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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14a-6(e)(2))
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-12
TALK AMERICA HOLDINGS, 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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TALK AMERICA HOLDINGS, INC.
12020 Sunrise Valley Drive
Reston, Virginia 20190
(703) 391-7500
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 6, 2003
To the Stockholders of
Talk America Holdings, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Talk America Holdings, Inc., a Delaware corporation (the
"Company"), will be held on June 18, 2003, at 10:00 a.m., Eastern time, at The
Sheraton Reston Hotel, 11810 Sunrise Valley Drive, Reston, Virginia 20191 for
the following purposes:
(1) To consider and vote upon a proposal to elect two directors, each for a
term of three years and until his successor has been elected and qualified;
(2) To consider and vote upon a proposal to ratify and approve the
appointment of PricewaterhouseCoopers LLP as the independent certified
public accountants for the Company for 2003;
(3) To consider and vote upon a proposal to ratify and approve the 2003
Long Term Incentive Plan; and
(4) To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on April 21, 2003 are
entitled to notice of and to vote at the meeting or any adjournment or
adjournments thereof.
The Board of Directors hopes that you will be able to attend the Annual
Meeting. Whether or not you are able to be present in person at the Annual
Meeting, we urge you to sign and date the enclosed proxy and return it at your
earliest convenience in the enclosed envelope. If you attend the Annual Meeting,
you may revoke the proxy and vote in person if you desire. Please read the
enclosed proxy statement, which contains information relevant to the actions to
be taken at the Annual Meeting.
By Order of the Board of Directors,
/s/ Aloysius T. Lawn, IV
Aloysius T. Lawn, IV, Secretary
Reston, Virginia
May 6, 2003
TALK AMERICA HOLDINGS, INC.
12020 Sunrise Valley Drive
Reston, Virginia 20190
(703) 391-7500
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors (the "Board") of Talk America Holdings, Inc., a
Delaware corporation (the "Company"), the principal executive offices of which
are located at 12020 Sunrise Valley Drive, Reston, Virginia 20190, hereby
solicits your proxy in the form enclosed for use at the Annual Meeting of
Stockholders to be held on June 18, 2003 (the "Annual Meeting"), or at any
adjournment or adjournments thereof. The Annual Meeting will be held at The
Sheraton Reston Hotel, 11810 Sunrise Valley Drive, Reston, Virginia 20191 at
10:00 a.m., Eastern time. The Company will bear the expenses of soliciting your
proxy. This proxy statement and the accompanying form of proxy are first being
released for mailing to stockholders on or about May 6, 2003.
We urge you to date, sign and mail your proxy promptly to make certain that
your shares will be voted at the Annual Meeting. Proxies in the enclosed form
that are received in time for the Annual Meeting will be voted at the Annual
Meeting in accordance with the instructions, if any, indicated on the proxy
card. If no instruction is given, the proxy will be voted in favor of the
nominees for election as directors specified under "PROPOSAL 1: ELECTION OF
DIRECTORS"; in favor of the ratification and approval of the selection of
auditors as described in "PROPOSAL 2: RATIFICATION OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS"; and in favor of the ratification and approval of the
adoption of the 2003 Long Term Incentive Plan as described in "PROPOSAL 3:
APPROVAL OF THE 2003 LONG TERM INCENTIVE PLAN." Any proxy may be revoked at any
time before it is exercised by giving written notice of such revocation or
delivering a later dated proxy to the Corporate Secretary of the Company prior
to the Annual Meeting, or by voting in person at the Annual Meeting.
VOTING SECURITIES
Only stockholders of record at the close of business on April 21, 2003 are
entitled to vote at the Annual Meeting. On April 21, 2003, there were
26,175,205 shares of Company common stock, par value $.01 per share, outstanding
and entitled to vote (excluding 1,315,789 shares of common stock held in
treasury). Each share of common stock is entitled to one vote. The presence in
person or by proxy at the Annual Meeting of the holders of a majority of the
shares of common stock will constitute a quorum for the transaction of business.
With respect to Proposal 1, the nominees in Class II for election as
directors who receive the greatest number of votes cast at the Annual Meeting,
assuming that a quorum is present, shall be elected as directors. A withheld
vote on any nominee will not affect the voting results.
With respect to Proposal 2, approval will require the affirmative vote of a
majority of the shares present in person or represented by proxy at the Annual
Meeting and entitled to vote.
With respect to Proposal 3, approval will require the affirmative vote of
the holders of a majority of the total votes cast at the Annual Meeting in
respect of the proposal.
Brokers who hold shares in street name do not have the authority to vote on
certain matters for which they have not received instructions from beneficial
owners. Such broker non-votes (arising from the lack of instructions from
beneficial owners) will not affect the outcome of the vote on Proposal 1,
Proposal 2 or Proposal 3.
It is anticipated that sufficient stockholders will attend the meeting, in
person or by proxy, to constitute a quorum for the transaction of business.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company common stock as of March 31,
2003 (except as otherwise noted) by (i) each stockholder who is known by the
Company to own beneficially more than five percent of the outstanding common
stock, (ii) each of the Company's directors and nominees for director, (iii)
each of the executive officers named below and (iv) all current directors and
executive officers of the Company as a group. Except as otherwise indicated
below, the Company believes that the beneficial owners of the common stock
listed below have sole investment and voting power with respect to such shares.
NAME OF BENEFICIAL OWNER OR IDENTITY OF GROUP NUMBER OF SHARES PERCENT OF SHARES
BENEFICIALLY OWNED (1) BENEFICIALLY OWNED
Paul Rosenberg
650 N. E. 5th Avenue
Boca Raton, Fl 33432
1,919,995 (2) 7.3%
Gabriel Battista 655,555 (3) 2.4%
Mark S. Fowler 108,674 (3) *
Arthur J. Marks 61,666 (3) *
Edward B. Meyercord, III 244,820 (3) *
Ronald R. Thoma 39311 (3) *
Jeffrey Earhart 81,434 (3) *
Aloysius T. Lawn, IV 145,660 (3) *
Warren A. Brasselle 89,278 (3) *
David G. Zahka 40,000 (3) *
All directors and executive officers as a group
(12 persons) 2,186,005 (3) 7.8%
* Less than 1%
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission (the "SEC") and,
accordingly, may include securities owned by or for, among others, the spouse,
children or certain other relatives of such person. The same shares may be
beneficially owned by more than one person. Beneficial ownership may be
disclaimed as to certain of the securities.
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(2) The foregoing information is derived from the Schedule 13D/A filed by
Paul Rosenberg, the Rosenberg Family Limited Partnership, PBR, Inc. and the New
Millennium Charitable Foundation on February 12, 1999.
(3) Includes shares of Company common stock that could be acquired upon
exercise of options exercisable within sixty (60) days after March 31, 2003 as
follows: Gabriel Battista-605,555; Edward B. Meyercord, III-194,444; Aloysius
T. Lawn, IV-114,444; Jeffrey Earhart-76,666; Warren A. Brasselle-79,445; and
David G. Zahka-33,334.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's directors and certain officers and persons who are the beneficial
owners of more than 10 percent of the common stock of the Company are required
to report their ownership of the common stock, options and certain related
securities and any changes in that ownership to the SEC. Specific due dates for
these reports have been established, and the Company is required to report any
failure to file by such dates in 2002. The Company believes that all of the
required filings have been made in a timely manner, except that the executive
officers of the Company who participated in the Company's Employee Option
Exchange (described under "EXECUTIVE COMPENSATION - Stock Options" below) that
was completed in April 2002, including Messrs. Battista, Meyercord, Lawn,
Earhart, Brasselle, Griffo, and Vinall, reported the cancellation of their
options that were exchanged in their timely filed Form 4 reports of the issuance
of the new options delivered in the exchange, rather than in the earlier Form 5
report. In making this statement, the Company has relied on copies of the
reporting forms received by it.
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation provides
that the Board shall consist of not less than one nor more than 15 persons, the
exact number to be fixed and determined from time to time by resolution of the
Board. The Board has acted to fix the number of directors at five. Pursuant to
the terms of the Company's Amended and Restated Certificate of Incorporation,
the Board is divided into three classes, as nearly equal in number as reasonably
possible, with terms currently expiring at the annual meeting of stockholders in
2003 ("Class II"), the annual meeting of stockholders in 2004 ("Class I"), and
the annual meeting of stockholders in 2005 ("Class III"), respectively.
At the Annual Meeting, Arthur Marks and Edward B. Meyercord, III are to be
elected as Class II directors, for terms to expire at the annual meeting of
stockholders in 2006. Messrs. Marks and Meyercord will each serve until his
successor has been elected and qualified. Mr. Marks currently serves as a
director of the Company. Mr. Meyercord currently serves as the President and a
director of the Company. The proxies solicited hereby, unless directed to the
contrary therein, will be voted for the nominees. The nominees have consented
to being named in this proxy statement and to serve if elected. The Board has
no reason to believe that the nominees for election as director will not be
candidates or will be unable to serve, but if either occurs it is intended that
the shares represented by proxies will be voted for such substituted nominee or
nominees as the Board, in its discretion, may designate.
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The following sets forth certain biographical information, present
occupation and business experience for the past five years for the nominees for
election as directors and the continuing Class I and Class III directors.
The Board of Directors recommends a vote FOR the Class II nominees listed below.
CLASS II: NOMINEES WHOSE TERMS WILL EXPIRE IN 2003
ARTHUR MARKS, AGE 58. Mr. Marks has been a director of the Company since August
1999. He is currently a general partner of Valhalla Partners, a private equity
fund. From 1984 through 2001, Mr. Marks was a General Partner of New Enterprise
Associates, a private equity fund that invests in early stage companies in
information technology and medical and life sciences. Mr. Marks serves as a
director of two publicly traded software companies, Mobius Management Systems
and Progress Software Corp., as well as one publicly traded communications
equipment company, Advanced Switching Communications. He is also a director of a
number of privately held companies.
EDWARD B. MEYERCORD, III, AGE 37. Mr. Meyercord currently serves as the
President and a director of the Company. Mr. Meyercord was elected to the Board
and President of the Company in May 2001. He served as Chief Financial Officer
of the Company between August 1999 and December 2001 and Chief Operating Officer
of the Company between January 2000 and May 2001. He joined the Company in
September of 1996 as the Executive Vice President, Marketing and Corporate
Development. Prior to joining the Company, Mr. Meyercord served as Vice
President in the Global Telecommunications Corporate Finance Group at Salomon
Brothers, Inc., based in New York. Prior to Salomon Brothers, he worked in the
corporate finance department at PaineWebber Incorporated.
CLASS I: INCUMBENTS WHOSE TERMS WILL EXPIRE IN 2004
GABRIEL BATTISTA, AGE 58. Mr. Battista currently serves as Chairman of the
Board and Chief Executive Officer of the Company. Prior to joining the Company
in January of 1999 as a director and Chief Executive Officer, Mr. Battista
served as Chief Executive Officer of Network Solutions Inc., an Internet domain
name registration company. Prior to joining Network Solutions, Mr. Battista
served both as CEO and as President and Chief Operating Officer of Cable &
Wireless, Inc., a telecommunication provider. His career has also included
management positions at US Sprint, GTE Telenet and The General Electric Company.
Mr. Battista serves as a director of Capitol College and Systems & Computer
Technology Corporation (SCTC).
RONALD R. THOMA, AGE 68. Mr. Thoma is currently a business consultant, having
retired in early 2000 as an Executive Vice President of Crown Cork and Seal
Company, Inc., a manufacturer of packaging products, where he had been employed
since 1955. Mr. Thoma has served as a director of the Company since 1995.
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CLASS III: INCUMBENT WHOSE TERM WILL EXPIRE IN 2005
MARK S. FOWLER, AGE 61. Mr. Fowler has been a director of the Company since
September 1999. From 1981 to 1987, he was the Chairman of the FCC. From 1987
to 1994, Mr. Fowler was Senior Communications Counsel at Latham & Watkins, a law
firm, and of counsel from 1994 to 2000. From 1991 to 1994, he was the founder,
Chairman and Chief Executive Officer of PowerFone Holdings Inc., a
telecommunications company. From 1994 to 2000 he was a founder and chairman of
UniSite, Inc., a developer of antenna sites for use by multiple wireless
operators. From 1999 to December 2002, Mr. Fowler served as a director of
Pac-West Telecomm, Inc., a competitive local exchange carrier. From 1999 to
date, Mr. Fowler has served as a director of Beasley Broadcast Group, a radio
broadcasting company. Mr. Fowler is also a founder and serves as Chairman of
the Board of Directors of AssureSat, Inc., a provider of telecommunications
satellite backup services.
THE BOARD OF DIRECTORS
The Board met or acted by written consent in lieu of a meeting 8 times in
2002. During the fiscal year ended December 31, 2002, each then-incumbent
director attended at least 75% of the aggregate number of meetings of the Board
and meetings of the committees of the Board on which he served.
BOARD COMMITTEES
The Board has established the following two committees, the function and
current members of which are noted below.
Audit Committee. In 2002, the Audit Committee consisted of Arthur J. Marks,
Mark S. Fowler and Ronald R. Thoma. The members of the Audit Committee are
independent, as that term is defined in the National Association of Securities
Dealers listing standards. The Audit Committee's primary purpose is to oversee
the Company's accounting and financial reporting processes and the audits of the
Company's financial statements. Without limitation of the generality of the
foregoing, the Audit Committee's primary functions are to oversee: the integrity
of the Company's financial statements and financial reporting structure; the
Company's compliance with related legal and regulatory requirements; the
independent auditor's qualifications and independence; and the performance of
the Company's independent auditors. In addition, the Audit Committee is
directly and solely responsible for the appointment, replacement, compensation
and oversight of the work of the independent auditors. The Audit Committee met
5 times in 2002.
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AUDIT COMMITTEE REPORT
The following report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
report by reference therein.
During 2000, the Audit Committee of the Board developed an updated charter
for the Committee, which was approved by the full Board on March 20, 2000.
Management and the Audit Committee, with assistance of legal counsel, have been
reviewing the various proposals and recently adopted rules with respect to
accounting and other matters. An updated charter for the Audit Committee was
approved by the full Board on April 29, 2003. A copy of the updated charter is
attached hereto as Exhibit A. The updated charter revises the prior charter by
providing that the Audit Committee: engages and hires the Company's independent
auditors, approves related party transactions and establishes procedures for the
receipt, retention and treatment of complaints regarding Company accounting and
auditing matters. The Audit Committee reviews and reassesses this charter at
least annually.
While management is responsible for the preparation and integrity of the
Company's financial statements, accounting and financial reporting principles
and internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations, the Audit Committee's
primary purpose is to oversee the Company's accounting and financial reporting
processes and the audits of the Company's financial statements. The Company's
independent auditors, PricewaterhouseCoopers LLP, are responsible for performing
an independent audit of the consolidated financial statements and expressing an
opinion on the conformity of those financial statements with generally accepted
accounting principles.
In fulfilling its oversight responsibilities, the Audit Committee has
reviewed and discussed the audited financial statements for fiscal 2002 with the
Company's management and has discussed with PricewaterhouseCoopers LLP the
matters that are required to be discussed by Statement on Auditing Standards No.
61, Communication with Audit Committees. In addition, PricewaterhouseCoopers LLP
has provided the Audit Committee with the written disclosures and the letter
required by the Independence Standards Board Standard No.1, Independence
Discussions with Audit Committees, and the Audit Committee has discussed with
PricewaterhouseCoopers LLP their independence.
Based on these reviews and discussions, the Audit Committee recommended to
the Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002, for filing with the SEC.
THE AUDIT COMMITTEE
Arthur J. Marks, Chairman
Mark S. Fowler
Ronald R. Thoma
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Compensation Committee. In 2002, the Compensation Committee consisted of Mark
S. Fowler and Ronald R. Thoma. The Compensation Committee is responsible for
determining compensation for the Company's executive officers and currently
administers the 1998 Long Term Incentive Plan, the 2000 Long Term Incentive Plan
and the 2001 Non-Officer Long Term Incentive Plan and reviews and approves the
grant of options to employees of the Company. The Compensation Committee met or
took action by written consent in lieu of a meeting 20 times during 2002.
Although the Board has not established a nominating or similar committee,
the Board will consider stockholder nominations for directors submitted in
accordance with the procedure set forth in Section 402 of the Company's Bylaws.
The procedure provides that a notice relating to the nomination of directors
must be timely given in writing to the Chairman of the Board of the Company
prior to the meeting. To be timely, notice relating to the nomination of
directors must be delivered not less than 14 days nor more than 50 days prior to
any such meeting of stockholders called for the election of directors. Notice
to the Company from a stockholder who proposes to nominate a person at a meeting
for election as a director must be accompanied by each proposed nominee's
written consent and contain, to the extent known to the notifying stockholder,
the name, address and principal occupation of each proposed nominee, the total
number of shares of capital stock of the Company that will be voted for each of
the proposed nominees, the name and address of the notifying stockholder, the
number of shares of capital stock of the Company owned by each notifying
stockholder and the information regarding the proposed nominee that would be
required to be disclosed in a proxy statement filed under the Securities
Exchange Act of 1934. Stockholder nominations not made in accordance with this
procedure may be disregarded by the Chairman, who may instruct that all votes
cast for each such nominee be disregarded.
COMPENSATION OF DIRECTORS
The Company currently pays non-employee directors an annual retainer of
$10,000. Directors are eligible to receive, and have been granted in the past,
options to purchase shares of common stock of the Company. No options were
granted in 2002. Non-employee directors are also reimbursed for reasonable
expenses incurred in connection with attendance at Board meetings or meetings of
committees thereof.
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EXECUTIVE OFFICERS
As of March 31, 2003:
NAME AGE POSITION
------------------------ --- -----------------------------------------------
Gabriel Battista 58 Chairman of the Board and Chief Executive
Officer of the Company and a Director
Edward B. Meyercord, III 37 President of the Company and a Director
Warren A. Brasselle 45 Senior Vice President - Operations
Jeffrey Earhart 41 Senior Vice President - Customer Operations
Kevin D. Griffo 42 Executive Vice President - Sales and Marketing
Aloysius T. Lawn, IV 44 Executive Vice President - General Counsel and
Secretary
George Vinall 47 Executive Vice President - Business Development
Thomas M. Walsh 43 Senior Vice President - Finance and Treasurer
David G. Zahka 43 Chief Financial Officer
All officers are elected annually by the Board and hold office until their
successors are elected and qualified.
The backgrounds of Messrs. Battista and Meyercord are set forth above under
"PROPOSAL 1: ELECTION OF DIRECTORS."
WARREN A. BRASSELLE. Since April 2000, Mr. Brasselle has served as Senior Vice
President - Operations for the Company. Prior to joining the Company, Mr.
Brasselle was Vice President of Operations for Cable and Wireless North America
since 1996, where he was broadly responsible for the design, provisioning, and
maintenance of Cable & Wireless' voice, data, and IP network. Mr. Brasselle also
held a variety of operational positions at MCI, now MCI WorldCom Inc. and
Williams Telecommunications.
JEFFREY EARHART. Mr. Earhart currently serves as Senior Vice President -
Customer Operations of the Company. Between 1997 and 2000, he served the
Company as Vice President, Operations. Mr. Earhart originally joined the Company
as its Director of Retail Sales and Provisioning in 1990, a position he held
until 1992. Prior to rejoining the Company in 1997, Mr. Earhart served as
President of Collective Communications Services, an independent long distance
reseller of long distance services of the Company.
KEVIN D. GRIFFO. Mr. Griffo has served as the Company's Executive Vice
President - Sales and Marketing since March 2000. Prior to joining the Company,
Mr. Griffo was the President and Chief Operating Officer of Access One. Mr.
Griffo was also employed by AMNEX from January 1995 to December 1997, holding
various positions, including Chief Operating Officer and President of AMNEX's
Telecommunications Division.
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ALOYSIUS T. LAWN, IV. Mr. Lawn joined the Company in January 1996 and currently
serves as Executive Vice President - General Counsel and Secretary. Prior to
joining the Company, from 1985 through 1995, Mr. Lawn was an attorney in private
practice. Mr. Lawn is a director of Stonepath Group, Inc., a global, integrated
logistics services organization.
GEORGE VINALL. Mr. Vinall joined the Company in January of 1999 as Executive
Vice President - Business Development. Prior to joining the Company, he served
as President of International Protocol LLC, a telecommunication consulting
business, as General Manager of Cable & Wireless Internet Exchange, an
international Internet service provider, and as Vice President, Regulatory &
Government Affairs of Cable and Wireless North America, a telecommunication
provider.
THOMAS M. WALSH. Mr. Walsh joined the Company in September of 2000 and
currently serves as Senior Vice President - Finance and Treasurer. Before
joining the Company, he served as a director at Comcast Cellular Communications,
a telecommunications company, from 1996 to 1999, and Regional Controller of
Southwestern Mobil Systems, a successor corporation, from 1999 to 2000. Prior
to Comcast Cellular Communications, he worked for Call Technology Corporation, a
telecommunications company, where he was responsible for all finance and
accounting functions as Chief Financial Officer. Prior to his tenure with Call
Technology Corporation, Mr. Walsh served as Audit Manager for Ernst & Young.
Mr. Walsh is a Certified Public Accountant.
DAVID G. ZAHKA. Mr. Zahka joined the Company in December of 2001 as Chief
Financial Officer. Before joining the Company, he spent more than 15 years with
PaineWebber Incorporated, and its successor UBS Warburg, where he served most
recently as Executive Director of the Financial Sponsors Group. At PaineWebber,
Mr. Zahka also served as Senior Vice President of Debt Capital Markets and First
Vice President of the Utility Finance Group.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In 1999, the principal operating subsidiary of the Company requested an
employee, Jeffrey Earhart, to relocate from Pennsylvania to Florida in order to
take over the management of its customer service centers in Florida. In
connection with the relocation, the Company agreed to make advances or a loan to
Mr. Earhart for the relocation and the construction of a new residence in
Florida. In 2000, the Company and Mr. Earhart memorialized this agreement
regarding relocation with a loan that was secured by the new residence and bore
interest at the rate of 8.25 percent per annum. The loan was refinanced in July
2002 and bore interest at the rate of 6.25 percent per annum to reflect current
market rates. As of March 27, 2003, Mr. Earhart retired the loan in its
entirety. The largest aggregate amount of the loan outstanding during 2002 was
$1.04 million, and, as of March 31, 2003, no money was outstanding on the loan
and advances. In May 2001, Mr. Earhart was elected an executive officer of the
Company.
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EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information for the fiscal years ended
December 31, 2002, 2001 and 2000 as to the compensation for services rendered
paid by the Company to the Chief Executive Officer and to the five other most
highly compensated executive officers of the Company whose annual salary and
bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-----------------------------------------------------------------
SECURITIES
UNDERLYING
OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS (1)
-------------------------------------------------------------------------------------------------------------
Gabriel Battista, Chairman of the Board 2002 $ 500,000 $ 535,000 440,488(4)
of Directors, Chief Executive Officer 2001 --(2) -- --
and Director 2000 --(2) $ 50,000 166,666(3)
Edward B. Meyercord, III, President 2002 $ 350,000 $ 381,500 150,000(4)
And Director 2001 $ 300,000 -- --
2000 $ 298,000 $ 30,000 116,666(3)
Aloysius T. Lawn, IV, Executive Vice 2002 $ 275,000 $ 245,400 70,000(4)
President - General Counsel and 2001 $ 275,000 -- --
Secretary 2000 $ 260,500 $ 27,500 104,166(3)
Warren A. Brasselle, Senior Vice 2002 $ 250,000 $ 233,500 68,333(4)(5)
President - Operations 2001 $ 250,000 -- --
2000 $ 186,539(7) $ 188,000 85,000(6)
David G. Zahka, Chief Financial Officer 2002 $ 250,000 $ 233,500 --
2001 $ 13,462(7) -- 100,000(6)
2000 -- -- --
Jeffrey Earhart, Senior Vice President - 2002 $ 230,000 $ 333,000 63,889(4)
Customer Operations 2001 $ 230,000 -- --
2000 $ 216,615 $ 140,000 106,000(3)(5)(6)
(1) The costs of certain benefits not properly categorized as salary or
benefits are not included because they did not exceed, in the case of any
executive officer named in the table, the lesser of $50,000 or 10% of the total
annual salary and bonus reported in the above table.
(2) Under his employment agreement with the Company, Mr. Battista is
entitled to a minimum annual salary of $500,000. Mr. Battista's salary for 1999
included, in addition to the $500,000 annual base salary for 1999, $1,000,000
representing a prepayment of $500,000 in salary for each of the years 2000 and
2001 as provided in Mr. Battista's employment agreement with the Company.
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(3) Options to purchase the Company's common stock. The options granted to
Messrs. Battista, Meyercord, Lawn and Earhart were granted under the Company's
2000 Long Term Incentive Plan. In 2000, Mr. Battista was granted (i) options to
purchase 83,333 shares of the Company's common stock at an exercise price of
$6.00 per share that vest in five years and (ii) options to purchase 83,333
shares of the Company's common stock at an exercise price of $14.25 per share
that vest over three years. In 2000, Mr. Meyercord was granted (i) options to
purchase 50,000 shares of the Company's common stock at an exercise price of
$6.00 per share that vest in five years and (ii) options to purchase 66,666
shares of the Company's common stock at an exercise price of $14.25 per share
that vest over three years. In 2000, Mr. Lawn was granted (i) options to
purchase 45,833 shares of the Company's common stock at an exercise price of
$6.00 per share that vest in five years, (ii) options to purchase 16,666 shares
of the Company's common stock at an exercise price of $6.93, half of which
vested upon grant and the remainder of which vested six months thereafter, and
(iii) options to purchase 41,666 shares of the Company's common stock at an
exercise price of $14.25 per share that vest over three years. In 2000, Mr.
Earhart was granted options to purchase 31,000 shares of the Company's common
stock at an exercise price of $6.00 per share that vest in five years. Each of
the employment agreements for Messrs. Battista, Meyercord, Lawn, Earhart,
Brasselle and Zahka provide for immediate vesting of options in event of a
"change of control" (as defined in such agreements).
(4) Messrs. Meyercord, Lawn, Earhart and Brasselle were reissued options
under the 1998 Long Term Incentive Plan to purchase the Company's common stock
on April 5, 2002, in exchange for options to purchase the Company's common stock
exchanged and cancelled pursuant to the Company's Employee Option Exchange
(described under "EXECUTIVE COMPENSATION - Stock Options" below): 150,000,
70,000, 63,889, and 60,000, respectively, at an exercise price of $1.53. On
April 5, 2002, Mr. Battista was reissued options under the 1998 Long Term
Incentive Plan to purchase 107,155 shares of the Company's common stock and
under the 2000 Long Term Incentive Plan to purchase 333,333 shares of the
Company's common stock, in exchange for options to purchase the Company's common
stock exchanged and cancelled pursuant to the Company's Employee Option Exchange
(described under "EXECUTIVE COMPENSATION - Stock Options" below).
(5) Options to purchase the Company's common stock. The options granted to
Messrs. Earhart and Brasselle were granted under the Company's 1998 Long Term
Incentive Plan. In 2000, Mr. Earhart was granted options to purchase 50,000
shares of the Company's common stock at an exercise price of $15.88 per share
that vest over three years. In 2002, Mr. Brasselle was granted options that
vest over three years to purchase 8,333 shares of the Company's common stock at
an exercise price of $1.53 per share.
(6) Options to purchase the Company's common stock. The options granted to
Messrs. Earhart, Brasselle and Zahka were not granted under a stock option plan.
In 2000, prior to Mr. Earhart becoming an executive officer of the Company, he
was granted options to purchase 25,000 shares of the Company's common stock at
an exercise price of $14.25 per share that vest over three years. In 2000 and
prior to Mr. Brasselle becoming an executive officer of the Company, he was
granted (i) options to purchase 60,000 shares of the Company's common stock at
an exercise price of $43.14 per share, 10,000 vested immediately and the
remainder vest over three years (these options were subsequently reissued
12
pursuant to the Company's Employee Option Exchange as described in footnote 4
above), and (ii) options to purchase 25,000 shares of the Company's common stock
at an exercise price of $14.25 per share that vest over three years. In 2001,
in connection with his hiring by the Company, Mr. Zahka was granted options to
purchase 100,000 shares of the Company's common stock at an exercise price of
$1.20 per share that vest over three years.
(7) Messrs. Brasselle and Zahka commenced employment with the Company on
April 3, 2000 and December 7, 2001, respectively.
STOCK OPTIONS
The following table sets forth further information regarding grants of
options to purchase the Company common stock made by the Company during the
fiscal year ended December 31, 2002 to the executive officers named in the
Summary Compensation Table, above.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE POTENTIAL REALIZABLE VALUE
OPTIONS/SARS EMPLOYEES IN PRICE PER EXPIRATION AT ASSUMED ANNUAL RATES
NAME GRANTED 2002 SHARE (1) DATE OF STOCK OPTION TERM (5)
---------------------------------------------------------------------------------------------------------------
5%($) 10%($)
---------------------------
Gabriel Battista 107,155(2) 4.8% $ 1.53 11/12/08 $ 62,431 $ 144,184
333,333(3) 14.8% $ 1.53 11/12/08 $ 194,209 $ 448,520
Edward B. 150,000(2) 6.7% $ 1.53 11/1/09 $ 102,752 $ 243,636
Meyercord, III
Aloysius T. 70,000(2) 3.1% $ 1.53 4/1/09 $ 43,588 $ 101,750
Lawn, IV
Jeffrey Earhart 3,889(2) 0.2% $ 1.53 12/17/02 $ 220 $ 440
10,000(2) 0.4% $ 1.53 10/5/09 $ 6,801 $ 16,109
50,000(2) 2.2% $ 1.53 1/28/10 $ 35,553 $ 84,833
Warren A. 60,000(2) 2.7% $ 1.53 3/8/10 $ 43,379 $ 103,852
Brasselle 8,333(4) 0.4% $ 1.53 4/5/12 $ 8,030 $ 20,384
David G. Zahk 0 -- -- -- -- --
---------------------
(1) All options have been granted at market price on the date of issue.
(2) The options granted to Messrs. Battista, Meyercord, Lawn, Earhart and
Brasselle were granted under the Company's 1998 Long Term Incentive Plan. The
optionholders were reissued these options to purchase the Company's common stock
13
on April 5, 2002, in exchange for options to purchase the Company's common stock
exchanged and cancelled pursuant to the Company's Employee Option Exchange
(described below).
(3) The options granted to Mr. Battista were granted under the Company's
2000 Long Term Incentive Plan. The optionholder was reissued these options to
purchase the Company's common stock on April 5, 2002, in exchange for options to
purchase the Company's common stock exchanged and cancelled pursuant to the
Company's Employee Option Exchange (described below).
(4) The options granted to Mr. Brasselle were granted under the Company's
1998 Long Term Incentive Plan.
(5) Disclosure of the 5% and 10% assumed annual compound rates of stock
appreciation based on exercise prices are mandated by the rules of the SEC and
do not represent the Company's estimate or projection of future common stock
prices. The actual value realized may be greater or less than the potential
realizable value set forth in the table.
The following table sets forth certain information as to aggregated
option/SAR exercises in the Company's fiscal year ended December 31, 2002 and
option/SAR values as of December 31, 2002 for each of the executive officers
named in the Summary Compensation Table, above.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
SHARES UNDERLYING UNEXERCISED THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS (1)
NAME ON VALUE ------------------------- -------------------------
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-----------------------------------------------------------------------------------------------------------------------------
Gabriel Battista 0 0 605,555/111,110 $ 1,792,786.16/$0.00
Edward B.
Meyercord, III 0 0 194,444/72,222 $ 610,500.00/$0.00
Aloysius T. Lawn, IV 0 0 114,444/59,721 $ 284,900.00/$0.00
Jeffrey Earhart 3,889 $ 20,883.93 60,001/55,999 $ 176,369.38/$67,830.62
Warrren A. Brasselle 0 0 60,001/33,332 $ 176,369.38/$101,745.93
David G. Zahka 0 0 33,334/66,666 $ 146,669.60/$293,330.40
(1) Calculated as the difference between the exercise/base-price of the
options/SARs and a year-end fair market value of the underlying securities equal
to $5.60.
On August 29, 2001, the Company initiated an offer to exchange all
outstanding stock options previously issued by the Company to employees that had
an exercise price of $16.50 or more and did not expire before April 5, 2002, for
new options to be granted under one of the Company's various stock option plans
(the "Employee Option Exchange"). On October 4, 2001, the Company accepted for
cancellation options to purchase a total of 1,938,211 shares of Company common
stock. On April 5, 2002, the Company granted new options pursuant to the
Employee Option Exchange in exchange for the exchanged and cancelled options.
14
TEN-YEAR OPTION/SAR REPRICINGS
The following table sets forth certain information with respect to
adjustments and amendments of the exercise prices of Company stock options or
SARs previously awarded to executive officers of the Company, including pursuant
to the Employee Option Exchange, in the ten fiscal years ended December 31,
2002.
Length of
Original
Number of Option Term
Securities Market Price Exercise Remaining at
Underlying of Stock Price at Date of
Options/SARs at Time of Time of New Repricing or
Name and Position of Date of Repriced or Repricing or Repricing or Exercise Amendment
Executive Officer Repricing Amended Amendment Amendment Price (Months)
Gabriel Battista,
Chairman and Chief
Executive Officer April 5, 2002 333,333 $ 1.53 $ 31.32 $ 1.53 70
April 5, 2002 107,155 $ 1.53 $ 21.00 $ 1.53 70
Edward B. Meyercord, III,
President, Director and
Treasurer April 5, 2002 150,000 $ 1.53 $ 47.82 $ 1.53 91
Aloysius T. Lawn, IV,
Executive Vice President -
General Counsel and
Secretary April 5, 2002 70,000 $ 1.53 $ 29.64 $ 1.53 84
October 13, 1998 20,000 $17.25 $ 34.89 $17.25 3
October 13, 1998 30,000 $17.25 $ 31.68 $17.25 3
Kevin Griffo, Executive
Vice President - Sales
And Marketing April 5, 2002 433,333 $ 1.53 $ 41.07 $ 1.53 96
George Vinall, Executive
Vice President - Business
Development April 5, 2002 80,000 $ 1.53 $ 25.68 $ 1.53 71
Warren Brasselle, Senior
Vice President-Operations April 5, 2002 60,000 $ 1.53 $ 43.14 $ 1.53 96
Jeffrey Earhart, Senior
Vice President-Customer
Operations April 5, 2002 3,889 $ 1.53 $ 17.25 $ 1.53 9
April 5, 2002 10,000 $ 1.53 $ 35.64 $ 1.53 92
April 5, 2002 50,000 $ 1.53 $ 47.64 $ 1.53 97
October 13, 1998 3,888 $17.25 $ 57.39 $17.25 26
October 13, 1998 3,889 $17.25 $ 57.39 $17.25 38
October 13, 1998 3,889 $17.25 $ 57.39 $17.25 50
15
COMPENSATION PLANS AND SECURITIES
The following table sets forth certain information as of December 31, 2002
with respect to compensation plans under which equity securities of the Company
are authorized for issuance:
NUMBER OF SECURITIES
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE REMAINING AVAILABLE
BE ISSUED UPON EXERCISE EXERCISE PRICE OF FOR FUTURE ISSUANCE
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COMPENSATION PLANS(1)
-------------------------- ----------------------- --------------------- ---------------------
Equity compensation
plans approved by
security holders 2,141,758 $ 5.50 126,097
Equity compensation
plans not approved
by security holders (2) 2,037,609 $ 8.25 774,188
----------------------- --------------------- ---------------------
Total 4,179,367 $ 6.84 900,285
(1) Under all plans, if any shares subject to a previous award are
forfeited, or if any award is terminated without issuance of shares or satisfied
with other consideration, the shares subject to such award shall again be
available for future grants.
(2) The shares are primarily under the Company's 2001 Non-Officer Long Term
Incentive Plan pursuant to which up to 1,666,666 shares of the Company's common
stock may be issued to employees of the Company in the form of options, rights,
restricted stock and incentive shares. The shares also include shares issuable
on exercise of certain options granted in connection with the initial employment
of executive officers and without shareholder approval as permitted by the rules
of Nasdaq. To the extent permitted by the rules of Nasdaq, there may be further
grants of securities by option or otherwise without shareholder approval, both
to non-executive employees and in connection with the initial employment of
executive officers.
EMPLOYMENT CONTRACTS
Gabriel Battista is party to an employment agreement with the Company,
dated as of November 13, 1998, that was amended as of March 28, 2001 and now
expires on December 31, 2004. Under the terms of the agreement, as amended, Mr.
Battista received a signing bonus of $3,000,000 at the time of the original
agreement and is entitled to a minimum annual base salary of $500,000, plus a
discretionary bonus. The initial three years of salary under the original
agreement were paid in advance. Mr. Battista is also entitled to other benefits
and perquisites. In addition, upon execution of the original agreement in 1998,
Mr. Battista was granted options that vested over three years to purchase
333,333 shares of the Company common stock at an exercise price of $31.32 per
share, and options that vested immediately upon execution of the agreement to
purchase an additional 216,666 shares at an exercise price of $21.00 per share.
A portion of these options were exchanged and cancelled pursuant to the
Company's Employee Option Exchange (described under "EXECUTIVE COMPENSATION -
Stock Options").
In the event of certain transactions (including an acquisition of the
Company's assets, a merger into another entity or a transaction that results in
16
the Company common stock no longer being required to be registered under the
Securities Exchange Act of 1934), Mr. Battista will receive an additional bonus
of $1,000,000 if the price per share for the Company common stock in such
transaction is less than or equal to $60.00 per share, or $3,000,000 if the
consideration is greater than $60.00 per share.
Edward B. Meyercord, III entered into a three-year employment agreement
with the Company effective as of March 26, 2001. Commencing in 2002, under the
contract, Mr. Meyercord is entitled to a minimum annual base salary of $350,000
and certain other perquisites made generally available by the Company to its
senior executive officers.
Aloysius T. Lawn, IV entered into a three-year employment agreement with
the Company effective as of March 26, 2001. Under the contract, Mr. Lawn is
entitled to a minimum annual base salary of $275,000 and certain other
perquisites made generally available by the Company to its senior executive
officers.
Jeffrey Earhart entered into a three-year employment agreement with the
Company effective as of October 2, 2001. Under the contract, Mr. Earhart is
entitled to a minimum annual base salary of $230,000 and certain other
perquisites made generally available by the Company to its senior executive
officers.
Warren A. Brasselle entered into a three-year employment agreement with the
Company effective as of April 3, 2000. Under the contract, Mr. Brasselle
received a signing bonus of $100,000, payable in two equal installments on June
31, 2000 and September 30, 2000, and is entitled to a minimum annual base salary
of $250,000 and certain other perquisites made generally available by the
Company to its senior executive officers. In addition, upon execution of the
agreement, Mr. Brasselle was granted options to purchase 60,000 shares of the
Company's common stock at an exercise price of $43.14 per share, 10,000 vested
immediately and the remainder vest over three years (these options were
subsequently reissued pursuant to the Company's Employee Option Exchange as
described under "EXECUTIVE COMPENSATION - Stock Options").
David G. Zahka entered into a three-year employment agreement with the
Company effective as of December 7, 2001. Under the contract, Mr. Zahka is
entitled to a minimum annual base salary of $250,000 and certain other
perquisites made generally available by the Company to its senior executive
officers. In addition, upon execution of the agreement, Mr. Zahka was granted
options to purchase 100,000 shares of the Company's common stock at an exercise
price of $1.20 per share that vest over three years.
Each of the employment agreements for Messrs. Battista, Meyercord, Lawn,
Earhart, Brasselle and Zahka provide for immediate vesting of options in event
of a "change of control" (as defined in the agreements) of the Company and
provide for severance benefits in the event employment is terminated by the
Company without cause prior to the end of the term and for a certain period
beyond the end of the term in the event of a "change of control." The severance
benefits are generally the payment of an amount equal to two years' base salary
plus the average annual incentive bonus earned by the executive in the preceding
four years, as well as the continuation of various employee benefits for two
years.
17
Each of the above-described agreements requires the executive to maintain
the confidentiality of Company information and assign any inventions to the
Company. In addition, each of the executive officers has agreed that he will not
compete with the Company by engaging in any capacity in any business that is
competitive with the business of the Company during the term of his respective
agreement and thereafter for specified periods.
COMPENSATION COMMITTEE
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee approves salaries and certain incentive
compensation arrangements for management and key employees of the Company.
The principal elements of the Company's compensation structure are
described below:
Annual Salary. Minimum annual base salaries for executive officers of the
Company have been established pursuant to employment contracts negotiated with
each of the executive officers of the Company. Increases above such minimum base
salaries may be granted in the discretion of the Compensation Committee based on
its subjective assessment of individual performance. The Company believes that
such employment contracts help to attract and retain qualified individuals. In
addition, the employment agreements include confidentiality and non-compete
agreements by the officers. See "EXECUTIVE COMPENSATION - Employment
Contracts."
Annual Bonuses. For 2002, the Board approved an annual bonus program for
the executive officers and certain other employees of the Company to provide
further incentive to achieve the Company's 2002 performance goals. Bonus
targets for the program were 50% of base salary for the CEO and President and
40% of base salary for the balance of the executive officers. Awards under this
program were based upon achieving the Company's operating plan, with the
opportunity for leverage of the bonus targets based upon surpassing such plan.
The Compensation Committee of the Board reviewed the Company's performance in
2002 against the criteria that had been established under the program and, at
the Compensation Committee's recommendation, the Board subsequently approved
bonuses for the Company's executive officers as set forth in the annual bonus
program, which awards to the persons named in the Summary Compensation Table,
above, are reflected therein under the "Bonus" column.
In addition, the Board adopted an incentive compensation plan for a limited
number of employees, including executive officers of the Company other than the
CEO. Under this plan, the participating employees were organized in groups on a
cross-functional basis and charged with the responsibility for improving and
monitoring the following operational areas: customer satisfaction, general and
administrative expenses/capital budget, sales and marketing, credit quality,
18
gross margin, and facilities-based provisioning. Incentive compensation under
this plan was based upon the Company's achieving certain operational performance
measures established by the Board when it adopted the plan. Maximum
compensation per employee for each cross-function team was $2,000 per quarter,
with an aggregate quarterly cap of $4,000. The incentive compensation awards
under this plan to the persons named in the Summary Compensation Table, above,
are reflected therein under the "Bonus" column.
Long Term Incentive Compensation. In general, the Company has granted
stock options to key executives as an inducement to such executives' entering
into employment contracts with the Company.
The Company believes that stock options are an effective tool for directly
linking the financial interests of executive officers and key employees with
those of the Company's stockholders and for recruiting and retaining high
quality management personnel. Stock options are intended to focus the efforts
of executive officers and key employees on performance that will increase the
value of the Company for all of its stockholders. In keeping with this purpose,
the Company initiated the Employee Option Exchange on August 29, 2001, as
described under "EXECUTIVE COMPENSATION - Stock Options," above, to allow
eligible employees to exchange outstanding options that had exercise prices
significantly higher than the then-current market price of the Company's common
stock for options with an exercise price equal to the market value of the shares
on the date of grant. The Employee Option Exchange was completed on April 5,
2002. The Company believed that options with an exercise price closer to
current market value would provide a better performance incentive for the
holders.
Future option grants or other stock or incentive awards under the 1998 Long
Term Incentive Plan, the 2000 Long Term Incentive Plan, the 2001 Non-Officer
Long Term Incentive Plan and, if approved, the 2003 Long Term Incentive Plan,
will be made in the discretion of the Compensation Committee, including in
connection with the negotiation of individual employment arrangements.
Chief Executive Officer's 2002 Compensation. As set forth in the Summary
Compensation Table, Mr. Battista's base salary of $500,000 in 2002 was
established pursuant to the terms of the employment agreement he entered into
when he joined the Company. The Compensation Committee determined that the
Company's performance satisfied the criteria it had established under the 2002
annual bonus program described above and qualified Mr. Battista for a bonus of
$535,000 for 2002. In extending Mr. Battista's employment agreement in March
2001 to December 31, 2004, the Compensation Committee had determined to retain
the same compensation terms, including the amount of the base salary.
THE COMPENSATION COMMITTEE
Ronald R. Thoma
Mark S. Fowler
19
PERFORMANCE GRAPH
The following graph sets forth a comparison of the percentage change in the
cumulative total stockholder return on the Company's common stock compared to
the cumulative total return of the S&P MidCap 400 Index and the S&P 500
Integrated Telecommunications Services Index for the period from December 31,
1997, through December 31, 2002. The comparison assumes that $100 was invested
on December 31, 1997 in the Company's common stock and each of the indices and
assumes reinvestment of dividends. The stock price performance shown on the
graph below is not necessarily indicative of future performance.
[GRAPH OMITTED]
DEC. 31, DEC. 31, DEC. 31, DEC. 29, DEC. 31, DEC. 31,
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- --------
Talk America
Holdings, Inc. . $ 100 $ 84 $ 89 $ 7 $ 2 $ 9
----- ----- ----- ----- ----- -----
S&P MidCap 400
Index. . . . . . $ 100 $ 118 $ 133 $ 155 $ 152 $ 129
----- ----- ----- ----- ----- -----
S&P 500 Integrated
Telecommunications
Service Index. . $ 100 $ 149 $ 175 $ 106 $ 91 $ 59
----- ----- ----- ----- ----- -----
20
PROPOSAL 2: RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Audit Committee of the Board has appointed the firm of
PricewaterhouseCoopers LLP as independent auditors of the Company for the
current fiscal year. This firm has served as the Company's independent auditors
since 2000 and has no direct or indirect financial interest in the Company.
Although not legally required to do so, the Audit Committee and the Board
are submitting the selection of PricewaterhouseCoopers LLP as the Company's
independent auditors for ratification by the stockholders at the Annual Meeting.
If a majority of the shares present in person or represented by proxy at the
meeting and entitled to vote is not voted for such ratification (which is not
expected), the Audit Committee will reconsider its appointment of
PricewaterhouseCoopers LLP as independent auditors of the Company.
A representative of PricewaterhouseCoopers LLP will be present at the
Annual Meeting and will have the opportunity to make a statement if he desires
to do so. It is anticipated that such representative will be available to
respond to appropriate questions from stockholders.
The Board of Directors recommends a vote FOR the proposal to ratify the
selection of PricewaterhouseCoopers LLP as independent auditors of the Company.
During the Company's fiscal years ended December 31, 2002 and 2001,
PricewaterhouseCoopers LLP provided services to the Company in the following
categories and amounts:
DESCRIPTION 2002 2001
----------- ---- ----
Audit Fees $203,000 $172,619 (1)
Audit-Related Fees $ 54,140 $ 50,401
Tax Fees $ 0 $ 0
All Other Fees $ 31,400 $108,619
(1) In addition, the Company paid BDO Seidman, its former auditors, $11,940
in fiscal 2001 for BDO Seidman's services in connection with reissuance of their
report on the Company's financial statements for the year ended December 31,
1999.
21
In the above table, in accordance with new SEC definitions and rules, which
the Company elected to adopt for this year's proxy statement, "audit fees" are
fees the Company paid to PricewaterhouseCoopers LLP for professional services
for the audit of the Company's consolidated financial statements included in
Form 10-K and review of financial statements included in Form 10-Qs, or for
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements; "audit related fees" are fees
billed by PricewaterhouseCoopers LLP for assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
financial statements; "tax fees" are fees for tax compliance, tax advice, and
tax planning; and "all other fees" are fees billed by PricewaterhouseCoopers LLP
to the Company for any services not included in the first three categories.
The Audit Committee has determined that the services provided by
PricewaterhouseCoopers LLP to the Company that were not related to its audit of
the Company's financial statements were at all relevant times compatible with
that firm's independence and approved all such services.
PROPOSAL 3: APPROVAL OF THE 2003 LONG TERM INCENTIVE PLAN
The Company's Board has approved the Company's 2003 Long Term Incentive
Plan, subject to the approval of the Company's stockholders. Approximately
65,500 shares of the Company's common stock under the existing 1998 Long Term
Incentive Plan and 60,500 shares of the Company's common stock under the
existing 2000 Long Term Incentive Plan remain currently available for award to
executive officers and other employees of the Company. Approximately 774,188
shares of the Company's common stock under the existing 2001 Non-Officer Long
Term Incentive Plan remain currently available for award to Company employees
who are not executive officers. The new 2003 Long Term Incentive Plan provides
for the issuance of up to 1,250,000 shares of the Company's common stock. The
Company's Board believes that the availability of share awards under the new
2003 Long Term Incentive Plan will give the Company the needed compensation
flexibility to continue to attract and retain key employees. The 2003 Long Term
Incentive Plan will increase the ability of the Board of Directors to adapt the
compensation of such employees to the changing needs of the Company's business
and to competitive trends in executive compensation practices. The Board also
believes that in order to more closely align the interests of such employees
with the interests of the stockholders of the Company, increased ownership of
the Company's stock by these individuals is desirable.
The following is a summary description of the new 2003 Long Term Incentive
Plan, which description is qualified in its entirety by reference to the 2003
Long Term Incentive Plan, a copy of which is attached hereto as Exhibit B.
ELIGIBILITY AND TYPES OF AWARDS
All employees of the Company and its subsidiaries and all non-employee
directors of the Company are eligible to participate in the new 2003 Long Term
22
Incentive Plan. Eligible employees to whom awards will be granted under the 2003
Long Term Incentive Plan will be selected by the committee of the Company's
Board of Directors that administers the 2003 Long Term Incentive Plan, as
discussed below. The 2003 Long Term Incentive Plan permits the granting of the
following types of awards: (1) stock options, including options designated as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or ISOs, and options not so designated, (2) stock
appreciation rights or SARs, (3) restricted stock, and (4) incentive shares.
Dividends or interest or their equivalent may also be paid or credited in
connection with any award. Since the number and identity of employees to whom
awards may be granted under the new 2003 Long Term Incentive Plan and the form
of such awards are at the discretion of the committee administering the 2003
Long Term Incentive Plan, it is not possible at this time to predict precisely
the number or identity of the individuals to whom awards may be granted in the
future or the type or size of such awards. It is expected, however, that the
individuals receiving awards will include officers named in the Summary
Compensation table above under the heading "EXECUTIVE COMPENSATION," other
executive officers of the Company and directors of the Company. The maximum
number of shares of Company common stock that may be awarded to any employee
under the 2003 Long Term Incentive Plan during any calendar year is 250,000,
subject to adjustment as described below. Unless earlier terminated by the
Board, the 2003 Long Term Incentive Plan will terminate on April 29, 2013;
termination of the 2003 Long Term Incentive Plan will not, however, affect the
validity of any then outstanding award.
ADMINISTRATION OF 2003 LONG TERM INCENTIVE PLAN
The 2003 Long Term Incentive Plan will be administered by a committee of
the Board, which initially will be the Compensation Committee. This committee
has the authority (i) to select employees to whom awards are granted, (ii) to
determine the size and types of awards granted, (iii) to determine the terms and
conditions of such awards in a manner consistent with the 2003 Long Term
Incentive Plan (discussed below), (iv) to interpret the 2003 Long Term Incentive
Plan and any instrument or agreement entered into under the 2003 Long Term
Incentive Plan, (v) to establish such rules and regulations relating to the
administration of the 2003 Long Term Incentive Plan as it deems appropriate and
(vi) to make all other determinations that may be necessary or advisable for the
administration of the 2003 Long Term Incentive Plan. The committee may amend the
terms of any award, or substitute new awards for previously granted awards,
provided that such amendment or substitution may not impair the rights of any
participant with respect to any outstanding award without his consent.
The Board of Directors may amend, alter or terminate the 2003 Long Term
Incentive Plan at any time, provided that no such action may impair the rights
of a participant with respect to any outstanding award without the participant's
consent and provided that no amendment may be made without stockholder approval
if such approval is required to comply with applicable law or requirements of
any interdealer quotation system or stock exchange on which the Company's common
stock is listed or quoted.
23
SHARES SUBJECT TO 2003 LONG TERM INCENTIVE PLAN
Subject to adjustment as described below, 1,250,000 shares of the Company's
common stock shall be available for grant under the 2003 Long Term Incentive
Plan. If any shares subject to any award are forfeited, or if any award is
terminated without issuance of shares or is satisfied with other consideration,
the shares subject to such award shall again be available for future grants.
Further, awards substituted for previous awards in accordance with the terms of
the 2003 Long Term Incentive Plan will not be counted toward the share limit
unless otherwise provided by the administering committee. The closing sale
price of the Company's common stock on the NASDAQ National Market on April 15,
2003 was $8.58.
STOCK OPTIONS
The purchase price per share under any option will be determined by the
administering committee, provided that it shall not be less than 25% of the fair
market value of a share on the date of grant of the option, nor less than the
par value of a share. The term of each option shall be fixed by the committee,
provided that no option shall have a term extending beyond ten years (five years
in the case of ISOs granted to ten-percent stockholders) from the date the
option is granted. Options are exercisable during their term as provided by the
committee. Options shall be exercised by payment of the purchase price, either
in cash, in shares valued at the fair market value on the date the option is
exercised, in any combination thereof or in such other form of consideration as
the committee shall determine, provided, that, if the committee so provides, an
option may be exercised by delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds necessary to pay the purchase price
and applicable withholding taxes in full and such other documents as the
committee shall determine. The ability to deliver shares in lieu of cash on the
exercise of options could permit the successive, immediate exercise of options
with shares received upon earlier or substantially simultaneous exercises.
Whether an option holder uses shares to exercise an entire option in a single
exercise or through successive exercises, the net increase in shares held by
such person will be identical. The committee may accept as partial payment on
the exercise of options a promissory note, which may be secured by the shares to
be received upon such exercise. The maximum number of shares with respect to
which options may be granted to any employee under the 2003 Long Term Incentive
Plan in any calendar year is 250,000 shares.
STOCK APPRECIATION RIGHTS
An SAR may be granted either alone or in conjunction with any other award
under the 2003 Long Term Incentive Plan. SARs related to any option (i) must be
granted at the time such option is granted, and (ii) if such option is an ISO
may be exercisable only upon exercise of the related option. Upon exercise of an
SAR, the holder thereof is entitled to receive the excess of the fair market
value of the shares for which the right is exercised (calculated as of the
exercise date) over either the exercise price per share of the related option
or, if none, over the fair market value of such number of shares on the date the
SAR was granted (hereinafter, the "exercise price") or such amount in excess of
such fair market value as may be specified by the administering committee.
24
Payment by the Company upon exercise of an SAR may be made in cash or shares, or
any combination thereof, as the administering committee shall determine.
RESTRICTED STOCK
The administering committee shall determine the terms and conditions,
including acceleration and forfeiture provisions and other provision and
restrictions (which may include restrictions on the right to vote such shares
and the right to receive any dividends with respect thereto) that shall be
placed on restricted stock awarded under the 2003 Long Term Incentive Plan. This
restricted stock may not be disposed of by the recipient until any such
restrictions lapse. Restricted stock may be issued for no cash consideration or
for such minimum consideration as may be required by applicable law. Upon
termination of employment during the restricted period, all restricted stock
shall be forfeited, subject to such exceptions, if any, as are authorized by the
committee relating to termination of employment on retirement, disability, death
or other special circumstances.
INCENTIVE SHARE AWARDS
The administering committee may grant incentive share awards, which shall
provide for the issuance of shares at such times and subject to such terms and
conditions as the committee shall deem appropriate, including without limitation
terms that condition the issuance of such shares upon the achievement of
performance goals.
ASSIGNABILITY OF AWARDS
An award and the shares subject to an award may not be assigned,
transferred, pledged or otherwise encumbered by a participant except as may be
approved by the administering committee in the award or subsequently.
ADJUSTMENTS
In the event of any change in corporate structure of the Company affecting
the shares (e.g., merger, consolidation, recapitalization, reclassification or
stock dividend), the committee may make such adjustments as it deems appropriate
to the number, class and option price of shares subject to outstanding options
granted under the 2003 Long Term Incentive Plan, and in the value of, or number
or class of shares subject to, other awards granted or available to be granted
under the 2003 Long Term Incentive Plan and to individual employees.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion briefly summarizes certain federal income tax
aspects of stock options, stock appreciation rights, and restricted stock
granted under the 2003 Long Term Incentive Plan. State and local tax
consequences may differ.
Incentive Stock Options. In general, an optionee is not required to
recognize income at the time of the grant or exercise of an ISO. However, the
25
difference between the exercise price and the fair market value of the stock on
the exercise date is an adjustment item for purposes of the alternative minimum
tax. If an optionee does not exercise an ISO within certain specified periods
of time after termination of employment, the ISO is treated for federal income
tax purposes in the same manner as a nonqualified stock option, as described
below.
Nonqualified Stock Options. An optionee generally is not required to
recognize income at the time of grant of a nonqualified stock option. However,
an optionee generally is required to recognize ordinary income on the date the
nonqualified stock option is exercised in an amount equal to the excess of the
fair market value of the shares on the exercise date over the exercise price.
Stock Appreciation Rights. A grantee generally is not required to
recognize income at the time of grant of an SAR. However, a grantee generally
is required to recognize ordinary income on the date the SAR is exercised in an
amount equal to the amount of cash and the fair market value of any shares
received on exercise.
Restricted Stock. Shares of restricted stock awarded under the 2003 Long
Term Incentive Plan will be subject to a substantial risk of forfeiture (i.e. a
vesting requirement) for the period of time specified in the award. Unless a
grantee of shares of restricted stock makes an election under Section 83(b) of
the Code as described below, the grantee is not required to recognize ordinary
income at the time of grant of restricted stock. However, on the date the
substantial risk of forfeiture lapses, the grantee recognizes ordinary income in
an amount equal to the fair market value of the shares on such date. If a
grantee makes a Section 83(b) election to recognize ordinary income on the date
the shares of restricted stock are granted, the grantee recognizes ordinary
income at such time in an amount equal to the fair market value of the shares on
the date of award. In such case, the grantee is not be required to recognize
additional ordinary income when the substantial risk of forfeiture lapses.
Gain or Loss on Sale or Exchange of Shares. In general, gain or loss from
the sale or exchange of shares acquired pursuant to awards under the 2003 Long
Term Incentive Plan will be treated as capital gain or loss, provided that the
shares are held as capital assets at the time of the sale or exchange. However,
in the case of shares acquired pursuant to the exercise of ISOs, if certain
holding period requirements are not satisfied at the time of a sale or exchange
(a "disqualifying disposition"), an optionee may be required to recognize
ordinary income upon such disposition.
Deductibility by Company. The Company generally is not allowed a deduction
in connection with the grant or exercise of an ISO. However, if an optionee is
required to recognize income as a result of a disqualifying disposition, the
Company will be entitled to a deduction equal to the amount of ordinary income
so recognized. In the case of nonqualified stock options (including an ISO that
is treated as a nonqualified stock option, as described above), SARs and
restricted stock, the Company generally will be allowed a deduction at the same
time and in the same amount as the optionee or grantee recognizes ordinary
income.
Section 162(m). Subject to certain exceptions, Section 162(m) of the Code
disallows federal income tax deductions for compensation paid by a publicly-held
26
corporation to certain executives to the extent it exceeds $1 million for the
taxable year. The 2003 Long Term Incentive Plan has been designed to allow the
administering committee to make awards under the plan that qualify under a
"performance-based compensation" exception to the $1 million deduction limit.
VOTE REQUIRED FOR APPROVAL OF ADOPTION OF THE 2003 LONG TERM INCENTIVE PLAN
The Company is submitting the new 2003 Long Term Incentive Plan to its
stockholders for approval as required by NASD rules governing Nasdaq-traded
issuers. Under these rules, the affirmative vote of the holders of a majority of
the total votes cast at the Annual Meeting in respect of the proposal is
required to ratify the adoption of the 2003 Long Term Incentive Plan.
OTHER BUSINESS
The Company does not presently know of any matters that will be presented
for action at the Annual Meeting other than those set forth herein. If other
matters properly come before the meeting, proxies submitted on the enclosed form
will be voted by the persons named in the enclosed form of proxy in accordance
with their best judgment.
ANNUAL REPORTS
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 2002, IS ENCLOSED WITH THIS PROXY STATEMENT. THE COMPANY ALSO HAS FILED
THIS REPORT WITH THE SEC, AND COPIES OF OUR ANNUAL REPORT ON FORM 10-K, AS WELL
AS QUARTERLY REPORTS ON FORM 10-Q, CURRENT REPORTS ON FORM 8-K, AND AMENDMENTS
TO THOSE REPORTS ARE AVAILABLE, WITHOUT CHARGE, ON OUR WEBSITE, WWW.TALK.COM, AS
SOON AS REASONABLY PRACTICABLE AFTER THEY ARE FILED WITH THE SEC. COPIES ARE
ALSO AVAILABLE, WITHOUT CHARGE, FROM THE COMPANY. REQUESTS FOR COPIES SHOULD BE
ADDRESSED TO INVESTOR RELATIONS, TALK AMERICA HOLDINGS, INC., 6805 ROUTE 202,
NEW HOPE, PENNSYLVANIA 18938.
2004 ANNUAL MEETING OF STOCKHOLDERS
In accordance with rules promulgated by the SEC, any stockholder who wishes
to submit a proposal for inclusion in the proxy materials to be distributed by
the Company in connection with the annual meeting of stockholders in 2004 must
submit it so it will be received by the Company by January 7, 2004, unless the
Company changes the date of next year's annual meeting by more than 30 days from
this year's, in which case the proposal must be submitted at a reasonable time
before the Company begins to print and mail its proxy materials. Any
stockholder proposals for the 2004 annual meeting of stockholders that are
submitted outside the processes of Rule 14a-8 under the Securities Act of 1934
will be considered untimely if not received by the Company within a reasonable
time prior to its printing its proxy materials in 2004. In addition, any
27
stockholder proposal for next year's annual meeting submitted after March 22,
2004, or, if the Company changes the date of the 2004 annual meeting by more
than 30 days from this year's, after a reasonable time before the Company mails
its proxy materials for next year's annual meeting, will not be considered filed
on a timely basis with the Company under SEC Rule 14a-4(c)(1). For proposals
that are not filed on such a timely basis, the Company retains discretion to
vote proxies it receives. For proposals that are filed on such a timely basis,
the Company retains discretion to vote proxies it receives provided 1) the
Company includes in its proxy statement advice on the nature of the proposal and
how it intends to exercise its voting discretion and 2) the proponent does not
issue a proxy statement.
By Order of the Board of Directors
/s/ Aloysius T. Lawn, IV
Aloysius T. Lawn, IV, Secretary
Reston, Virginia
May 6, 2003
28
EXHIBIT A
TALK AMERICA HOLDINGS, INC.
AUDIT COMMITTEE CHARTER
(As amended and approved by the Audit Committee and the Board of Directors on
April 29, 2003)
THE AUDIT COMMITTEE
The Company shall have an audit committee of its Board of Directors, the
structure, composition and responsibilities of which shall be as set forth in
this charter. The audit committee shall be elected or appointed annually by the
Board of Directors. The audit committee shall consist of at least three
directors and all members of the audit committee shall be "independent" of
management and the Company as and to the extent provided in the rules of the
NASD governing issuers whose shares are quoted on NASDAQ (as currently in effect
and as they may be amended, the "NASD Rules"). In addition, no member of the
audit committee:
- may accept any consulting, advisory or other compensatory fee from the
Company, other than for service on the Board of Directors or any
committee thereof;
- may own, directly or indirectly, 20% or more (or such lower
measurement as may be established in rules and regulations adopted by
the Securities and Exchange Commission (as currently in effect and as
they may be amended, the "SEC Rules")) of the Company's voting stock;
or
- otherwise be an affiliate of the Company other than in his or her
capacity as a director or member of any committee of the Board of
Directors,
nor shall any member otherwise have any relationship that, in the opinion of the
Board of Directors, would interfere with the exercise of his or her independence
from management of the Company. Each audit committee member shall be able to
read and understand fundamental financial statements, including the Company's
balance sheet, income statement and cash flow statement, and at least one member
shall have been determined by the Board of Directors to be a "financial expert,"
in all cases as and to the extent required and provided in the applicable NASD
Rules.
PURPOSE
The audit committee's primary purpose is to oversee the Company's accounting and
financial reporting processes and the audits of the Company's financial
statements. Without limitation of the generality of the foregoing, the audit
committee's primary functions are to oversee:
- the integrity of the Company's financial statements and financial
reporting structure;
- the Company's compliance with related legal and regulatory
requirements;
- the independent auditor's qualifications and independence;
- the performance of the Company's independent auditors;
- the receipt, retention and treatment of complaints regarding the
Company's accounting, auditing matters or internal accounting,
financial or disclosure controls;
- the confidential, anonymous submission of complaints regarding
questionable accounting or auditing matters; and
- related-party transactions
The audit committee also monitors and reviews compliance with the Company's
legal compliance and ethics policies and programs.
AUTHORITY AND RESPONSIBILITY
The audit committee shall have the authority and the responsibility, for and on
behalf of the Company's Board of Directors, to (a) oversee and monitor all
aspects of the Company's accounting and financial reporting processes,
including, without limitation, the oversight and monitoring of the participation
of the Company's management and its independent auditors in such processes, the
Company's financial statements and financial reporting process, the systems of
internal accounting and financial controls, any internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the Board of
Directors, (b) provide over the names of the audit committee members the
required Audit Committee Report for the Company's Proxy Statement required for
the Company's Annual Meeting of Shareholders and (c) take any actions as it may
deem desirable or appropriate to provide for the reliability and credibility of
the Company's financial statements and the integrity of the Company's financial
reporting process.
Subject to the applicable provisions of the Delaware corporate law and the
Company's Amended and Restated Certificate of Incorporation and its By-laws, the
audit committee may adopt such operating rules as it may deem appropriate for
the exercise of its authority and the discharge of its responsibility and for
the conduct of its activities as a committee, including, without limitation,
establishing the times and places of its meetings and providing for the
delegation of the responsibility for the conduct of certain of its specific
activities to one or more of its members, who will report back to the audit
committee as a whole.
In discharging its responsibilities, the audit committee shall have the power to
investigate any matter brought to its attention, shall have full access to all
books, records, facilities and personnel of the Company and shall have the power
and authority to engage and determine funding, by the Company, for such
independent counsel and other advisors as it may determine are necessary for it
to carry out its duties and responsibilities.
In performing their duties and responsibilities, each member of the audit
committee is entitled to rely in good faith upon the records of the Company and
upon information, opinions, reports or statements presented by any of the
Company's officers or employees, or other committees of the Board of Directors,
or by any other person as to matters the member reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Company.
ii
PRINCIPAL PROCESSES
Without in any respect limiting the authority and responsibility of the audit
committee, it being understood that the audit committee will maintain
flexibility in its oversight and monitoring of the Company's accounting and
financial reporting processes, the following shall be the principal
responsibilities and recurring processes of the audit committee in carrying out
its responsibilities:
- The audit committee shall have a clear understanding with the Company's
management and its independent auditors that the independent auditors are
ultimately accountable to the Company's Board of Directors and the audit
committee, as representatives of the Company's stockholders.
- The audit committee will meet at least four times a year.
- The audit committee shall pre-approve all audit and non-audit services
provided by the Company's independent auditors. Notwithstanding the
foregoing, the audit committee shall not have the authority to engage the
Company's independent auditors for any of the following non-audit services
(the "non-allowed services"):
-- Bookkeeping or other services related to the Company's accounting
records or financial statements
-- Financial information systems design and implementation
-- Appraisal or valuation services, fairness opinions or
contribution-in-kind reports
-- Actuarial services
-- Internal audit outsourcing services
-- Management functions or human resources work
-- Broker-dealer, investment adviser or investment banking services
-- Legal services and expert services unrelated to the audit (other than
tax services)
-- Any other service that is, by law, rule or regulation (including,
without limitation, SEC Rules and NASD Rules), not permitted to be
provided to a public company by its independent auditors.
The audit committee may delegate pre-approval of audit and non-audit
services to a subcommittee of the audit committee, provided that any
decisions made by such subcommittee shall be presented to the full audit
committee at its next scheduled meeting.
- The audit committee shall be directly and solely responsible for the
appointment, replacement, compensation (funding by the Company) and
oversight of the work of the independent auditors (including resolution of
any issues arising between management and the independent auditors
regarding financial reporting) for the purpose of preparing or issuing an
audit report or related work, and the independent auditors shall report
directly to the audit committee.
iii
- The audit committee shall discuss with the independent auditors their
independence from management and the Company and obtain from, and actively
discuss with, the independent auditors the written disclosures required by
the Independence Standards Board, particularly Independence Standards Board
Standard No. 1, as well as express confirmation from the independent
auditors that they have not been engaged by the Company to perform any of
the non-allowed services listed above, and shall consider the compatibility
of any nonaudit services with the auditors' independence. Without
limitation of the foregoing, the audit committee shall address with the
independent auditors in connection with any audit performed by them (i) the
Company's critical accounting policies and practices, (ii) alternative
treatments of financial information within GAAP that the independent
auditors have discussed with Company management, the ramifications of the
use of such alternative disclosures and treatments and the alternative
preferred by the independent auditors and (iii) any material written
communications between the independent auditors and Company management,
such as any management letter and any schedule of unadjusted differences.
- Annually, the audit committee shall review and recommend to the Board of
Directors as a whole the selection of the Company's independent auditors.
- The audit committee periodically will meet separately with management and
separately with the Company's independent auditors. The audit committee
shall discuss with the Company's independent auditors the overall scope and
plans for their respective audits including the adequacy of staffing and
compensation. Also, the audit committee shall discuss with the Company's
management and its independent auditors the adequacy and effectiveness of
the accounting and financial controls and procedures, including the
Company's system to identify, monitor and manage business risk, and the
Company's legal and ethical compliance programs. Further, the audit
committee shall meet separately with the independent auditors, with and
without management present, to discuss the results of their examinations,
including, without limitation, all of the matters required to be discussed
with the independent auditors under Statement on Accounting Standards No.
61.
- Based on the review and discussions described below, the audit committee
shall recommend to the Board of Directors whether the annual and quarterly
financial statements of the Company and related disclosure should be
included in the Company's Annual Report on Form 10-K and Quarterly Reports
on Form 10-Q, respectively:
- Prior to the filing of each of the Company's Quarterly Reports on Form
10-Q, the audit committee shall review with management and the
independent auditors the interim financial statements and other
information to be included in the Form 10-Q, including the Company's
disclosure under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A"). The audit committee
also shall discuss the results of the quarterly review and any other
matters required to be communicated to the audit committee by the
independent auditors under generally accepted auditing standards. Any
member of the audit committee may represent the entire audit committee
for the purposes of the review described in this paragraph, in which
event such member will make a presentation to the audit committee at
its next regularly scheduled meeting.
iv
- The audit committee shall review with management and the independent
auditors the financial statements and other financial information,
including the Company's disclosures under MD&A, to be included in the
Company's Annual Report on Form 10-K (or the annual report to
stockholders if distributed prior to the filing of Form 10-K),
including their judgment about the quality, not just acceptability, of
accounting principles, the reasonableness of significant judgments and
the clarity of the disclosures in the financial statements. Also, the
audit committee shall discuss the results of the annual audit and any
other matters required to be communicated to the audit committee by
the independent auditors under generally accepted auditing standards,
including, without limitation, all of the matters required to be
discussed with the independent auditors under Statement on Accounting
Standards No. 61.
- The audit committee shall review and approve hiring policies for employees
or former employees of any of the Company's independent auditors.
- The audit committee shall establish procedures for the receipt, retention
and treatment of complaints received by the Company regarding the Company's
accounting, auditing matters or internal accounting, financial or
disclosure controls.
- The audit committee shall establish procedures for the confidential,
anonymous submission of complaints or concerns regarding questionable
accounting or auditing matters.
- The audit committee shall review and approve all related-party
transactions.
ANNUAL REVIEW
The audit committee shall review and reassess the adequacy of this charter at
least annually and recommend any proposed changes to the Board of Directors.
v
EXHIBIT B
TALK AMERICA HOLDINGS, INC. 2003 LONG TERM INCENTIVE PLAN
1. Definitions. In this Plan, except where the context otherwise
indicates, the following definitions shall apply:
1.1. "Agreement" means a written agreement or other document
evidencing an Award that shall be in such form as may be specified by the
Committee and that may, but need not be, signed by a Participant, as determined
by the Committee in its discretion.
1.2. "Award" means a grant of an Option, Right, Restricted Stock
or Incentive Share.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Code" means the Internal Revenue Code of 1986, as amended.
1.5. "Committee" means a committee of the Board appointed by the
Board to administer this Plan and to make and administer specific Awards
hereunder. The Committee may, in its discretion, appoint a subcommittee to
administer the Plan with respect to specific Awards hereunder.
1.6. "Common Stock" means the common stock, par value $.01 per
share, of the Company.
1.7. "Company" means Talk America Holdings, Inc. and any successor
thereto
1.8. "Date of Exercise" means the date on which the Company
receives notice of the exercise of an Option or Right in accordance with the
terms of Section 8.1.
1.9. "Date of Grant" means the date on which an Award is granted
under this Plan.
1.10. "Director" means a member of the Board of Directors of the
Company.
1.11. "Employee" means any person determined by the Committee to
be an employee of the Company or a Subsidiary, including an Employee Director,
consultant or any person who has been hired to be an employee of the Company or
a Subsidiary.
1.12. "Employee Director" means a Director who is also an
Employee.
1.13. "Fair Market Value" as of any date means an amount equal to
the last sale price for a Share on the Nasdaq National Market, or such
securities exchange or other automated dealer quotation system that is the
principal market for the Common Stock, as reported for such date by such source
as the Committee may select, or, if such price quotations of the Common Stock
are not then reported, then the fair market value of a Share as determined by
the Committee pursuant to a reasonable method adopted in good faith for such
purpose.
1.14. "Grantee" means an Employee or Director to whom Restricted
Stock has been awarded pursuant to Section 9 or Incentive Shares have been
awarded pursuant to Section 10.
1.15. "Incentive Shares" means an award providing for the
contingent grant of Shares pursuant to the provisions of Section 10.
1.16. "Incentive Stock Option" means an Option granted under this
Plan that the Company designates as an incentive stock option under Section 422
of the Code.
1.17. "Nonstatutory Stock Option" means an Option granted under
this Plan that is not an Incentive Stock Option.
1.18. "Option" means an option to purchase Shares granted under
this Plan in accordance with the terms of Section 6.
1.19. "Option Period" means the period during which an Option may
be exercised.
1.20. "Option Price" means the price per Share at which an Option
may be exercised. Subject to the terms of the Plan, the Option Price shall be
determined by the Committee; provided, however, that in no event shall the
Option Price be less than the greater of 25% of the Fair Market Value as of the
Date of Grant and the par value of the Common Stock, and provided further that
the Option Price of an Incentive Stock Option granted under this Plan shall not
be less than one hundred percent (100%) of the Fair Market Value on the Date of
Grant and, in the case of an Incentive Stock Option granted to an Employee who,
on the Date of Grant is a Ten-Percent Stockholder, shall not be less than one
hundred and ten percent (110%) of the Fair Market Value on the Date of Grant.
1.21. "Participant" means a Director, Employee, or Employee
Director to whom an Award has been granted hereunder.
1.22. "Performance Goals" means performance goals established by
the Committee, which may be based on earnings or earnings growth, sales, return
on assets, equity or investment, cash flow, total stockholders return,
regulatory compliance, satisfactory internal or external audits, improvement of
financial ratings, achievement of balance sheet or income statement objectives,
implementation or completion of one or more projects or transactions, or any
other objective goals established by the Committee, and may be absolute in their
terms or measured against or in relationship to other companies comparably,
similarly or otherwise situated. Such performance standards may be particular
to an Participant or the department, branch, Subsidiary or division in which he
or she works, or may be based on the performance of the Company, one or more
Subsidiaries or the Company and one or more Subsidiaries, and may cover such
period as may be specified by the Committee.
1.23. "Plan" means the Talk America Holdings, Inc. 2003 Long Term
Incentive Plan, as amended from time to time.
ii
1.24. "Related Option" means an Option in connection with which,
or by amendment to which, a Right is granted.
1.25. "Related Right" means a Right granted in connection with, or
by amendment to, an Option.
1.26. "Restricted Stock" means Shares granted under the Plan
pursuant to the provisions of Section 9.
1.27. "Right" means a stock appreciation right granted under the
Plan in accordance with the terms of Section 7.
1.28. "Right Period" means the period during which a Right may be
exercised.
1.29. "Section 422 Employee" means an Employee who is employed by
the Company or a "parent corporation" or "subsidiary corporation" (both as
defined in Sections 424(e) and (f) of the Code) with respect to the Company.
1.30. "Share" means a share of Common Stock.
1.31. "Subsidiary" means a corporation, partnership, business
trust, limited liability company or other form of business organization at
least 50% of the total combined voting power of all classes of stock or other
equity interests of which is owned by the Company, either directly or through
one or more other Subsidiaries.
1.32. "Ten-Percent Stockholder" means a Section 422 Employee who
(applying the rules of Section 424(d) of the Code) owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or a "parent corporation" or "subsidiary corporation" (both as defined
in Sections 424(e) and (f) of the Code) with respect to the Company.
2. Purpose. This Plan is intended to assist the Company and its
Subsidiaries in attracting and retaining Directors, Employees and Employee
Directors of outstanding ability and to promote the identification of their
interests with those of the stockholders of the Company.
3. Administration. The Committee shall administer this Plan and shall
have plenary authority, in its discretion, to grant Awards to Directors,
Employees and Employee Directors, subject to the provisions of this Plan. The
Committee shall have plenary authority and discretion, subject to the provisions
of this Plan, to determine the Directors, Employees or Employee Directors to
whom Awards shall be granted, the terms (which terms need not be identical) of
all Awards, including without limitation the Option Price of Options, the time
or times at which Awards are granted, the number of Shares covered by Awards,
whether an Option shall be an Incentive Stock Option or a Nonstatutory Stock
Option, any exceptions to non-transferability, any Performance Goals applicable
to Awards, any provisions relating to vesting, any circumstances in which the
Options would terminate, the period during which Options and Rights may be
iii
exercised, and the period during which Restricted Stock shall be subject to
restrictions. In making these determinations, the Committee may take into
account the nature of the services rendered or to be rendered by the Award
recipients, their present and potential contributions to the success of the
Company and its Subsidiaries, and such other factors as the Committee in its
discretion shall deem relevant. Subject to the provisions of this Plan, the
Committee shall have plenary authority to interpret this Plan and any
Agreements, prescribe, amend and rescind rules and regulations relating to them,
and make all other determinations deemed necessary or advisable for the
administration of this Plan and Awards granted hereunder. The determinations of
the Committee on the matters referred to in this Section 3 shall be binding and
final.
4. Eligibility. Options, Rights, Restricted Stock and Incentive Shares
may be granted or awarded only to Employees and Directors, provided, however,
that Directors, other than Employee Directors, may not be granted Incentive
Stock Options. A Director, Employee or Employee Director who has been granted
an Option or Right or awarded Restricted Stock or Incentive Shares may be
granted additional Options and Rights or awarded additional shares of Restricted
Stock or Incentive Shares.
5. Stock Subject to Plan.
5.1. Subject to adjustment as provided in Section 11, (a) the
maximum number of Shares that may be issued under this Plan is 1,250,000 Shares,
and (b) the maximum number of Shares with respect to which an Employee may
receive Awards under this Plan during any calendar year is 250,000.
5.2. If an Option or Right expires or terminates for any reason
(other than termination by virtue of the exercise of a Related Option or Related
Right, as the case may be) without having been fully exercised, or is
surrendered pursuant to Section 6.3, if shares of Restricted Stock are forfeited
or if Shares covered by an Incentive Share Award are not issued or are
forfeited, the unissued or forfeited Shares that had been subject to the Award
shall be available for the grant of additional Awards.
5.3. Upon exercise of a Right (regardless of whether the Right is
settled in cash or Shares), the number of Shares with respect to which the Right
is exercised shall be charged against the number of Shares issuable under the
Plan and shall not become available for the grant of other Awards.
6. Options.
6.1. Options granted under this Plan shall be either Incentive
Stock Options or Nonstatutory Stock Options, as designated by the Committee,
provided that Incentive Stock Options may only be granted to persons who are
Section 422 Employees on the Date of Grant. Each Option granted under this Plan
shall be identified either as a Nonstatutory Stock Option or an Incentive Stock
Option and shall be evidenced by an Agreement that specifies the terms and
conditions of the Option. Options shall be subject to the terms and conditions
set forth in this Section 6 and such other terms and conditions not inconsistent
with this Plan as the Committee may specify. The Committee may, in its
discretion, condition the grant or vesting of an Option upon the achievement of
one or more specified goals.
iv
6.2. The Option Period shall be determined by the Committee and
specifically set forth in the Agreement; provided, however, that an Option shall
not be exercisable after ten years (five years in the case of an Incentive Stock
Option granted to a Ten-Percent Stockholder) from its Date of Grant.
6.3. The Committee, in its discretion, may provide in an Agreement
for the right of a Participant to surrender to the Company an Option (or a
portion thereof) that has become exercisable and to receive upon such surrender,
without any payment to the Company (other than required tax withholding amounts)
that number of Shares (equal to the highest whole number of Shares) having an
aggregate Fair Market Value as of the date of surrender equal to that number of
Shares subject to the Option (or portion thereof) being surrendered multiplied
by an amount equal to the excess of (i) the Fair Market Value on the date of
surrender over (ii) the Option Price, plus an amount of cash equal to the Fair
Market Value of any fractional Share to which the Participant would be entitled
but for the parenthetical above relating to whole number of Shares. Any such
surrender shall be treated as the exercise of the Option (or portion thereof).
7. Rights.
7.1. Rights granted under the Plan shall be evidenced by an
Agreement specifying the terms and conditions of the Award.
7.2. A Right may be granted under the Plan:
(a) in connection with, and at the same time as, the grant of an
Option under the Plan;
(b) by amendment of an outstanding Option granted under the
Plan; or
(c) independently of any Option granted under the Plan.
7.3. A Right granted under Section 7.2(a) or Section 7.2(b) of
this Plan is a Related Right. A Related Right may, in the Board's or
Committee's discretion, apply to all or any portion of the Shares subject to the
Related Option.
7.4. A Right may be exercised in whole or in part as provided in
the applicable Agreement, and, subject to the terms of the Agreement, entitles a
Participant to receive, without payment to the Company (but subject to required
tax withholding), either cash or that number of Shares (equal to the highest
whole number of Shares), or a combination thereof, in an amount or having an
aggregate Fair Market Value determined as of the Date of Exercise not to exceed
the number of Shares subject to the portion of the Right exercised multiplied by
an amount equal to the excess of (i) the Fair Market Value on the Date of
Exercise of the Right over (ii) either (A) the Fair Market Value on the Date of
Grant (or such amount in excess of such Fair Market Value as may be specified by
the Committee) of the Right if it is not a Related Right, or (B) the Option
Price as provided in the Related Option if the Right is a Related Right.
v
7.5. The Right Period shall be determined by the Committee and
specifically set forth in the Agreement, provided that (a) a Right will expire
no later than the earlier of (1) ten years from the Date of Grant, or (2) in the
case of a Related Right, the expiration of the Related Option; and (b) a Right
that is a Related Right to an Incentive Stock Option may be exercised only when
and to the extent the Related Option is exercisable.
7.6. The exercise, in whole or in part, of a Related Right shall
cause a reduction in the number of Shares subject to the Related Option equal to
the number of Shares with respect to which the Related Right is exercised.
Similarly, the exercise, in whole or in part, of a Related Option shall cause a
reduction in the number of Shares subject to the Related Right equal to the
number of Shares with respect to which the Related Option is exercised.
8. Exercise of Options and Rights.
8.1. An Option or Right may, subject to the terms of the
applicable Agreement evidencing the Award, be exercised in whole or in part by
the delivery to the Company of written notice of the exercise, in such form as
the Committee may prescribe, accompanied, in the case of an Option, by (a) a
full payment for the Shares with respect to which the Option is exercised or (b)
irrevocable instructions to a broker to deliver promptly to the Company cash
equal to the exercise price of the Option. To the extent provided in the
applicable Agreement, payment may be made in whole or in part by (i) delivery
(including constructive delivery) of Shares (provided that such Shares, if
acquired pursuant to an option or other award granted hereunder or under any
other compensation plan maintained by the Company or any Subsidiary, have been
held by the Participant for at least six (6) months) valued at Fair Market Value
on the Date of Exercise or (ii) delivery of a promissory note as provided in
Section 8.2 hereof.
8.2. To the extent provided in an Agreement and permitted by
applicable law, the Committee may accept as payment of all or a portion of the
Option Price a promissory note executed by the Participant evidencing his or her
obligation to make future cash payment thereof. Promissory notes made pursuant
to this Section 8.2 shall be payable upon such terms, and include such other
terms, as may be determined by the Committee, shall be secured by a pledge of
the Shares received upon exercise of the Option, or other securities the
Committee may deem to be acceptable for such purposes, and shall bear interest
at a rate fixed by the Committee.
8.3. Options and Rights made under this Plan shall be transferable
by will, the laws of descent and distribution, and as otherwise may be provided
by the Committee in an Agreement.
9. Restricted Stock Awards.
9.1. Restricted Stock granted under this Plan shall consist of
Shares that are restricted as to transfer, subject to forfeiture, and subject to
such other terms and conditions as may be determined by the Committee. Such
terms and conditions may provide, in the discretion of the Committee, for the
lapse of such transfer restrictions or forfeiture provisions to be contingent
upon the achievement of one or more specified Performance Goals.
vi
9.2. Each grant of Restricted Stock under this Plan shall be
evidenced by an Agreement specifying the terms and conditions of the Award.
Each Agreement evidencing an Award of Restricted Stock shall contain the
following:
(a) a requirement that each certificate representing Shares of
Restricted Stock shall be deposited with the Company, or its designee, and shall
bear the following legend:
"This certificate and the shares of stock represented hereby are
subject to the terms and conditions (including the risks of
forfeiture and restrictions against transfer) contained in the
Talk America Holdings, Inc. 2003 Long Term Incentive Plan, and an
Agreement entered into between the registered owner and Talk
America Holdings, Inc. Release from such terms and conditions
shall be made only in accordance with the provisions of this Plan
and the Agreement, a copy of each of which is on file in the
office of the Secretary of Talk America Holdings, Inc."; and
(b) the terms and conditions upon which any restrictions
applicable to shares of Restricted Stock shall lapse and new certificates free
of the foregoing legend shall be issued to the Grantee or his or her legal
representative.
9.3. The Committee may include in any Agreement evidencing a
Restricted Stock Award a requirement that, in the event of a Grantee's
termination of employment for any reason prior to the lapse of restrictions, all
shares of Restricted Stock shall be forfeited by the Grantee to the Company
without payment of any consideration by the Company and neither the Grantee nor
any successors, heirs, assigns or personal representatives of the Grantee shall
thereafter have any further rights or interest in the Shares or certificates.
10. Incentive Share Awards. Each grant of Incentive Shares under this
Plan shall be evidenced by an Agreement that: (a) provides for the issuance of
Shares to a Grantee at such times and (b) contains such other terms and
conditions, as determined by the Committee, including without limitation, terms
that condition the issuance of Shares upon the achievement of one or more
Performance Goals.
11. Dividends and Dividend Equivalents. The terms of an Award may,
subject to such terms and conditions as the Committee may specify, provide a
Participant with the right to receive dividend payments or dividend equivalent
payments with respect to Shares covered by the Award, which payments may be
either made currently or credited to an account established for the Participant,
and may be settled in cash or Shares, as determined by the Committee.
12. Capital Adjustments. In the event of any change in the outstanding
Common Stock by reason of any stock dividend, split-up, recapitalization,
reclassification, combination or exchange of shares, merger, consolidation or
liquidation and the like, the Committee may, in its discretion, provide for a
substitution for or adjustment in (i) the number and class of Shares subject to
outstanding Awards, or the type of consideration to be received upon the
exercise or vesting of outstanding Awards, (ii) the Option Price of Options and
vii
the base price upon which payments under Rights that are not Related Rights are
determined, (iii) the aggregate number and class of Shares for which Awards
thereafter may be granted under this Plan and (iv) the maximum number of Shares
with respect to which an Employee may be granted Awards during the period
specified in Section 5.1.
13. Termination or Amendment. The Board may amend, alter or terminate
this Plan in any respect at any time; provided, however, that, after this Plan
has been approved by the stockholders of the Company, no amendment, alteration
or termination of this Plan shall be made by the Board without approval of (i)-
the Company's stockholders to the extent stockholder approval of the amendment
is required by applicable law or regulations or the requirements of the
principal exchange or interdealer quotation system on which the Common Stock is
listed or quoted, if any, and (ii) each affected Participant if such amendment,
alteration or termination would adversely affect his or her rights or
obligations under any Award granted prior to the date of such amendment,
alteration or termination.
14. Modification, Substitution.
14.1. Subject to the terms and conditions of this Plan, the
Committee may modify, extend or renew outstanding Options and Rights, or accept
the surrender of outstanding Options and Rights granted under this Plan or
options and stock appreciation rights granted under any other plan of the
Company or a Subsidiary (to the extent not theretofore exercised), and authorize
the granting of new Options and Rights pursuant to this Plan in substitution
therefor. Any substituted Options or Rights may specify a lower exercise price
than the surrendered options and stock appreciation rights, a longer term than
the surrendered options and stock appreciation rights, or have any other
provisions that are authorized by this Plan. Subject to the terms and
conditions of this Plan, the Committee may modify the terms of any outstanding
Awards of Restricted Stock or Incentive Shares. Notwithstanding the foregoing,
however, no modification of an Award shall, without the consent of the
Participant, alter or impair any of the Participant's rights or obligations
under such Award.
14.2. Anything contained herein to the contrary notwithstanding,
Awards may, at the discretion of the Committee, be granted under this Plan in
substitution for stock options and other awards covering capital stock of
another corporation which is merged into, consolidated with, or all or a
substantial portion of the property or stock of which is acquired by, the
Company or one of its Subsidiaries. The terms and conditions of the substitute
Awards so granted may vary from the terms and conditions set forth in this Plan
to such extent as the Committee may deem appropriate in order to conform, in
whole or part, to the provisions of the Awards in substitution for which they
are granted. Such substitute Awards granted hereunder shall not be counted
toward the Share limit imposed by Section 5.1(b), except to the extent it is
determined by the Committee that counting such Awards is required in order for
Awards granted hereunder to be eligible to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code.
14.3 Any provision of the Plan or any Agreement to the contrary
notwithstanding, the Committee may cause any Award granted hereunder to be
canceled in consideration of a cash payment or alternative Award made to the
holder of such canceled Award equal in value to the Fair Market Value of such
canceled Award.
viii
15. Effectiveness of this Plan. This Plan and any amendments hereto
requiring stockholder approval pursuant to Section 13 are subject to approval by
vote of the stockholders of the Company at the next annual or special meeting of
stockholders following adoption by the Board.
16. Withholding. The Company's obligation to issue or deliver Shares
or pay any amount pursuant to the terms of any Award granted hereunder shall be
subject to satisfaction of applicable federal, state and local tax withholding
requirements. To the extent provided in the applicable Agreement and in
accordance with rules prescribed by the Committee, a Participant may satisfy any
such withholding tax obligation by any of the following means or by a
combination of such means: (i) tendering a cash payment, (ii) authorizing the
Company to withhold Shares otherwise issuable to the Participant, or (iii)
delivering to the Company already-owned and unencumbered Shares.
17. Term of this Plan. Unless sooner terminated by the Board pursuant
to Section 13, this Plan shall terminate on date that is ten (10) years after
the earlier of that date that the Plan is adopted by the Board or approved by
the Company's stockholders, and no Awards may be granted or awarded after such
date. The termination of this Plan shall not affect the validity of any Award
outstanding on the date of termination.
18. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against all
reasonable expenses, including attorneys' fees, actually and reasonably incurred
in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with this
Plan or any Award granted or awarded hereunder, and against all amounts
reasonably paid by them in settlement thereof or paid by them in satisfaction of
a judgment in any such action, suit or proceeding, if such members acted in good
faith and in a manner which they believed to be in, and not opposed to, the best
interests of the Company.
19. General Provisions.
19.1. The establishment of this Plan shall not confer upon any
Director, Employee or Employee Director any legal or equitable right against the
Company, any Subsidiary or the Committee, except as expressly provided in this
Plan.
19.2. This Plan does not constitute inducement or consideration
for the employment of any Employee or the service of any Director or Employee
Director, nor is it a contract between the Company or any Subsidiary and any
Director, Employee or Employee Director. Participation in this Plan shall not
give a Director, Employee or Employee Director any right to be retained in the
service of the Company or any Subsidiary.
19.3. Neither the adoption of this Plan nor its submission to the
Company's stockholders shall be taken to impose any limitations on the powers of
the Company or its Subsidiaries to issue, grant, or assume options, warrants,
rights, or restricted stock, or other awards otherwise than under this Plan, or
to adopt other stock option, restricted stock or other plans or to impose any
requirement of stockholder approval upon the same.
ix
19.4. The interests of any Director, Employee or Employee Director
under this Plan are not subject to the claims of creditors and may not, in any
way, be assigned, alienated or encumbered except as provided in an Agreement.
19.5. This Plan shall be governed, construed and administered in
accordance with the laws of the State of Delaware.
19.6. The Committee may require each person acquiring Shares
pursuant to Awards granted hereunder to represent to and agree with the Company
in writing that such person is acquiring the Shares without a view to
distribution thereof. The certificates for such Shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for Shares issued pursuant to this Plan shall be subject to
such stock transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Common Stock is then
listed or interdealer quotation system upon which the Common Stock is then
quoted, and any applicable federal or state securities laws. The Committee may
place a legend or legends on any such certificates to make appropriate reference
to such restrictions.
19.7. The Company shall not be required to issue any certificate
or certificates for Shares with respect to Awards granted under this Plan, or
record any person as a holder of record of such Shares, without obtaining, to
the complete satisfaction of the Committee, the approval of all regulatory
bodies deemed necessary by the Committee, and without complying to the Board's
or Committee's complete satisfaction, with all rules and regulations, under
federal, state or local law deemed applicable by the Committee.
x
TALK AMERICA HOLDINGS, INC.
12020 Sunrise Valley Drive
Reston, Virginia 20190
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON JUNE 18, 2003
The undersigned holder of shares of Common Stock of Talk America Holdings, Inc.
hereby appoints Gabriel Battista and Aloysius T. Lawn, IV, and each of them,
with full power of substitution, as proxies to vote all shares owned by the
undersigned at the Annual Meeting of Stockholders to be held on June 18, 2003,
at 10:00 a.m., Eastern time, at The Sheraton Reston Hotel, 11810 Sunrise Valley
Drive, Reston, Virginia 20191, and any adjournment or postponement thereof. A
majority of said proxies, or any substitute or substitutes, who shall be present
and act at the meeting (or if only one shall be present and act, then that one)
shall have all the powers of said proxies hereunder.
Please mark, date and sign the proxy and return it promptly in the accompanying
business reply envelope, which requires no postage if mailed in the United
States. If you plan to attend the meeting, please so indicate in the space
provided on the reverse side.
The shares represented by this Proxy, if signed and returned, will be voted as
specified on the reverse side. IF NO SPECIFICATION IS MADE, YOUR SHARES WILL BE
VOTED FOR APPROVAL OF THE ELECTION OF THE DIRECTOR NOMINEES, ARTHUR MARKS AND
EDWARD B. MEYERCORD, III, FOR RATIFICATION AND APPROVAL OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR
THE COMPANY FOR 2003 (THE "AUDIT PROPOSAL"), AND FOR APPROVAL OF THE ADOPTION OF
THE 2003 LONG TERM INCENTIVE PLAN.
IMPORTANT: PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ELECTION OF TWO
DIRECTORS, FOR APPROVAL OF THE AUDIT PROPOSAL AND FOR APPROVAL OF THE 2003 LONG
TERM INCENTIVE PLAN.
(SEE REVERSE SIDE)
ITEM 1 Election of Directors
Arthur Marks / / FOR the nominee / / WITHHOLD AUTHORITY to vote for nominee
Edward B.
Meyercord, III / / FOR the nominee / / WITHHOLD AUTHORITY to vote for nominee
ITEM 2 To approve the Audit Proposal / / FOR / / AGAINST / / ABSTAIN
ITEM 3 To approve the 2003 Long
Term Incentive Plan / / FOR / / AGAINST / / ABSTAIN
MARK HERE IF YOU PLAN TO ATTEND THE MEETING / /
In their discretion, the proxies are
authorized to vote upon such other business
as may properly come before the meeting or
any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS APPEARING
ON THIS SIDE. IF A CHOICE IS NOT INDICATED
WITH RESPECT TO ITEM 1, ITEM 2, OR ITEM 3
THIS PROXY WILL BE VOTED "FOR" SUCH ITEM. THE
PROXIES WILL USE THEIR DISCRETION WITH
RESPECT TO ANY OTHER MATTER PROPERLY BROUGHT
BEFORE THE MEETING OR ANY POSTPONEMENT. THIS
PROXY IS REVOCABLE AT ANY TIME BEFORE IT IS
EXERCISED.
Receipt herewith of the Company's Notice of
Annual Meeting of Stockholders to be held on
June 18, 2003 and the related proxy statement
dated May 6, 2003 and Annual Report on Form
10-K for the fiscal year ended December 31,
2002, are hereby acknowledged.
PLEASE SIGN, DATE AND MAIL TODAY
Signature(s) of Stockholder(s)
---------------
Date , 2003
-------
Joint owners must EACH sign. Please sign
EXACTLY as your name(s) appear(s) on this
card. When signing as attorney, executor,
administrator, trustee, guardian, partner, or
corporate officers, please give FULL title.