Oregon, 97258. This information is as reported by Mazama in a
Schedule 13G dated January 31, 2007 filed with the
Securities and Exchange Commission. |
|
(5) |
|
Dr. Morganroths address is 30 South 17th Street,
Philadelphia, Pennsylvania 19103. Includes
(i) 1,215,225 shares directly owned by
Dr. Morganroth, as to which he has sole voting and
dispositive power and 1,125,000 shares held in three
separate trusts, the trustee of which is
Dr. Morganroths wife and the beneficiaries of which
are Dr. Morganroths children, as to which
Dr. Morganroth disclaims beneficial ownership. The trusts
entered into 10b5-1 plans in the form of variable prepaid
forward agreements with an unaffiliated securities brokerage
firm with respect to such shares, all of which were pledged to
such firm to secure the trusts obligations under such
agreements. |
|
(6) |
|
Includes the following shares issuable with respect to options
granted pursuant to the Companys 1996 Stock Option Plan
and 2003 Stock Option Plan, which are currently exercisable or
exercisable within 60 days after February 27, 2007: |
|
|
|
|
|
|
|
Number of
|
|
Name
|
|
Options
|
|
|
Joel Morganroth, MD
|
|
|
926,250
|
|
Stephen S. Phillips
|
|
|
80,000
|
|
Jeffrey S. Litwin, MD
|
|
|
204,501
|
|
David D. Gathman
|
|
|
80,000
|
|
George Tiger
|
|
|
69,001
|
|
Sheldon M. Bonovitz
|
|
|
55,000
|
|
Elam M. Hitchner
|
|
|
35,000
|
|
Gerald A. Faich, MD, MPH
|
|
|
25,000
|
|
Bruce Johnson
|
|
|
32,001
|
|
Stephen M. Scheppmann
|
|
|
10,000
|
|
All directors and executive
officers as a group
|
|
|
1,971,433
|
|
|
|
|
(7) |
|
Includes 2,700 shares owned by Mr. Phillips
minor children, for whom Mr. Phillips acts as custodian. |
|
(8) |
|
Excludes 8,529,236 shares owned by Blum Capital Partners,
L.P., as to which a Board member, Mr. Park, is a partner.
See Footnote (1). |
Code of
Ethics and Business Conduct
The Company has adopted a Code of Ethics and Business Conduct
that applies to its CEO, CFO (who serves as the Companys
principal financial and principal accounting officer) and other
employees and directors. The Code of Ethics and Business Conduct
is available on the Companys website at
www.ert.com. The Company intends to post amendments to or
waivers of its Code of Ethics and Business Conduct, to the
extent applicable to the Companys CEO and CFO, at that
location on its website.
22
PROPOSAL TO
APPROVE AND ADOPT
AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN
(Proposal No. 2)
General
On February 15, 2007, the Board of Directors of the
Company, based on the recommendation of the Compensation
Committee, adopted, subject to stockholder approval at the
Annual Meeting, the Companys Amended and Restated 2003
Equity Incentive Plan (the Plan). A copy of the Plan
is attached as Exhibit A. The Plan amends the
Companys existing 2003 Stock Option Plan in two material
respects. First, it prohibits repricing of any stock options
granted under the Plan unless the stockholders approve such
repricing. Second, it permits awards of stock appreciation
rights, restricted stock, long term performance awards and
performance shares. A total of 7,318,625 shares of Common
Stock will continue to be reserved for issuance under the Plan,
including 12,750 shares previously issued thereunder. In
addition to the new types of awards, the Plan will continue to
permit the granting of options (Options) to purchase
Common Stock of the Company, including Options intended to
qualify as incentive stock 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).
Awards under the Plan may be made 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 Compensation Committee may determine. No
participant may receive in any one calendar year awards relating
to more than 675,000 shares.
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 and entitled to vote at the Annual Meeting is required to
approve and adopt the Plan. THE BOARD OF DIRECTORS RECOMMENDS
THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION 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 Companys
Common Stock or otherwise receive compensation based on the
value of such shares. The Plan as amended and restated will
provide additional flexibility for the Companys
compensation strategies and programs while further aligning the
operation of the Plan with the interests of the Companys
stockholders by expressly prohibiting the repricing of
outstanding Options without stockholder approval. The Company
intends that the Plan will continue 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.
Administration
The Plan is administered by the Companys Compensation
Committee. The Compensation 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 awards shall be
granted under the Plan; to determine the type of awards to be
made and the amount, size and terms of each such award; to
determine when an award shall be granted; and to make all other
determinations necessary or advisable for the administration of
the Plan. The Compensation 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 making awards in those jurisdictions.
Notwithstanding the foregoing, the Board of Directors may, in
its discretion, itself exercise the authority granted under the
Plan to the Compensation Committee. The members of the
Compensation Committee must be Non-Employee Directors (within
the meaning of
23
Rule 16b-3(b)(3)
promulgated under the Exchange Act or any successor provision
thereto) and outside directors within the meaning of
Treasury Regulations Section 1.162-27(e)(3).
Eligibility
Persons eligible to receive awards 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 Compensation Committee
determines from time to time.
Awards
Under the Plan
Options
The terms of Options granted under the Plan are determined by
the Compensation Committee at the time of granting an Option.
Each Option granted under the Plan is evidenced by a written
stock option award letter from the Company and is subject to the
following terms and conditions.
Exercise of Options. The Compensation
Committee determines on the date of grant when Options granted
under the Plan become exercisable. Unless otherwise determined
by the Compensation 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 award letter but may
include cash, shares of the Companys Common Stock
(including shares of Common Stock issuable upon the exercise of
the Option) or any combination thereof as determined by the
Compensation Committee.
Exercise Price. The exercise price of Options
granted under the Plan is determined by the Compensation
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 listed on
the Nasdaq Global Select Market or another 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.
Without stockholder approval, and except for equitable
adjustments in connection with any stock split, stock dividend,
combination or other reclassification of the Companys
Common Stock, the Compensation Committee may not:
(i) reduce the exercise price of any Option after it is
granted; (ii) cancel any Option at a time when the exercise
price exceeds the fair market value of the Companys Common
Stock in exchange for another Option or other award under the
Plan except as permitted by the Plan in connection with a
merger, acquisition, spin-off or similar transaction or
(iii) take any other action that could be treated as a
repricing of the Option under accounting principles generally
accepted in the United States.
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 Compensation 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 Compensation
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 Compensation Committee as
set forth in the award letter, 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 not have a term
of more than five years. No Option may be exercised by any
person after the expiration of its term.
24
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 optionees
lifetime, each Option will be exercisable only by the optionee
or any permitted transferee.
Acceleration of Options. In the event of a
proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company into another corporation,
in the discretion of the Compensation Committee, outstanding
Options may become immediately exercisable in full. The
Compensation Committee may, in its discretion in such instances,
declare that any outstanding Option will terminate as of a date
fixed by the Compensation Committee and give each optionee the
right to exercise his Option as to all shares subject to the
Option.
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 Companys 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: (a) ten years from the grant
date; or (b) three months after the optionee ceases to
serve as an Outside Director for any reason.
Other Provisions. The option award letters may
contain such other terms, provisions and conditions not
inconsistent with the terms of the Plan as may be determined by
the Compensation Committee.
Stock
Appreciation Rights
A stock appreciation right is the right to receive the
appreciation in the fair market value of our Common Stock over
the initial exercise price between the date of grant and the
exercise date, for that number of shares of our Common Stock
with respect to which the stock appreciation right is exercised.
We may pay the appreciation in either cash, in shares of our
Common Stock with equivalent value, or in some combination, as
determined by the Compensation Committee. Each award of stock
appreciation rights is evidenced by an award letter specifying
the terms and conditions of the award. The Compensation
Committee determines the exercise price of stock appreciation
rights, the vesting schedule and other terms and conditions of
stock appreciation rights, including the number of shares
granted pursuant to a stock appreciation right. After
termination of service, a participant will be able to exercise
the vested portion of his or her stock appreciation right for
the period of time stated in the award letter. In no event will
a stock appreciation right be exercisable after the expiration
of its term.
Restricted
Stock
Restricted stock awards are awards of shares of our Common Stock
that vest in accordance with terms and conditions established by
the Compensation Committee. The Compensation Committee may
impose whatever conditions to vesting it determines to be
appropriate including, if determined desirable for the award to
qualify as performance-based compensation for
purposes of Section 162(m) of the Code, that the restricted
stock will vest based on the achievement of performance goals.
Each award of restricted stock is evidenced by an award letter
specifying the terms and conditions of the award. The
Compensation Committee will determine the number of shares of
restricted stock granted to any participant. Unless the
Compensation Committee determines otherwise, shares that do not
vest typically will be subject to forfeiture or to our right of
repurchase, which we may exercise upon the voluntary or
involuntary termination of the purchasers service with us
for any reason including death or disability. The Compensation
Committee will determine the extent, if any, to which, and the
conditions under which, a holder of restricted stock shall have
the right to vote such shares or receive any dividends or other
distributions paid on shares of our Common Stock.
25
Long-Term
Performance Awards
Long-term performance awards are awards that will result in
payment of cash
and/or
shares of our Common Stock only if performance goals established
by the Compensation Committee over not less than a two-year
period are achieved. The Compensation Committee will determine
the nature, length and starting date of each performance period
as well as the performance objectives to be used in making such
awards, which may be based on Company, business unit or
individual performance, or any combination thereof. The
Compensation Committee also determines the dollar value or
number of shares to which a participant may be entitled under a
long-term performance award, except that no participant shall be
granted a long-term performance award with a value in excess of
$1,000,000 (determined in the case of awards payable in shares
of our Common Stock at the time the award is granted) for the
performance period to which the award relates. The Compensation
Committee may revise the performance objectives
and/or
underlying factors and criteria applicable to any long-term
performance award in the event of special or unusual events or
circumstances affecting the application of one or more
performance objectives to an award, to the extent it deems
appropriate in its sole discretion to avoid unintended windfalls
or hardship. The Compensation Committee shall have the
discretion to determine the extent, if any, to which a
participant is entitled to receive any payment with respect to a
long-term performance award if the participants service
terminates prior to the expiration of the applicable performance
period.
Performance
Shares
Performance Shares are awards that will result in a payment to a
participant only if performance goals established by the
Compensation Committee are achieved or the awards otherwise
vest. The Compensation Committee will establish performance
goals in its discretion, which, depending on the extent to which
they are met, will determine the number
and/or the
value of performance shares to be paid out to participants. The
performance goals may be based upon the achievement of Company,
business unit or individual goals (including solely continued
service), or other basis determined by the Compensation
Committee. Payment for performance shares shall be made in
shares of our Common Stock with equivalent value, as determined
by the Compensation Committee. Performance shares will have an
initial value equal to the fair market value of our Common Stock
on the grant date. The Compensation Committee also determines
the number of performance shares granted to any participant and
the performance period with respect to each award. Each
performance share is evidenced by an award letter, and is
subject to the terms and conditions determined by the
Compensation Committee. The Compensation Committee shall have
the discretion to determine the extent, if any, to which a
participant is entitled to receive any performance shares if the
participants service terminates prior to the expiration of
the applicable performance period.
Qualified
Performance-Based Compensation
The Compensation Committee may determine that awards of stock
appreciation rights, restricted stock, long-term performance
awards
and/or
performance shares are intended to be performance-based awards
within the meaning of Section 162(m) of the Code
(Performance-Based Awards). The Compensation
Committee will establish the criterion or criteria and target(s)
on which performance will be measured. The Compensation
Committee must establish objectively determinable criteria and
targets in advance of applicable deadlines under the Code and
while the attainment of the performance targets remains
substantially uncertain. The criteria that the Compensation
Committee may use for this purpose will include one or more of
the following: pre- or after-tax net earnings, sales or revenue,
operating earnings, operating cash flow, return on net assets,
return on stockholders equity, return on assets, return on
capital, stock price growth, gross or net profit margin,
earnings per share, price per share, market share or strategic
business criteria consisting of one or more Company objectives
based on meeting specified revenue goals, market penetration
goals, geographic business expansion goals, cost targets,
product development goals, goals relating to acquisitions or
divestitures or any other objective measure derived from any of
the foregoing criteria. The performance goals may relate to the
performance of the individual participant, his or her
26
business unit or the Company as a whole, or any combination of
the foregoing. Performance goals need not be uniform as among
participants.
Federal
Income Tax Consequences
The following description, which is based on existing laws, set
forth certain of the federal income tax consequences of awards
under the Plan.
Options
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
optionees 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 optionees 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 between the
exercise price of an Incentive Option and the fair market value
of the Common Stock on the date of exercise will be an item of
tax preference, which may give rise to alternative minimum tax
liability. If the optionee does not dispose of the shares before
the date that is at least two years from the date of grant and
at least 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. 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.
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.
Stock
Appreciation Rights
No taxable income is reportable when a stock appreciation right
is granted to a participant. Upon exercise, the participant will
recognize ordinary income in an amount equal to the amount of
cash received and the fair market value of any shares received.
Any additional gain or loss recognized upon any later
disposition of the shares would be capital gain or loss.
Restricted
Stock, Long-Term Performance Awards and Performance
Shares
A participant generally will not have taxable income at the time
a grant of restricted stock, a long-term performance award or
performance shares is made. Instead, he or she will recognize
ordinary income in the first taxable year in which his interest
in the shares underlying the award becomes either
(i) freely transferable or (ii) no longer subject to
substantial risk of forfeiture (e.g., vested). However, a holder
of any such award may elect to recognize income at the time he
or she receives the award in an amount equal to the fair market
value of the shares underlying the award (less any amount paid
for the shares) on the date the award is granted.
27
Tax
Consequences to the Company
We generally will be entitled to a tax deduction in connection
with an award under the Plan in an amount equal to the ordinary
income realized by a participant and at the time the participant
recognizes such income (for example, the exercise of a
nonqualified stock Option). Special rules limit the
deductibility of compensation paid to our CEO and to each of our
other four most highly compensated executive officers. Under
Section 162(m) of the Code, the annual compensation paid to
any of these specified executives will be deductible only to the
extent that it does not exceed $1,000,000. However, we can
preserve the deductibility of certain compensation in excess of
$1,000,000 million if the conditions of Section 162(m)
are met. These conditions include stockholder approval of the
Plan and setting limits on the number of awards that any
individual may receive per year. The Plan has been designed to
permit the Compensation Committee to grant awards that qualify
as performance-based for purposes of satisfying the conditions
of Section 162(m) of the Code, thereby permitting us to
continue to receive a federal income tax deduction in connection
with such awards.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF
U.S. FEDERAL INCOME TAXATION WITH RESPECT TO THE GRANT AND
EXERCISE OF AWARDS UNDER THE PLAN. IT DOES NOT PURPORT TO BE
COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF AN
INDIVIDUALS DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS
OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH ANY
ELIGIBLE INDIVIDUAL MAY RESIDE.
New Plan
Benefits
Except for the automatic grants of Options to Outside Directors
which will continue as described above, no determination has
been made with respect to future recipients of awards under the
Plan and it is not possible to specify the names or positions of
the individuals to whom awards may be granted in the future or
the number of shares of Common Stock to which such awards will
relate.
Amendment
and Termination
The Compensation Committee may terminate or amend the Plan at
any time, except that without stockholder approval the
Compensation Committee may not increase the maximum number of
shares which may be issued under the Plan, extend the maximum
period during which any award may be exercised, extend the term
of the Plan, amend the employees or classes of employees
eligible to receive awards 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
participants rights under an award previously granted. The
Plan terminates upon the earlier of April 21, 2013 or the
date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise or cancellation
of awards granted under the Plan.
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
(Proposal No. 3)
The Audit Committee has designated KPMG LLP to be the
independent registered public accountants for the year ending
December 31, 2007. The Board of Directors will offer a
resolution at the Annual Meeting to ratify this designation.
KPMG LLP has served as the Companys independent registered
public accountants since July 2002. The Companys
organizational documents do not require that the Companys
stockholders ratify the selection of KPMG LLP as the
Companys independent registered public 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 Companys 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.
28
During 2005 and 2006, the Company retained KPMG LLP to provide
professional services in the following categories and amounts:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
Audit fees
|
|
$
|
548,000
|
|
|
$
|
597,000
|
|
Audit-related fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit and audit-related fees
|
|
|
548,000
|
|
|
|
597,000
|
|
Tax fees
|
|
|
213,000
|
|
|
|
125,000
|
|
All other fees
|
|
|
|
|
|
|
191,000
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
761,000
|
|
|
$
|
913,000
|
|
|
|
|
|
|
|
|
|
|
Audit fees for 2005 and 2006 include fees incurred for
professional services rendered in connection with the audit of
the Companys consolidated financial statements for the
years ended December 31, 2005 and 2006 that are customary
under auditing standards generally accepted in the United States
or that are customary for the purpose of rendering an opinion on
the consolidated financial statements, and for the review of the
consolidated financial statements included in the quarterly
reports on
Form 10-Q
required to be filed during fiscal years 2005 and 2006. In
addition, audit fees for 2005 and 2006 include fees incurred for
professional services rendered in connection with the audit of
the Companys internal control over financial reporting and
managements assessment thereof. In 2005 and 2006, tax fees
consisted of federal, state and local tax return preparation,
including the preparation and work related to the determination
and support of research and development tax credits available to
the Company for those years. In addition, in 2005, tax fees
included fees related to a transfer pricing study that was
conducted during the year. All other fees in 2006 consisted
primarily of services rendered in connection with due diligence
procedures requested by the Company in relation to proposed
transactions.
The Audit Committee has considered all of the above services
performed by KPMG LLP and has determined that the provision
thereof is compatible with maintaining auditor independence. All
services rendered by KPMG LLP were permissible under applicable
laws and regulations and were pre-approved by the Audit
Committee. In accordance with its charter, the Audit Committee
pre-approves all audit and permissible non-audit services
provided by the Companys independent registered public
accountants. In addition, it is the Audit Committees
procedure to approve any engagement or accounting project
involving the independent registered public accountants, and the
related fees, prior to commencement of the engagement or project.
Approval of the proposal will require the favorable vote of a
majority of the stockholders present in person or by proxy and
entitled to vote at the Annual Meeting. THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
RATIFICATION OF KPMG LLP AS THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTANTS FOR FISCAL 2007. 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.
29
STOCKHOLDER
PROPOSALS
Stockholder proposals intended to be considered at the 2008
Annual Meeting of Stockholders must be received by eRT no later
than November 27, 2007. Such proposals may be included in
next years 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 Exchange Act, the holders of proxies solicited by the
Board of Directors in connection with the 2008 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 10, 2008.
The Board knows of no other matters that may be presented for
action at the Annual Meeting. However, if any other matter
properly comes before the Annual 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,
RICHARD A. BARON
Executive Vice President, Chief Financial Officer and Secretary
March 26, 2007
30
Exhibit A
eResearchTechnology,
Inc.
Amended
and Restated 2003 Equity Incentive Plan
The purpose of the Amended and Restated 2003 Equity Incentive
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
acquire shares of common stock of the Company (Common
Stock) or receive compensation based on the value of such
shares. 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.
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: (a) determine the individuals to whom awards
(Grants) may be made under the Plan;
(b) determine the type, size and terms of any such Grants,
including options to purchase common stock (Stock
Options) and awards of shares of common stock subject to
restrictions established by the Committee (Restricted
Stock); (c) determine the time when any such Grants
will be made and the duration of any applicable exercise or
restriction period, including the criteria for exercisability
and/or
forfeiture and acceleration of exercisability and acceleration
or waiver of forfeiture; (d) construe the provisions of the
Plan and (e) adopt rules and regulations governing the
administration of the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding upon
all persons to whom Grants may be made 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 Committees
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 Grant awarded 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 Grants 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 Grant is awarded,
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.
The persons who shall be eligible to participate in this Plan
and receive Grants hereunder shall be the Companys
directors and such employees and other individuals who provide
services to or otherwise have a
A-1
relationship with the Company or its subsidiaries as the
Committee shall from time to time determine. An eligible
individual may receive more than one Grant under the Plan and
Grants of more than one type under the Plan.
Subject to Section 13 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 7,318,625 shares, all of which may be
used for Grants of Incentive Stock Options (as hereinafter
defined). 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 and shares
representing Restricted Stock that is forfeited to the Company
may be available for subsequent Grants under the Plan.
Notwithstanding anything to the contrary set forth in the Plan,
the maximum number of shares of Common Stock for which Grants
may be granted to any employee in any calendar year shall be
675,000 shares, all of which may be used for Grants of
Incentive Stock Options (as hereinafter defined).
|
|
5.
|
Effective
Date and Term of Plan
|
The effective date of the Plan was April 22, 2003. The Plan
shall terminate on April 22, 2013, 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 recipient of a Grant hereunder, any of the rights
or obligations of any Grant theretofore awarded under the Plan,
except as specifically authorized herein.
A. All Stock Options. Stock Options
granted pursuant to this Plan shall be evidenced by Stock Option
award letters 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.
(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
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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 holders payment shall be returned and the right to
exercise the Stock Option with respect to such undelivered
shares shall be terminated.
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 Companys
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 Companys
transfer agent or such brokerage firm and either the
Companys 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) 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.
(vi) 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
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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.
(vii) No
Repricing Without Stockholder Approval.
Notwithstanding anything in the Plan to the contrary, without
the prior approval of the stockholders of the Company, the
Committee may not: (a) reduce the option price of any Stock
Option after it is granted; (b) cancel any Stock Option at
a time when the option price thereof exceeds the Fair Market
Value of the Common Stock in exchange for another Stock Option
or other Grant hereunder unless the cancellation and exchange
occurs in connection with a merger, acquisition, spin-off or
other similar corporate transaction or (c) take any other
action that would be treated as a repricing under generally
accepted accounting principles as applied in the United States.
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. 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.
(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.
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(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.
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7.
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Fixed
Option Grants to Outside Directors
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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.
C. Annual Grants. Commencing with the
2003 Annual Meeting, each Outside Director who is a member of
the Companys 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.
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8.
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Stock
Appreciation Rights.
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A. General Requirements. Stock
Appreciation Right means the right, pursuant to an award
granted under Section 8 hereof, to cash
and/or
shares of stock in an amount equal to the difference between
(i) the Fair Market
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Value, as of the date such right (or such portion thereof) is
exercised, of the shares of Stock covered by such right (or such
portion thereof) and (ii) the base amount established by
the Committee with respect to such right (or such portion
thereof).
B. Grant and Exercise. Stock Appreciation
Rights may be granted separate from or in conjunction with all
or part of any Stock Option granted under the Plan and shall be
nontransferable except that, subject to Section 6A(iv)
hereof, a Stock Appreciation Right shall be transferable upon
transfer of the related Stock Option. In the case of a
Non-Qualified Stock Option, Stock Appreciation Rights may be
granted either at or after the time of the grant of such Stock
Option. In the case of an Incentive Stock Option, Stock
Appreciation Rights may be granted only at the time of the grant
of such Stock Option.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no
longer be exercisable upon the termination or exercise of the
related Stock Option, except that, unless otherwise determined
by the Committee, in its sole discretion at the time of grant, a
Stock Appreciation Right granted with respect to less than the
full number of shares covered by a related Stock Option shall
not be reduced until the number of shares covered by an exercise
or termination of the related Stock Option exceeds the number of
shares not covered by the Stock Appreciation Right. A Stock
Appreciation Right not granted in connection with a Stock Option
shall terminate at the time specified in the grant.
A Stock Appreciation Right granted in connection with a Stock
Option may be exercised by an optionee, in accordance with
Section 6A(iii) of the Plan, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and
surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6A(iii) of
the Plan. Stock Options which have been so surrendered, in whole
or in part, shall no longer be exercisable to the extent the
related Stock Appreciation Rights have been exercised. A Stock
Appreciation Right not granted in connection with a Stock Option
may be exercised by the grantees delivery to the Committee
of a notice of exercise, in the form prescribed by the Committee.
C. Terms and Conditions. Stock
Appreciation Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, in its
sole discretion, including the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times established by the Committee. Stock
Appreciation Rights granted in connection with Stock Options
shall be exercisable only at such time or times and to the
extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 6
and this Section 8 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than,
an amount in cash
and/or
shares of Stock equal in value to the excess of the Fair Market
Value of one share of Stock over the base amount established by
the Committee, multiplied by the number of shares in respect of
which the Stock Appreciation Right shall have been exercised,
with the Committee having the right to determine the form of
payment. In the case of a Stock Appreciation Right granted in
connection with a Stock Option the base amount shall be the
exercise price of the related Stock Option.
(iii) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation
Right is related, if any, shall be deemed to have been exercised
for the purpose of the limitation set forth in Section 4 of
the Plan on the number of shares of Stock to be issued under the
Plan, but only to the extent of the number of shares issued
under the Stock Appreciation Right at the time of exercise, if
any, based on the value of the Stock Appreciation Right at such
time.
(iv) A Stock Appreciation Right granted in connection with
a Stock Option may be exercised only if and when the market
price of the Stock subject to the Stock Option exceeds the
exercise price of such Stock Option.
A. General Requirements. The Committee
may issues shares of Restricted Stock upon such terms and
conditions as the Committee deems appropriate under this
Section 9. Restricted Stock may be issued for consideration
or for no consideration (except as required by applicable law)
and subject to such restrictions as
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the Committee may determine. The Committee may establish
conditions under which restrictions on Restricted Stock lapse
over a period of time or according to such other criteria as the
Committee deems appropriate, including restrictions based upon
the achievement of specific performance goals.
B. Number of Shares. Subject to
Section 4 hereof, the Committee shall determine the number
of shares of Restricted Stock to be issued pursuant to any Grant
and the restrictions applicable to such shares.
C. Requirement of Employment or
Service. If the participant ceases to be employed
by, or provide service to, the Company, or if any other
specified conditions are not met, any Restricted Stock as to
which the restrictions have not then lapsed shall automatically
be forfeited to the Company, and those shares shall be
immediately returned to the Company. The Committee may provide
for complete or partial exceptions to this requirement as it
deems appropriate.
D. Restrictions on Transfer. A
participant may not sell, assign, transfer, pledge or otherwise
dispose of any Restricted Stock that remains subject to
forfeiture in accordance with the terms of the Grant thereof
except by will or in accordance with the laws of descent and
distribution upon death. Each certificate representing
Restricted Stock will contain a legend giving appropriate notice
of the restrictions in the Grant. The participant shall be
entitled to have the restrictive legend removed from a stock
certificate covering Restricted Stock as to which all
restrictions have lapsed. The Committee may determine that the
Company will not issue certificates for Grants of Restricted
Stock until all restrictions on such shares have lapsed, or that
the Company will retain possession of such certificates until
all restrictions on such shares have lapsed.
E. Right to Vote and To Receive
Dividends. The Committee shall determine to what
extent, and under what conditions, the holder of Restricted
Stock shall have the right to vote such shares and to receive
any dividends or other distributions paid on such shares at any
time that such shares remain subject to forfeiture. The
Committee may determine that a participants entitlement to
dividends or other distributions with respect to Restricted
Stock may be subject to achievement of performance goals or
other conditions.
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10.
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Long Term
Performance Awards.
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A. General Requirements. Long-Term
Performance Award means an award made pursuant to
Section 10 hereof that is payable in cash
and/or
shares of Common Stock (including Restricted Stock and
Performance Shares) in accordance with the terms of the grant,
based on Company, business unit
and/or
individual performance over a period of at least two years, in
each case as determined by the Committee and as set forth in the
grant letter.
B. Awards and Administration. Long Term
Performance Awards may be awarded either alone or in addition to
other awards granted under the Plan. Prior to award of a Long
Term Performance Award, the Committee shall determine the
nature, length and starting date of the performance period (the
performance period) for each Long Term Performance
Award, which shall be at least two years (subject to
Section 12 below). Performance periods may overlap and
participants may participate simultaneously with respect to Long
Term Performance Awards that are subject to different
performance periods
and/or
different performance factors and criteria. Prior to award of a
Long Term Performance Award, the Committee shall determine the
performance objectives to be used in valuing Long Term
Performance Awards and determine the extent to which such Long
Term Performance Awards have been earned. Performance objectives
may vary from participant to participant and between groups of
participants and shall be based upon such Company, business unit
and/or
individual performance factors and criteria as the Committee may
deem appropriate, as approved by the stockholders of the
Company. If the Committee has determined to comply with the
rules and regulations under Section 162(m) of the Code, the
Committee shall determine, in its sole discretion, the extent to
which the performance objectives for any Long Term Performance
Award should be disclosed to and approved by the stockholders of
the Company and otherwise comply with such rules and regulations.
At the beginning of each performance period, the Committee shall
determine for each Long Term Performance Award subject to such
performance period the range of dollar values or number of
shares of Common Stock to be awarded to the participant at the
end of the performance period if and to the extent that the
relevant measure(s) of performance for such Long Term
Performance Award is (are) met; provided, however, that no
participant shall be awarded a Long Term Performance Award with
a dollar value in excess of One Million Dollars ($1,000,000)
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(determined as of the time such Long Term Performance Award is
granted) for the performance period to which the Long Term
Performance Award relates. Such dollar values or number of
shares of Common Stock may be fixed or may vary in accordance
with such performance
and/or other
criteria as may be specified by the Committee, in its sole
discretion.
C. Adjustment of Awards. In the event of
special or unusual events or circumstances affecting the
application of one or more performance objectives to a Long Term
Performance Award, the Committee may revise the performance
objectives
and/or
underlying factors and criteria applicable to the Long Term
Performance Awards affected, to the extent deemed appropriate by
the Committee, in its sole discretion, to avoid unintended
windfalls or hardship.
D. Termination of Service. Unless
otherwise provided in the applicable award agreement(s), if a
participant terminates service with the Corporation during a
performance period because of death, disability or retirement
(as such terms may be defined in the grant letter with respect
to such Long Term Performance Award), such participant (or his
estate) shall be entitled to a payment with respect to each
outstanding Long Term Performance Award at the end of the
applicable performance period:
(i) based, to the extent relevant under the terms of the
award, upon the Company, business unit
and/or
individual performance for the portion of such performance
period ending on the date of termination and the Company,
business unit
and/or
individual performance for the entire performance
period, and
(ii) pro-rated, where deemed appropriate by the Committee,
for the portion of the performance period during which the
participant was employed by the Company, all as determined by
the Committee, in its sole discretion.
However, the Committee may provide for an earlier payment in
settlement of such award in such amount and under such terms and
conditions as the Committee deems appropriate, in its sole
discretion.
Except as otherwise determined by the Committee, if a
participant terminates service with the Company during a
performance period for any other reason, then such participant
shall not be entitled to any payment with respect to the Long
Term Performance Awards subject to such performance period,
unless the Committee shall otherwise determine, in its sole
discretion.
In the event of a Change of Control (as such term is defined in
the grant letter with respect to such Long Term Performance
Award), the Committee may, in its sole discretion, cause all
conditions applicable to a Long Term Performance Award to
immediately terminate and a stock certificate or stock
certificates representing shares of Common Stock subject to such
award, or cash, as the case may be, to be issued
and/or
delivered to the participant.
E. Form of Payment. The earned portion of
a Long Term Performance Award may be paid currently or on a
deferred basis, together with such interest or earnings
equivalent, if any, as may be determined by the Committee, in
its sole discretion. Payment shall be made in the form of cash
or whole shares of Common Stock, including Restricted Stock,
either in a lump sum payment or in annual installments
commencing as soon as practicable after the end of the relevant
performance period, all as the Committee shall determine at or
after grant. If and to the extent a Long Term Performance Award
is payable in Common Stock and the full amount of such value is
not paid in Common Stock, then the shares of Common Stock
representing the portion of the value of the Long Term
Performance Award not paid in Common Stock shall again become
available for award under the Plan, subject to Section 4.
Prior to any payment, the Committee shall certify that all of
the performance goals or other material terms of the award have
been met.
A. General
Requirements. Performance Share means
an award made pursuant to Section 11 hereof of the right to
receive shares of Common Stock at the end of a specified
performance period.
B. Awards and Administration. The
Committee shall determine the persons to whom and the time or
times at which Performance Shares shall be awarded, the number
of Performance Shares to be awarded to any such person, the
duration of the period (the performance period)
during which, and the conditions under which, receipt of the
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shares of Common Stock will be deferred, and the other terms and
conditions of the award in addition to those set forth below.
The Committee may condition the receipt of shares of Common
Stock pursuant to a Performance Share award upon the attainment
of specified performance goals or such other factors or criteria
as the Committee shall determine, in its sole discretion.
The provisions of Performance Share awards need not be the same
with respect to each participant, and such awards to individual
participants need not be the same in subsequent years.
C. Terms and Conditions. Performance
Shares awarded pursuant to this Section 11 shall be subject
to the following terms and conditions and such other terms and
conditions, not inconsistent with the terms of this Plan, as the
Committee shall deem desirable:
(i) Conditions. The Committee, in its
sole discretion, shall specify the performance period during
which, and the conditions under which, the receipt of shares of
Common Stock covered by the Performance Share award will be
deferred.
(ii) Stock Certificate. At the expiration
of the performance period, if the Committee, in its sole
discretion, determines that the conditions specified in the
Performance Share agreement have been satisfied, a stock
certificate or stock certificates representing the number of
shares of Common Stock covered by the Performance Share award
shall be issued and delivered to the participant. A participant
shall not be deemed to be the holder of Common Stock, or to have
the rights of a holder of Common Stock, with respect to the
Performance Shares unless and until a stock certificate or stock
certificates representing such shares of Common Stock are issued
to such Participant.
(iii) Death, Disability or
Retirement. Subject to the provisions of the
Plan, if a participant terminates service with the Corporation
during a performance period because of death, disability or
retirement (as such terms may be defined in the grant letter
with respect to such Performance Share award), such participant
(or his estate) shall be entitled to a payment with respect to
each outstanding Performance Share award at the end of the
applicable performance period:
(a) based, to the extent relevant under the terms of the
award, upon the attainment of specified performance goals or
such other factors or criteria as the Committee set forth in the
Performance Share award for the portion of such performance
period ending on the date of termination and the attainment of
such goals or other factors or criteria for the entire
performance period, and
(b) pro-rated, where deemed appropriate by the Committee,
for the portion of the performance period during which the
participant was employed by the Company, all as determined by
the Committee, in its sole discretion.
However, the Committee may provide for an earlier payment in
settlement of such award in such amount and under such terms and
conditions as the Committee deems appropriate, in its sole
discretion.
(iv) Termination of Service. Unless
otherwise determined by the Committee at the time of grant, the
Performance Shares will be forfeited upon a termination of
service during the performance period for any reason other than
death, disability or retirement.
(v) Change of Control. In the event of a
Change of Control (as such term is defined in the grant letter
with respect to such Performance Share award), the Committee
may, in its sole discretion, cause all conditions applicable to
the Performance Shares to immediately terminate and a stock
certificate or stock certificates representing shares of Common
Stock subject to the Performance Share award to be issued and
delivered to the participant.
12. Qualified
Performance-Based Compensation.
A. Designation as Qualified Performance-Based
Compensation. The Committee may determine that
Stock Appreciation Rights, Restricted Stock, Long Term
Performance Awards or Performance Shares granted to an employee
shall be considered qualified performance-based
compensation under Code section 162(m). The
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provisions of this Section 12 shall apply to any such
grants that are to be considered qualified
performance-based compensation under Code
section 162(m). To the extent that grants of Stock
Appreciation Rights, Restricted Stock, Long Term Performance
Awards or Performance Shares are designated as qualified
performance-based compensation under Code
section 162(m) are made, no such grant may be made as an
alternative to another grant that is not designated as
qualified performance based compensation but instead
must be separate and apart from all other grants made.
B. Performance Goals. When Stock
Appreciation Rights, Restricted Stock, Long Term Performance
Awards or Performance Shares that are to be considered
qualified performance-based compensation are
granted, the Committee shall establish in writing (i) the
objective performance goals that must be met, (ii) the
period during which performance will be measured, (iii) the
maximum amounts that may be paid if the performance goals are
met, and (iv) any other conditions that the Committee deems
appropriate and consistent with the Plan and the requirements of
Code section 162(m) for qualified performance-based
compensation. The performance goals shall satisfy the
requirements for qualified performance-based
compensation, including the requirement that the
achievement of the goals be substantially uncertain at the time
they are established and that the performance goals be
established in such a way that a third party with knowledge of
the relevant facts could determine whether and to what extent
the performance goals have been met. The Committee shall not
have discretion to increase the amount of compensation that is
payable upon achievement of the designated performance goals,
but the Committee may reduce the amount of compensation that is
payable upon achievement of the designated performance goals.
C. Criteria Used for Objective Performance
Goals. In setting the performance goals for
grants designated as qualified performance-based
compensation pursuant to this Section 12, the
Committee shall use objectively determinable performance goals
based on one or more of the following criteria: pre- or
after-tax net earnings, sales or revenue, operating earnings,
operating cash flow, return on net assets, return on
stockholders equity, return on assets, return on capital,
stock price growth, gross or net profit margin, earnings per
share, price per share, market share or strategic business
criteria consisting of one or more Company objectives based on
meeting specified revenue goals, market penetration goals,
geographic business expansion goals, cost targets, product
development goals, goals relating to acquisitions or
divestitures or any other objective measure derived from any of
the foregoing criteria. The performance goals may relate to the
participants business unit or the performance of the
Company as a whole, or any combination of the foregoing.
Performance goals need not be uniform as among participants.
D. Timing of Establishment of Goals. The
Committee shall establish the performance goals in writing
either before the beginning of the performance period or during
a period ending no later than the earlier of
(i) 90 days after the beginning of the performance
period or (ii) the date on which 25% of the performance
period has been completed, or such other date as may be required
or permitted under applicable regulations under Code
section 162(m).
E. Announcement of Results. The Committee
shall certify and announce the results for the performance
period to all participants after the Company announces the
Companys financial results for the performance period. If
and to the extent that the Committee does not certify that the
performance goals have been met, the applicable grants for the
performance period shall be forfeited or shall not be paid, as
applicable.
F. Death, Disability or Other
Circumstances. The Committee may provide that
grants shall be payable or restrictions shall lapse, in whole or
in part, in the event of the Participants death or
disability during the performance period, a Change of Control or
under other circumstances consistent with the Treasury
regulations and rulings under Code section 162(m).
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13.
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Adjustment
in Event of Recapitalization of the Company
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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
Grant and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Grants
have yet been granted or which have been returned to the Plan
upon cancellation or expiration of a Stock Option, forfeiture of
Restricted Stock or issuance of fewer shares of Common Stock
upon payment of a Long Term Performance Award or Performance
Share award than were the original subject of such awards,
including the maximum number of shares of Common Stock for which
Grants may be granted to any employee in any calendar year, as
well as the price per share of
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Common Stock covered by any 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 Grant.
B. Dissolution or Liquidation. In the
event of the proposed dissolution or liquidation of the Company,
all outstanding Awards 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 Award shall
terminate as of a date fixed by the Committee and (i) give
each holder of a Stock Option the right to exercise the
holders 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,
(ii) subject to the provisions of Code section 162(m),
determine that the restrictions with respect to any Restricted
Stock shall lapse, in whole or in part, or (iii) subject to
the provisions of Code section 162(m), determine to pay all
or any portion of a Long Term Performance Award or Performance
Share award notwithstanding that the performance criteria set
forth therein have not been satisfied in full or that the
performance period has not expired.
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 an Award to be
assumed or an equivalent Award 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 holders
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, (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
holders Stock Option prior to such date, (iv) subject
to the provisions of Code section 162(m), determine that
the restrictions with respect to any Restricted Stock shall
lapse, in whole or in part, or (v) subject to the
provisions of Code section 162(m), determine to pay all or
any portion of a Long Term Performance Award or Performance
Share award notwithstanding that the performance criteria set
forth therein have not been satisfied in full or that the
performance period has not expired.
The Committee, within its discretion, shall have authority to
amend the Plan and the terms of any Grant 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 recipient of any Grant previously made hereunder alter or
impair any right or obligation under such Grant, except as
specifically authorized herein.
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15.
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Rights of
a Stockholder
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The recipient of any Grant under the Plan, unless otherwise
provided by the Plan or the award letter evidencing such Grant,
shall have no rights as a stockholder unless and until
certificates for shares of Common Stock are issued and delivered
to him without the restrictive legend contemplated by
Section 8 hereof.
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16.
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No
Guaranty of Employment or Participation
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Nothing contained in the Plan or in any award letter with
respect to a Grant shall confer upon any participant the right
to continue in the employment of the Company or any subsidiary
of the Company or affect any right that
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the Company or any subsidiary of the Company may have to
terminate the employment of such participant. No person shall
have a right to be selected to participate in the Plan or,
having been so selected, to receive any future Grants.
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, a participant 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 issued upon payment of a
Long Term Performance Award or Performance Share award 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, the lapse of any restrictions on the
Restricted Stock or the payment of a Long Term Performance Award
or Performance Share award to pay the amount of tax that would
otherwise be required by law to be withheld by the Company as a
result of any such exercise, lapse or payment. 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.
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18.
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Non-Uniform
Determinations
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The Committees determinations under the Plan (including
without limitation determinations of the persons to receive
Grants, the form, amount and timing of such Grants and the terms
and provisions of Grants and the award letters evidencing same)
need not be uniform and may be made selectively among persons
who receive, or are eligible to receive, Grants under the Plan
whether or not such persons are similarly situated.
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19.
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Reservation
of Shares
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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 Companys
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.
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20.
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Effect on
Other Plans
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Participation in the Plan shall not affect an employees
eligibility to participate in any other benefit or incentive
plan of the Company or any subsidiary of the Company. Any Grants
made 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.
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 a participant 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 a
participant 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 participant shall forfeit all unexercised Stock Options, all
exercised Stock Options under which the Company has not yet
delivered the certificates, and all Restricted Stock, Stock
Appreciation Rights, Long Term Performance Awards and
Performance Shares. The decision of the Committee in
interpreting and applying the provisions of this Section 21
shall be final. No decision of the Committee, however, shall
affect the finality of the discharge or termination of such
participant by the Company or any subsidiary of the Company in
any manner.
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22.
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No
Prohibition on Corporate Action
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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 Companys best interest, whether or
not such action could have an adverse effect on the Plan or any
Grants made hereunder, and no participant or participants
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.
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.
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24.
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Miscellaneous
Provisions
|
A. Compliance with Plan Provisions. No
participant 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 or Restricted Stock until a written award
letter shall have been executed by the Company and all the
terms, conditions and provisions of the Plan and the Grant
applicable to such participant (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 or Restricted
Stock award unless the Companys 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 Grants made 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 Grant. By
accepting any Stock Option, Restricted Stock or other benefit
under the Plan, each participant 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.
A-13
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, the issuance of
Restricted Stock hereunder and the other obligations of the
Company hereunder, including Stock Appreciation Rights, Long
Term Performance Awards and Performance Shares, 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 award of
Restricted Stock, 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,
issuance of Restricted Stock, Stock Appreciation Rights, Long
Term Performance Awards and Performance Shares under this
provision shall not extend the term of such Stock Option or
modify the forfeiture provisions of such Restricted Stock, Stock
Appreciation Rights, Long Term Performance Awards or Performance
Shares. 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), Restricted Stock, Stock
Appreciation Rights, Long Term Performance Awards or Performance
Shares that shall lapse or be forfeited 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, Restricted Stock, Stock Appreciation Rights,
Long Term Performance Awards and Performance Shares 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, the issuance of any Restricted Stock, Stock Appreciation
Rights, Long Term Performance Awards and Performance Shares.
H. Governing Law. The Plan and all award
letters 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 Grant shall be treated as compensation for purposes of
calculating an option holders 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 Companys 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 13, 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
participant 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 participants death. Each designation will
revoke all prior designations by the same participant, must be
in a form prescribed by the Committee, and will be effective
only when filed by the participant in writing with the Committee
during the option holders lifetime. In the absence of any
such designation, benefits remaining unpaid at a
participants death shall be paid to or exercised by the
participants surviving spouse, if any, or otherwise to or
by his or her estate.
A-14
L. Code Section 409A Compliance. It
is intended that this amended and restated Plan be drafted and
administered in compliance with Code section 409A
including, but not limited to, any future amendments to Code
section 409A, and any other Internal Revenue Service or
other governmental rulings or interpretations (IRS
Guidance) issued pursuant to Section 409A so as not
to subject the Participant to payment of interest or any
additional tax under Code section 409A. In furtherance
thereof, if payment or provision of any amount or benefit
hereunder that is subject to Code section 409A at the time
specified herein would subject such amount or benefit to any
additional tax under Code section 409A, the payment or
provision of such amount or benefit shall be postponed to the
earliest commencement date on which the payment or provision of
such amount or benefit could be made without incurring such
additional tax. In addition, to the extent that any IRS Guidance
issued under Code section 409A would result in the
Participant being subject to the payment of interest or any
additional tax under Code section 409A, the parties agree,
to the extent reasonably possible, to amend this Plan in order
to avoid the imposition of any such interest or additional tax
under Code section 409A, which amendment shall have the
minimum economic effect necessary and be reasonably determined
in good faith by the Company and the Participant.
A-15
ANNUAL MEETING OF STOCKHOLDERS OF eResearchTechnology, Inc. April 26, 2007 Please date, sign
and mail your proxy card in the envelope provided as soon as possible. Please detach
along perforated line and mail in the envelope provided. THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE ELECTION OF DIRECTORS AND FOR PROPOSALS 2 AND 3. PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x FOR
AGAINST ABSTAIN 1. Election of Directors: 2. Approval and Adoption of Amended and Restated 2003
Equity Incentive Plan. NOMINEES: FOR ALL NOMINEES O Sheldon M. Bonovitz O Gerald A. Faich, MD, MPH
O Elam M. Hitchner 3. Ratification of the appointment of KPMG LLP as independent WITHHOLD AUTHORITY
FOR ALL NOMINEES registered public accountants. FOR ALL EXCEPT (See instructions below) 4. In his
or her discretion, the Proxy is authorized to vote upon such other business as may properly come
before the meeting. You are urged to sign and return your proxy without delay in the return
envelope provided for that purpose which requires no postage if mailed in the United States.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark FOR ALL EXCEPT and
fill in the circle next to each nominee you wish to withhold, as shown here: To change the address
on your account, please check the box at right and indicate your new address in the address space
above. Please note that changes to the registered name(s) on the account may not be submitted via
this method. Signature of Stockholder Date: Signature of Stockholder Date: Note: Please sign
exactly as your name or names appear on this Proxy. When shares are held jointly, each holder
should sign. When signing as executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full corporate name by duly
authorized officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 |
PROXY PROXY eRESEARCHTECHNOLOGY, INC. 2007 ANNUAL MEETING OF STOCKHOLDERS PROXY FOR HOLDERS OF
COMMON STOCK Proxy Solicited on Behalf of the Board of Directors The undersigned hereby appoints
JOEL MORGANROTH, MD, MICHAEL MCKELVEY, and RICHARD BARON, or any of them, with full power of
substitution, the proxy of the undersigned to represent the undersigned at the Annual Meeting of
Stockholders of eResearchTechnology, Inc. to be held on April 26, 2007, or any adjournment or
postponement thereof, and to vote the number of shares of the Common Stock of eResearchTechnology,
Inc. which the undersigned would be entitled to vote if personally present. This proxy when
properly executed will be voted in the manner directed herein by the undersigned stockholder. If no
direction is made, shares of the Common Stock represented by this proxy will be voted FOR the
election of the nominees listed on the reverse side; FOR the approval and adoption of the Amended
and Restated 2003 Equity Incentive Plan; FOR ratification of KPMG LLP as independent registered
public accountants; and in the discretion of the proxy holders on any other matter which comes
before the meeting. This proxy may be revoked at any time prior to the time it is voted. (Continued
and to be signed on the reverse side.) 14475 |