UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. )
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Materials Pursuant to §240.14a-12
Talk
America Holdings, Inc.
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TALK
AMERICA HOLDINGS, INC.
6805
Route 202
New
Hope,
Pennsylvania 18938
(215)
862-1500
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
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 August 9, 2006, at 3:00 p.m., Eastern Time, at the
Company's New Hope office located at 6805 Route 202, New Hope, PA 18938
for
the
following purposes:
(1)
To
consider and vote upon a proposal to elect one director 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 2006;
(3) To
consider and vote upon a proposal to ratify and approve the Talk
America Employee Stock Purchase 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 June 12, 2006 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
New
Hope,
Pennsylvania
June
28,
2006
TALK
AMERICA HOLDINGS, INC.
6805
Route 202
New
Hope,
Pennsylvania 18938
(215)
862-1500
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 6805 Route 202, New Hope, Pennsylvania 18938, hereby solicits
your
proxy in the form enclosed for use at the Annual Meeting of Stockholders
to be
held on August 9, 2006 (the “Annual Meeting”), or at any adjournment or
adjournments thereof. The Annual Meeting will be held at the Company's New
Hope
office located at 6805 Route 202, New Hope, PA 18938 at 3:00 p.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 June 28, 2006.
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 nominee for
election as director 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 Talk America
Employee Stock Purchase Plan as described in "PROPOSAL 3: APPROVAL OF THE
TALK
AMERICA EMPLOYEE STOCK PURCHASE 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.
The
solicitation of the accompanying proxy is made on behalf of the Board and
may be
made by mail, telephone, electronic or facsimile transmission or in person.
In soliciting proxies, we may also use the services of our
directors, officers and employees, who will not receive any additional
compensation for those services, but who will be reimbursed for their
out-of-pocket expenses.
VOTING
SECURITIES
Only
stockholders of record at the close of business on June 12, 2006 are entitled
to
vote at the Annual Meeting. On June 12, 2006, there were 30,475,310 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 nominee in Class II for election as director who
receives the greatest number of votes cast at the Annual Meeting, assuming
that
a quorum is present, shall be elected as a director. 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 a majority
of the shares present in person or represented by proxy at the Annual Meeting
and entitled to vote.
Brokers
who hold shares in street name do not have the authority to vote on certain
non-routine matters for which they have not received instructions from
beneficial owners. Routine matters generally include
the election of directors and the approval and appointment of the independent
auditors. Abstentions and “broker non-votes” are counted as present and entitled
to vote for purposes of determining a quorum and for voting. Abstentions
and
broker non-votes (arising from the lack of instructions from beneficial owners)
by holders of shares present in person or by proxy at the Annual Meeting
will
not affect the outcome of the vote on Proposal 1, but will, in the case of
both
Proposal 2 and Proposal 3, have the effect of a vote against such
Proposal.
It
is
anticipated that sufficient stockholders will attend the meeting, in person
or
by proxy, to constitute a quorum for the transaction of business.
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 June 12, 2006 (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 Beneficially Owned (1)
|
Percent
of Shares Beneficially Owned
|
||
|
Eton
Park Fund, L.P., Eton Park Master Fund, Ltd., Eton Park Associates,
L.P.,
Eton Park Capital Management, L.P., Eric M. Mindich
825
Third Avenue, 8th
Floor
New
York, NY 10022
Barclays
Global Investors, NA., Barclays
Global
Fund Advisors, Barclays Global Investors, Ltd., Barclays Global
Investors
Japan Trust and Banking Company Limited
45
Fremont Street
San
Francisco, CA 94105
Paul
Rosenberg
650
N. E. 5th Avenue
Boca
Raton, FL 33432
|
2,800,000(5)
2,406,912(6)
1,919,995(2)
|
9.2%
7.9%
6.3%
|
||
|
Mellon
Financial Corporation
One
Mellon Center
Pittsburgh,
PA 15258
Dimensional
Fund Advisors Inc.
1299
Ocean Avenue, 11th
Floor
Santa
Monica, CA 90401
|
1,751,170(4)
1,684,002(3)
|
5.8%
5.5%
|
||
|
Jonathan
Starr, Flagg Street Capital LLC, Flagg Street Partners LP, Flagg
Street
Partners Qualified LP and Flagg Street Offshore LP.
44
Brattle Street
Cambridge,
MA 02138
|
1,543,887(7)
|
5.0%
|
||
|
Gabriel
Battista
|
646,666(8)
|
2.1%
|
||
|
Mark
S. Fowler
|
137,374(8)
|
*
|
||
|
Edward
B. Meyercord, III
|
466,666(8)
|
1.5%
|
||
|
Ronald
R. Thoma
|
59,311(8)
|
*
|
||
|
Robert
Korzeniewski
|
21,000(8)
|
*
|
||
|
Aloysius
T. Lawn, IV
|
207,499(8)
|
*
|
||
|
Jeffrey
Earhart
|
116,000(8)
|
*
|
||
|
Warren
Brasselle
|
113,333(8)
|
*
|
||
|
Patrick
O’Leary
|
75,000(8)
|
*
|
||
|
All
directors and executive officers as a group (14 persons)
|
2,168,782(8)
|
6.7%
|
* 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 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.
(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) The
foregoing information is derived from the Schedule 13G filed by Dimensional
Fund
Advisors Inc. on February 6, 2006.
(4) The
foregoing information is derived from the Schedule 13G filed by Mellon Financial
Corporation on February 15, 2006. This Schedule indicates that, as of December
31, 2005, Mellon Financial Corporation had beneficial ownership of 1,751,170
shares, with sole voting power for 955,137 shares and sole dispositive power
for
1,706,670 shares.
(5) The
foregoing information is derived from the Schedule 13G/A filed by Eton Park
Fund, L.P., Eton Park Master Fund, Ltd., Eton Park Associates, L.P., Eton
Park
Capital Management, L.P. and Eric M. Mindich on February 8, 2006. This Schedule
indicates that, as of December 31, 2005: Eton Park Fund, L.P. had beneficial
ownership of 980,000 shares, with shared voting power and shared dispositive
power for 980,000 shares; Eton Park Master Fund Ltd. had beneficial ownership
of
1,820,000 shares, with shared voting power and shared dispositive power over
1,820,000 shares; Eton Park Associates, L.P. had beneficial ownership of
980,000
shares, with shared voting power and shared dispositive power for 980,000
shares; Eton Park Capital Management, L.P. had beneficial ownership of 1,820,000
shares, with shared voting power and shared dispositive power for 1,820,000
shares, and; Eric M. Mindich had beneficial ownership of 2,800,000 shares,
with
shared voting power and shared dispositive power for 2,800,000
shares.
(6) The
foregoing information is derived from the Schedule 13G filed by Barclays
Global
Investors, NA, Barclays Global Fund Advisors, Barclays Global Investors,
Ltd.
and Barclays Global Investors Japan Trust and Banking Company Limited on
January
26, 2006. This Schedule indicates that, as of December 31, 2005: Barclays
Global
Investors, NA had beneficial
ownership of 2,406,912 shares, with sole
voting power for 2,141,523 shares and sole dispositive power for 2,406,912
shares; Barclays Global Fund Advisors had beneficial ownership of 341,217
shares, with sole voting power and sole dispositive power for 341,217 shares;
and Barclays Global Investors, Ltd. and Barclays Global Investors Japan Trust
and Banking Company Limited had no beneficial ownership.
(7)
The
foregoing information is derived from the Schedule 13G filed by Jonathan
Starr,
Flagg Street Capital LLC, Flagg Street Partners LP, Flagg Street Partners
Qualified LP and Flagg Street Offshore LP on May 4, 2006. This Schedule
indicates that, as of May 4, 2006: Jonathan Starr, had beneficial ownership
of
1,543,887 shares, with sole voting power for 1,543,887 shares and sole
dispositive power for 1,543,887 shares; Flagg Street Capital LLC, had beneficial
ownership of 1,543,887 shares, with sole voting power for 1,543,887 shares
and
sole dispositive power for 1,543,887 shares; Flagg Street Partners LP, Flagg
Street Partners Qualified LP and Flagg Street Offshore LP had no beneficial
ownership.
(8) Includes
shares of our common stock that could be acquired upon exercise of options
exercisable within 60 days after June 12, 2006 as follows: Gabriel Battista
-
626,665; Mark S. Fowler - 50,000; Edward B. Meyercord, III - 466,666; Ronald
R.
Thoma - 40,000; Robert Korzeniewski - 20,000; Aloysius T. Lawn, IV - 207,499;
Jeffrey Earhart - 116,000; Warren Brasselle - 113,333; Patrick O'Leary -
75,000;
and all directors and executive officers as a group - 2,001,829.
Compliance
with Section 16(a) of the Exchange Act
Under
Section 16(a) of the Securities Exchange Act of 1934, as amended, our directors
and certain officers and persons who are the beneficial owners of more than
10
percent of our Common Stock 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
we
are required to report any failure to file by such dates in 2005. We believe
that all of the required filings have been made in a timely manner. In making
this statement, we have relied on copies of the reporting forms received
by
us.
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
2006 (“Class II”), the annual meeting of stockholders in 2007 (“Class I”), and
the annual meeting of stockholders in 2008 (“Class III”), respectively.
At
the
Annual Meeting, Edward B. Meyercord, III is the nominee for election as Class
II
director, for a term to expire at the annual meeting of stockholders in 2009.
Mr. Meyercord will serve until his successor has been elected and qualified.
Mr.
Meyercord currently serves as a director of the Company. The proxies solicited
hereby, unless directed to the contrary therein, will be voted for the nominee.
The nominee has consented to being named in this proxy statement and to serve
if
elected. The Board has no reason to believe that the nominee for election
as
director will not be a candidate 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 as the Board, in its discretion, may designate.
The
following sets forth certain biographical information, present occupation
and
business experience for the past five years for the nominee for election
as
director and the continuing Class I and Class III directors.
The
Board of Directors recommends a vote FOR the Class II nominee listed below.
CLASS
II: NOMINEE WHOSE TERM WILL EXPIRE IN 2006
Edward
B. Meyercord, III, age 41.
Mr.
Meyercord currently serves as our Chief Executive Officer and President.
From
May 2001 through December 2003, Mr. Meyercord served as our President. He
served
as our Chief Financial Officer between August 1999 and December 2001 and
Chief
Operating Officer between January 2000 and May 2001. He joined us in September
of 1996 as the Executive Vice President, Marketing and Corporate Development.
Prior to joining us, Mr. Meyercord was a 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
III: INCUMBENTS WHOSE TERMS WILL EXPIRE IN 2007
Mark
Fowler, age 64.
Mr.
Fowler has been one of our Directors 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 2000 through 2004, Mr. Fowler founded and served as Chairman
of the Board of Directors of AssureSat, Inc., a provider of telecommunications
satellite backup services. Since 2002, Mr. Fowler has been self-employed
and
pursuing investments in various companies and real estate. 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.
Robert
Korzeniewski, age 49.
Mr.
Korzeniewski has been one of our Directors since July 2003. He is currently
the
Executive Vice President, Corporate Development and Strategy, with VeriSign
Inc., which provides infrastructure services for Internet and telecommunications
networks. From 1996 to 2000, Mr. Korzeniewski served as Chief Financial Officer
of Network Solutions, Inc., which was acquired by VeriSign in June 2000.
From
1987 to 1996, he held a variety of senior financial positions with SAIC.
Mr.
Korzeniewski is a certified public accountant. He serves as a director of
Kintera, Inc., a software provider for nonprofit organizations. Mr. Korzeniewski
is also a director of a number of privately held companies.
CLASS
I: INCUMBENTS WHOSE TERMS WILL EXPIRE IN 2008
Gabriel
Battista, age 61.
Mr.
Battista currently serves as Chairman of our Board of Directors. From January
1999 through May 2001, Mr. Battista served as our Chairman of the Board of
Directors, Chief Executive Officer and President. From May 2001 through December
2003, Mr. Battista served as our Chairman of the Board of Directors and Chief
Executive Officer. From January 2004 through December 2005, Mr. Battista
served
as Executive Chairman of the Board of Directors; Mr. Battista's term as an
employee of the Company ended on December 31, 2004 (he continues as the
non-executive Chairman of our Board and a Director). Prior to joining us
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 services provider. His career also included
management positions at US Sprint, GTE Telenet and The General Electric Company.
Mr. Battista serves as a trustee of Capitol College and as a director of
a
privately held company.
Ronald
Thoma, age 71. Mr.
Thoma
is currently a business consultant, having retired in 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 is a Trustee of
Frankford Health System and a Trustee of Delaware Valley College. Mr. Thoma
has
served as one of our Directors since 1995.
THE
BOARD OF DIRECTORS
The
Board
met or acted by written consent in lieu of a meeting 14 times in 2005. During
the fiscal year ended December 31, 2005, 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.
We
have
adopted a code of ethics that applies to our principal executive officer,
principal financial officer and principal accounting officer. The text of
this
code of ethics is posted on our internet website, www.talkamerica.com. A
copy of
this code of ethics may also be obtained from us by mailing a request to:
Talk
America Holdings, Inc., Attn: General Counsel, 6805 Route 202, New Hope,
Pennsylvania 18938. We intend to satisfy our disclosure requirements regarding
any amendment to, or waiver from, a provision of this code of ethics by posting
such information on our internet website, www.talkamerica.com.
Stockholders
may send communications to the Board by mailing such communications to: Talk
America Directors, c/o Secretary, 6805 Route 202, New Hope, Pennsylvania
18938.
All stockholder communications shall be communicated to the Chairman of the
Board of Directors, who may, in his/her discretion, provide the communications
to the other members of the Board of Directors.
We
do not
have a policy with regard to our Board members' attendance at our annual
meetings. In 2005, four members of the Board attended our annual
meeting.
Board
Committees
The
Board
has established the following two committees, the Audit Committee and the
Compensation Committee, the functions and current members of which are noted
below.
Audit
Committee.
In
2005,
the Audit Committee consisted of Robert Korzeniewski, Mark S. Fowler and
Ronald
R. Thoma. Mr. Korzeniewski serves as Chairman of the Audit Committee. Our
Board
has determined that all of the members of the Audit Committee are independent,
as that term is defined in the NASD listing standards. Our Board of Directors
has also determined that Robert Korzeniewski is an "audit committee financial
expert" as this term is defined in the rules and regulations adopted by the
SEC.
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 14 times in
2005.
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.
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 2005 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, 2005, for
filing with the SEC.
THE
AUDIT
COMMITTEE
Robert
Korzeniewski,
Chairman
Mark
S.
Fowler
Ronald
R. Thoma
Compensation Committee.
In
2005,
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, the 2001 Non-Officer Long
Term Incentive Plan, the 2003 Long Term Incentive Plan, the 2005 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 18 times during 2005.
Nominating Procedures
Given
the
relatively small size of the Board of Directors and the existence of other
committees of the Board requiring substantial attention and effort, the Board
has determined not to establish a separate nominating committee. The Board
has
also determined that a nominating committee is not necessary in light of
the
nominating procedures it has adopted, which require, among other matters,
that
nominations are to be selected by a majority of the independent members of
the
Board. While the entire Board may participate in the consideration of director
nominees, the selection of director nominees shall be determined solely by
the
directors who are "independent" as defined by NASD listing standards, by
a
majority vote thereof.
The
Board
will consider candidates for membership suggested by its members, as well
as by
our management and by our stockholders. The Board may also from time to time
retain a third-party executive search firm to identify candidates.
A
stockholder who wishes to suggest a prospective director candidate for
consideration by the Board may do so by written notice to our corporate
Secretary setting forth the name, address and principal occupation of the
prospective candidate, the name and address of the notifying stockholder,
the
number of shares of our capital stock owned by the notifying stockholder(s)
and,
to the extent known to the notifying stockholder, the information regarding
the
prospective candidate that would be required to be disclosed in a proxy
statement filed under the Securities Exchange Act of 1934, together in writing
with whatever further supporting material the stockholder considers appropriate.
Notwithstanding the foregoing, nominations by stockholders of persons at
a
meeting for election as a director shall continue to be subject to the terms
of
our Bylaws, including Section 402, as discussed below.
There
shall be no difference in the manner in which a prospective nominee is
considered and evaluated by the Board based on the source of the prospective
nominee’s identification or suggestion (that is, by management, a member of the
Board, a stockholder or any other source).
Once
the
Board has identified a prospective nominee, it will, by action of a majority
of
the "independent" directors, make an initial determination as to whether
to
conduct a full evaluation of the candidate. This initial determination will
be
based on the need for additional Board members to fill vacancies or to expand
the size of the Board. If it is determined that there is a need for additional
Board members, the prospective nominee will be evaluated considering the
following factors:
|
·
|
the
candidate's ability to represent the interests of our stockholders;
|
·
the
candidate's skill, integrity, and independence of thought and judgment;
|
·
|
the
candidate's experience with businesses and other organizations
of
comparable size and stage of development;
|
|
·
|
the
relationship of the candidate's experience to the experience of
other
members of our Board and whether the candidate adds to the range
of
talent, skill and expertise possessed by the existing members of
our
Board;
|
|
·
|
the
candidate's ability to dedicate sufficient time, energy and attention
to
the diligent performance of a director's duties, including the
candidate's
service on other boards of directors;
and
|
|
·
|
such
other relevant factors as deemed appropriate, including the current
composition of the Board, the balance of management and independent
directors, the need for audit committee expertise and the evaluations
of
other prospective nominees.
|
As
part
of the evaluation, the prospective nominee will be interviewed by one or
more of
the Board members, including at least one of the "independent" members, and
others as appropriate, either in person or by telephone. After completing
this
evaluation and interview, the Board will then determine, by the vote of a
majority of the "independent" directors, whether to elect the candidate to
the
Board in the case where stockholder approval is not required, or to nominate
the
candidate for election by our stockholders.
In
addition to the procedures described above, a stockholder may nominate a
person
for election as a director at a meeting of stockholders called for the election
of directors, provided that the stockholder complies with Section 402 of
our
Bylaws. This section requires that a notice relating to the nomination of
directors must be timely given in writing to the Chairman of our Board 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 us
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 our
capital stock that will be voted for each of the proposed nominees, the name
and
address of the notifying stockholder, the number of shares of our capital
stock
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
following table shows the compensation for our non-employee directors for
the
fiscal year ended December 31, 2005:
______________________________________________________________________________
Annual
Board retainer $20,000
Annual
Chair of Audit Committee retainer (1) $
5,000
______________________________________________________________________________
(1) Paid
in addition to the Annual Board retainer.
For
2005,
the Board also approved grants to each of the non-employee directors of options
to purchase 15,000 shares of Common Stock under the 2003 Long Term Incentive
Plan at an exercise price of $8.86 per share, the market value on the date
of
grant. The options vest in equal installments over three years and have a
ten-year term. Non-employee directors were also reimbursed for reasonable
expenses incurred in connection with attendance at Board meetings or meetings
of
committees thereof and Board- and committee-related activities.
We
also
paid Mr. Battista a total of $300,000 ($25,000 per month) in 2005 for consulting
services to us under our one-year consulting agreement with him, which was
effective as of January 1, 2005 and expired on December 31, 2005. Under the
terms of the consulting agreement, in 2005 we also provided Mr. Battista
with
access to and use of an office and related services in our offices and cellular
phone service and provided him with health benefits comparable to those provided
to our senior executive officers.
Effective
January 1, 2006, we pay our non-employee directors an annual retainer of
$40,000
and the non-employee Chairman of the Board an additional annual fee of $40,000
per year, in each case payable in equal quarterly installments, and pay the
Chairman of our Audit Committee an additional annual retainer of $5,000 in
a
single payment. In addition, the non-employee Chairman of the Board is provided
with access to and use of an office and related services in our offices and
cellular phone service and is provided with or reimbursed for the costs of
health benefits comparable to those provided to our senior executive
officers. Non-employee directors also are reimbursed for reasonable
expenses incurred in connection with attendance at Board meetings or meetings
of
committees thereof and Board- and committee-related
activities.
In
addition, non-employee directors will continue to be eligible to receive
awards
for a number of shares to be determined by the Board. Subject to the limits
in
our various incentive plans, the Board has the discretion to determine the
form
and terms of any awards to non-employee directors.
EXECUTIVE
COMPENSATION
Summary
of Cash and Certain Other Compensation
The
following table sets forth information for the fiscal years ended December
31,
2005, 2004 and 2003 as to the compensation for services rendered paid or
awarded
by us to our Chief Executive Officer and to the four other most highly
compensated executive officers whose annual salary and bonus exceeded
$100,000.
Summary
Compensation
Table
|
Annual
Compensation
|
Long
Term Compensation
|
|||
|
Name
and Principal Position
|
Year
|
Salary (1)
|
Bonus (1)
|
Securities
Underlying
Options/SARS
|
|
Edward
B. Meyercord, III, Chief
|
2005
|
$500,000
|
$470,000
|
250,000(2)
|
|
Executive
Officer, President and Director
|
2004
|
$500,000
|
$310,000
|
--
|
|
2003
|
$350,000
|
$452,500
|
300,000(3)(4)
|
|
|
Patrick
O'Leary, Executive
|
2005
|
$162,000(5)
|
$454,540(6)
|
75,000(2)
|
|
Vice
President - Business Services
|
2004
|
--
|
--
|
--
|
|
2003
|
--
|
--
|
--
|
|
|
Aloysius
T. Lawn, IV, Executive Vice
|
2005
|
$275,000
|
$210,800
|
75,000(2)
|
|
President
- General Counsel and
|
2004
|
$275,000
|
$139,900
|
--
|
|
Secretary
|
2003
|
$275,000
|
$287,800
|
60,000(3)
|
|
Warren
A. Brasselle, Executive Vice
|
2005
|
$250,000
|
$196,000
|
75,000(2)
|
|
President
- Network Operations
|
2004
|
$250,000
|
$127,500
|
--
|
|
2003
|
$250,000
|
$265,500
|
60,000(3)
|
|
|
Jeffrey
Earhart, Executive Vice
|
2005
|
$250,000
|
$197,000
|
75,000(2)
|
|
President
- Customer Operations
|
2004
|
$250,000
|
$124,000
|
--
|
|
2003
|
$230,000
|
$312,000
|
60,000(3)
|
|
(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
of such executive officer reported in the above table.
(
2)
Options
to purchase shares of our common stock. Messrs. Meyercord, O'Leary, Lawn,
Earhart and Brasselle were granted options under our 2005 Long Term Incentive
Plan to purchase 250,000, 75,000, 75,000, 75,000, and 75,000 shares,
respectively, of our common stock at an exercise price of $8.62 per share
that
vest over three years, except for Mr. O'Leary's shares, which vest in their
entirety in one year.
(3)
Options
to purchase shares of our common stock. Messrs. Meyercord, Lawn, Earhart,
and
Brasselle were granted options under our 2003 Long Term Incentive Plan to
purchase 200,000, 60,000, 60,000, and 60,0000 shares, respectively, of our
common stock at an exercise price of $10.49 per share that vested over three
years when granted but, due to the acceleration in vesting of certain
out-of-the-money options in 2005, were fully vested in 2005.
(4) Options
to purchase shares of our common stock. Mr. Meyercord was granted options
under
our 1998 Long Term Incentive Plan to purchase 50,000 shares of our common
stock
at an exercise price of $10.49 per share that vest over three years. Mr.
Meyercord was also granted options under our 2000 Long Term Incentive Plan
to
purchase 50,000 shares of our common stock at an exercise price of $10.49
per
share that vest over three years.
(5) Mr.
O'Leary commenced his employment with the company on July 13, 2005 and the
above
table includes compensation from that date. Prior to that time he was President
and Chief Executive Officer of LDMI Telecommunications, Inc., which we acquired
on July 13, 2005.
(6) Mr.
O’Leary’s bonuses include: (i) $17,718 payable to him under his previously
reported employment agreement based on certain performance criteria relating
to
the performance of our subsidiary, LDMI, (ii) $366,135 payable to him under
the
Employee Severance Retention Agreement entered into with our subsidiary,
LDMI,
prior to our acquisition thereof, and (iii) $70,687 payable to him under
our
bonus plan.
Stock
Option Grants
The
following table sets forth further information regarding grants of options
to
purchase our common stock made by us during the fiscal year ended December
31,
2005 to the executive officers named in the Summary Compensation Table,
above.
Option/SAR
Grants in Last Fiscal Year
|
Name
|
Number
of Securities Underlying
Options/
SARs
Granted
(#)
|
Percent
of Total Options/SARs Granted to Employees in
2005
|
Exercise
or Base Price ($/Sh) (1)
|
Expiration
Date
|
Potential
Realizable Value at Assumed Annual Rates of Stock Price Appreciation
For
Option Term (3)
|
|
|
|
|
|
|
|
5%($)
|
10%($)
|
|
Edward
B. Meyercord, III
|
250,000
(2)
|
15%
|
$8.62
|
8/12/15
|
1,355,268
|
3,434,515
|
|
Aloysius
T. Lawn, IV
|
75,000
(2)
|
4%
|
$8.62
|
8/12/15
|
406,580
|
1,030,355
|
|
Warren
A. Brasselle
|
75,000
(2)
|
4%
|
$8.62
|
8/12/15
|
406,580
|
1,030,355
|
|
Jeffrey
Earhart
|
75,000
(2)
|
4%
|
$8.62
|
8/12/15
|
406,580
|
1,030,355
|
|
Patrick
O'Leary
|
75,000
(2)
|
4%
|
$8.62
|
7/13/10
|
406,580
|
1,030,355
|
(1) All
options have been granted at market price on the date of issue.
(2)
The options granted to Messrs. Meyercord, Lawn, Earhart, Brasselle and
O'Leary were granted under our 2005 Long Term Incentive Plan. The options
granted vest over three years, except for Mr. O'Leary's shares, which vest
in
their entirety in one year.
(3)
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 our 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 our fiscal year ended December 31, 2005 and option/SAR values
as of
December 31, 2005 for each of the executive officers named in the Summary
Compensation Table, above.
Aggregated
Option/SAR Exercises in Last Fiscal Year
and
Fiscal Year-End Option/SAR Values
|
Name
|
Shares
Acquired on Exercise
|
Value
Realized
|
Number
of Securities Underlying Unexercised Options/SARs
-----------------------------
Exercisable/Unexercisable
|
Value
of Unexercised In-the-Money
Options/SARs
(1)
-----------------------------
Exercisable/Unexercisable
|
|
Edward
B. Meyercord, III
|
100,000
|
$719,000
|
466,666/250,000
|
$486,500/$2,500
|
|
Aloysius
T. Lawn, IV
|
26,666
|
$101,732
|
207,499/75,000
|
$546,541/$750
|
|
Warren
A. Brasselle
|
40,000
|
$287,600
|
113,333/75,000
|
$201,164/$750
|
|
Jeffrey
Earhart
|
30,000
|
$215,700
|
146,000/75,000
|
$294,530/$750
|
|
Patrick
O'Leary
|
0
|
$0
|
0/75,000
|
$0/$750
|
(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
$8.63.
During
2005, the executive officers named in the Summary Compensation Table, above,
did
not, apart from the grant of stock options described above, participate in
either a long-term incentive plan or a defined benefit or actuarial
plan.
Employment
Contracts
Edward
B.
Meyercord, III entered into a three-year employment agreement to serve as
our
Chief Executive Officer and President effective as of January 1, 2004.
Commencing in 2004, under the contract, Mr. Meyercord is entitled to a minimum
annual base salary of $500,000 and certain other perquisites made generally
available to our senior executive officers.
Aloysius
T. Lawn, IV entered into a three-year employment agreement effective as of
July
30, 2004. Under the contract, Mr. Lawn is entitled to a minimum annual base
salary of $275,000 and certain other perquisites made generally available
to our
senior executive officers.
Warren
Brasselle entered into a three-year employment agreement effective as of
July
30, 2004. Under the contract, Mr. Brasselle is entitled to a minimum annual
base
salary of $250,000 and certain other perquisites made generally available
to our
senior executive officers.
Jeffrey
Earhart entered into a three-year employment agreement effective as of July
30,
2004. Under the contract, Mr. Earhart is entitled to a minimum annual base
salary of $250,000 and certain other perquisites made generally available
to our
senior executive officers.
Patrick
O'Leary entered into an eighteen-month employment agreement effective as
of July
13, 2005. Under the contract, Mr. O'Leary is entitled to a minimum annual
base
salary of $350,000 and certain other perquisites made generally available
to our
senior executive officers.
Each
of
the employment agreements for Messrs. Meyercord, Lawn, Brasselle, Earhart
and
O'Leary provides for immediate vesting of options in event of a "change of
control" (as defined in the agreements) of us and provides for severance
benefits in the event employment is terminated by us 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 in the event employment
is
terminated by us without cause prior to the end of the term are generally
the
payment of an amount equal to one year’s (two year’s in the case of Mr.
Meyercord) base salary plus all bonus amounts due such executive at the time
of
termination, as well as the continuation of various employee benefits for
one
year (two years in the case of Mr. Meyercord). The severance benefits in
the
event employment is terminated for a certain period beyond the end of the
term
in the event of a "change of control" are generally the payment of an amount
equal to one year’s (two year’s in the case of Mr. Meyercord) base salary plus
all the average annual incentive bonus earned by the executive in the preceding
four years, as well as the continuation of various employee benefits for
one
year (two years in the case of Mr. Meyercord).
Each
of
the above-described agreements requires the executive to maintain the
confidentiality of our information and assign any inventions to us. In addition,
each of the executive officers has agreed that he will not compete with us
by
engaging in any capacity in any business that is competitive with our business
during the term of his respective agreement and thereafter for specified
periods.
Equity
Compensation Plans and Securities
The
following table sets forth certain information as of December 31, 2005 with
respect to compensation plans under which our equity securities are authorized
for issuance:
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans(1)
|
|||
|
Equity
compensation
plans
approved by
security
holders
|
3,479,261
|
$8.98
|
883,596
|
|||
|
Equity
compensation
plans
not approved
by
security
holders
(2)
|
1,521,543
|
$11.74
|
339,306
|
|||
|
Total
|
5,000,804
|
$9.82
|
1,222,902
|
(1) Excludes
securities reflected in the first column as “to be issued upon exercise of
outstanding options, warrants and rights.” 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) These
are
shares issuable upon exercise of options, most of which options were issued
under our 2001 Non-Officer Long Term Incentive Plan (“2001 Plan”), pursuant to
which up to 1,666,666 shares of our common stock (subject to certain
adjustments) may be issued to our non-executive employees in the form of
options, rights, restricted stock and incentive shares. Generally, the options
granted under the 2001 Plan vest in equal annual portions over a three-year
period and expire ten years from the date of grant, except that in limited
circumstances certain options have a vesting period less than three years,
including by reason of the acceleration in vesting of certain out-of-the-money
options in December 2005, or a term less than ten years. At December 31,
2005,
339,306 shares of common stock were available under the 2001 Plan for possible
future issuances. All options granted under the 2001 Plan have an exercise
price
equal to the fair market value of the stock on the grant date.
The
balance of these shares include shares issuable on exercise of certain options
granted to non-executive employees or to executive officers in connection
with
their initial employment, in each case without shareholder approval as permitted
by the rules of Nasdaq. These other options have an exercise price equal
to the
fair market value of the stock on the grant date, expire ten years from the
date
of grant and vest in equal annual portions over a three-year period, except
that
in limited circumstances certain options have a vesting period less than
three
years, including by reason of the acceleration in vesting of certain
out-of-the-money options in December 2005. To the extent permitted by the
rules
of Nasdaq in connection with the initial employment of employees, there may
be
further grants of securities, by option or otherwise, without shareholder
approval.
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 our executive officers.
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
2005, 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 2005 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 2005 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
Executive Chairman of the Board and 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, 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 $4,000 per six-month period, with an aggregate six-month cap of $8,000.
The
incentive compensation awards under this plan to the persons named in the
Summary Compensation Table, above, are reflected therein under the “Bonus”
column in our Annual report on Form 10-K for the year ended December 31,
2005,
as amended.
Long
Term Incentive Compensation.
Our
long term incentive compensation is currently comprised of stock options
granted
to employees. We believe that stock options are an important and effective
tool
for directly linking the financial interests of executive officers and key
employees with those of our 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 our
value
for all of our stockholders. We granted stock options in August, 2005 to
key
employees of the Company, including the key employees of the recently acquired
company, LDMI Telecommunications, Inc. and the executive officers named in
the
Summary Compensation Table above as set forth under “EXECUTIVE COMPENSATION -
Stock Option Grants” above. In connection with the Company's grants to the named
executive officers, we considered the performance of the named executive
officers, the aggregate option holdings of such executive officer, prior
option
grants to executive officers of the Company, and the potential contribution
of
such officer to the Company's future success. Accordingly, Mr. Meyercord
received a grant of 250,000 shares and Messrs. Lawn, Earhart, Brasselle,
and
O'Leary each received a grant of options to purchase 75,000 shares.
Future
option grants or other stock or incentive awards will be made in the discretion
of the Compensation Committee, including in connection with the negotiation
of
individual employment arrangements.
Chief
Executive Officer’s 2005 Compensation.
Mr. Meyercord’s base salary of $500,000 in 2005 was established pursuant to
the terms of his negotiated employment agreement that was effective as of
January 1, 2004. The Compensation Committee determined that the Company’s
performance satisfied the criteria it had established under the 2005 annual
bonus program described above and qualified Mr. Meyercord for a bonus of
$470,000 for 2005.
Policy
on Deductibility of Compensation. Section
162(m) of the Internal Revenue Code generally denies a deduction to any publicly
held corporation for compensation paid to its chief executive officer and
its
four other highest-paid executive officers to the extent that any such
individual’s compensation exceeds $1 million, subject to certain exceptions,
including one for “performance-based compensation.” Generally, the Compensation
Committee seeks to maximize executive compensation deductions for federal
income
tax purposes. However, the Compensation Committee believes that there may
be
circumstances where it is appropriate to provide compensation that is not
fully
deductible because such compensation is more consistent with the Company’s
executive compensation program.
THE
COMPENSATION
COMMITTEE
Ronald
R.
Thoma
Mark
S.
Fowler
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 Index for the period from December 31, 2000,
through December 31, 2005. The comparison assumes that $100 was invested
on
December 31, 2000 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.
|
DEC.
31,
2000
|
DEC.
31,
2001
|
DEC.
31,
2002
|
DEC.
31,
2003
|
DEC.
31,
2004
|
DEC.
31,
2005
|
|
|
Talk
America Holdings, Inc..……...............
|
$100
|
$27.89
|
$126.98
|
$261.22
|
$150.11
|
$195.69
|
|
S&P
MidCap 400 Index................................
|
$100
|
$102.79
|
$86.91
|
$116.48
|
$134.13
|
$149.24
|
|
S&P
500 Integrated Telecommunications Index…............................................................
|
$100
|
$84.17
|
$53.90
|
$55.74
|
$64.64
|
$58.79
|
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 she or 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, 2005 and 2004,
PricewaterhouseCoopers LLP provided services to the Company in the following
categories and amounts:
Description 2005 2004
Audit
Fees
$1,244,571
$960,000
Audit-Related
Fees $
143,929
$
0
Tax
Fees
$
69,750
$
8,696
All
Other
Fees $
1,500 $
1,500
In
the
above table, “audit fees” are fees we paid to PricewaterhouseCoopers LLP, our
independent registered public accountants, for professional services for
the
audit of our consolidated financial statements included in our Form 10-K
Annual
Report (including for annual audit and attestation of management's evaluation
of
internal control over financial reporting) and review of financial statements
included in our Form 10-Q Quarterly Reports, and for services that are normally
provided by the auditor in connection with statutory and regulatory filings
or
engagements (including internal control consultations associated with
preparation for compliance with Sarbanes-Oxley Section 404); “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 our financial statements that are not reported under “audit fees” which
primarily consisted, in fiscal 2005, of work related to the acquisition of
LDMI;
“tax fees” are fees billed by PricewaterhouseCoopers LLP for tax compliance, tax
advice, and tax planning services, which primarily consisted, in fiscal 2004,
of
tax research, and, in fiscal 2005, of tax advice related to the acquisition
of
LDMI; and “all other fees” are fees billed by PricewaterhouseCoopers LLP to us
for any services not included in the first three categories, which consisted,
in
fiscal 2004 and 2005, of the annual subscription fee for an online information
service.
The
Audit
Committee has determined that the services provided by PricewaterhouseCoopers
LLP to us that were not related to its audit of our financial statements
were at
all relevant times compatible with that firm's independence and approved
all
such services.
The
Audit
Committee pre-approves all audit and permissible non-audit services provided
by
our independent registered public accounting firm. 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.
In
both
2004 and 2005, the Audit Committee pre-approved 100% of the services provided
by
our independent registered public accountants in such years.
PROPOSAL
3: APPROVAL OF THE TALK AMERICA
EMPLOYEE
STOCK PURCHASE PLAN
On
June
14, 2006, the Company's Board approved, subject to stockholder approval at
the
Annual Meeting, the Talk America Employee Stock Purchase Plan (the “ESPP”). The
purpose of the ESPP is to provide eligible employees of the Company and
participating subsidiaries with a convenient means of acquiring an equity
interest in the Company through payroll deductions, to enhance employees’ sense
of participation in the affairs of the Company and its subsidiaries and to
provide an incentive for continued employment.
Eligibility
Employees
of the Company and of participating subsidiaries (the “employees”) are eligible
to participate in the ESPP other than:
| · |
employees
who are not employed by the Company or a participating subsidiary
90 days
before the beginning of an offering
period;
|
| · |
employees
who are customarily employed for 20 hours or less per week;
|
| · |
employees
who are customarily employed for five months or less in any calendar
year;
and
|
| · |
employees
who are both (i) designated by the Board as “executive officers” and as
officers for purposes of Section 16 of the Securities Exchange
Act of
1934, and (ii) highly compensated employees (within the meaning
of Section
414(q) of the Internal Revenue Code of 1986, as amended
(the"Code")).
|
Notwithstanding
the foregoing, any employee who, after purchasing shares under the ESPP,
would
own 5% or more of the total combined voting power or value of all classes
of the
Company's stock or any subsidiary corporation is not eligible to participate
in
the ESPP. Ownership of stock is determined in accordance with the provisions
of
Section 424(d) of the Code. In addition, an employee is not permitted to
purchase stock worth more than $25,000 in fair market value for each calendar
year.
It
is not
possible at this time to predict the number and identity of eligible employees
who elect to participate in the ESPP or their respective levels of
participation, but, as discussed above, the executive officers and directors
of
the Company, including the officers named in the Summary Compensation table
above under the heading “EXECUTIVE COMPENSATION,” are not eligible to
participate in the ESPP, and the participation of eligible employees is subject
to the limitations described above. As of June 12, 2006, there were
approximately 1,243 employees eligible to participate in the ESPP.
Description
of the ESPP
The
ESPP
allows our employees and employees of participating subsidiaries to purchase
the
Company's common stock (the “shares”) at a discount, without being subject to
tax until they sell the shares, and without having to pay any brokerage
commissions with respect to the purchase. We plan to have the ESPP become
effective November 1, 2006, provided we receive stockholder
approval.
The
ESPP
is intended to qualify under Section 423 of the Code. If a plan is qualified
under Section 423, our employees who participate in the plan enjoy certain
tax
advantages, as described below. In order for the ESPP to be qualified, our
stockholders must approve the plan.
The
ESPP
will be administered by the Compensation Committee of the Board (the
“Committee”).
The
following is a brief description of the material features of the ESPP. The
text
of the ESPP is set forth in full in Annex A to this proxy statement and the
description of the ESPP contained below is qualified in its entirety by
reference to Annex A. All capitalized terms in this description have the
same
meaning as defined in the ESPP.
Shares
Subject to the ESPP.
The ESPP
provides employees with a right to purchase shares through payroll deductions.
A
maximum aggregate of 250,000 shares are available for purchase under the
ESPP,
subject to adjustment in the number and price of shares available for purchase
in the event the outstanding shares of the Company’s common stock are increased
or decreased through stock dividends, recapitalizations, reorganizations
or
similar changes.
Administration. The
ESPP
is administered by the Committee. The Committee is authorized to make,
administer and interpret such rules and regulations as it deems necessary
to
operate the ESPP. Any determination, decision or action of the Committee
in
connection with the construction, interpretation, administration or application
of the ESPP is final, conclusive and binding upon all participants.
Participation
in the ESPP. Stock
will be available to be purchased every six months. Eligible employees may
elect
to participate in the ESPP during six-month “offering periods” that start on
each November 1 and May 1 (each an “offering date”) and end on each April 30 and
October 31, respectively. Shares will be deemed to have been purchased on
April
30 or October 31, as applicable (each a “purchase date”). The first offering
period will commence on November 1, 2006.
The
purchase price per share will be the lower of: 85% of the fair market value
of a
share on the purchase date or 85% of the fair market value of a share on
the
offering date (the “purchase price”). The number of shares a participant may
purchase on a given purchase date will be determined by dividing the amount
accumulated in that participant’s payroll deduction account during an offering
period by the purchase price. No more than 200% of the number of shares
determined by using 85% of the fair market value of a share on the offering
date
as denominator may be purchased by a participant on any single purchase date.
In
addition, the Committee may set additional limits on the number of shares
which
may be purchased by a participant on any single purchase date.
An
eligible employee who wishes to participate in the ESPP must file an election
form with the Company’s human resources department not later than 15 days prior
to the applicable offering period beginning each November 1 or May 1. Each
participant will have payroll deductions made from his or her compensation
on
each regular payday during the time he or she is a participant in the ESPP.
Deductions will be made as a whole percentage of a participant’s compensation,
not to exceed 20%. The Committee has the discretion to lower the 20% limit.
All
payroll deductions will be credited to the participant’s account under the ESPP.
No interest will accrue to payroll deductions. Any cash remaining in a
participant’s account after the purchase of shares on a purchase date will be
refunded to that participant, without interest; however, any amount remaining
in
a participant’s account on a purchase date that is less than the amount needed
to purchase a full share will be carried forward, without interest, to the
next
offering period.
If
the
total number of shares for which purchase rights are exercised at the end
of a
six-month offering period exceeds the maximum number of shares of common
stock
available under the ESPP, the Committee will make a pro rata allocation of
shares available for delivery and distribution. The unapplied account balances
will be returned to the participant, without interest, as soon as practicable
following the end of the offering period.
A
participant may change the amount of payroll deductions during an offering
period by giving written notice of such change to the human resources
department. The new rate will become effective for the next payroll period
that
commences more than 15 days after the human resources department receives
the
authorization and will continue in effect unless changed. Only one change
in
rate may become effective during any offering period.
Each
participant has an obligation under the ESPP to notify the Company when the
participant disposes of any shares purchased in any offering period if such
disposition occurs within two years of the offering date or one year from
the
purchase date on which such shares were purchased (the “notice period”). Unless
the participant is disposing of shares during the notice period, the participant
will keep the certificates representing the shares in his or her name during
the
notice period. The Company has the right to place a legend or legends on
the
certificates representing the shares requesting that the Company’s transfer
agent notify the Company of any transfer.
Withdrawal. A
participant may elect to withdraw all, but not less than all, of the balance
credited to the participant’s account by providing a termination form to the
human resources department at least 15 days prior to the end of an offering
period. All amounts credited to such participant’s account shall be paid as soon
as practicable following receipt of the participant’s termination form, without
interest, and no further payroll deductions will be made with respect to
the
participant.
If
a
participant voluntarily withdraws from the ESPP, he or she may not resume
participation in the ESPP during the same offering period, but may participate
in a subsequent offering period by filing a new authorization for payroll
deduction within the time frame described above for initial participation
in the
ESPP.
Termination
of Employment. If
a
participant’s employment terminates for any reason other than death, all amounts
credited to such participant’s account will be returned to the participant,
without interest. If a participant’s employment terminates due to death, all
amounts credited to such participant’s account will be returned to the
participant’s legal representative, without interest. A participant who is on an
approved leave of absence will remain eligible to participate in the ESPP
for
the first 90 days of such leave of absence, or longer if reemployment is
guaranteed by contract or statute. If the participant has not returned to
regular non-temporary employment by the close of business on the 90th
day of
such leave of absence (or such longer period as is applicable), he or she
will
be considered to have terminated employment for purposes of the
ESPP.
Amendment
and Termination of the ESPP.
The
Committee may at any time amend or terminate the ESPP, except that no amendment
may be made without the approval of the stockholders, if such amendment would
(i) increase the maximum number of shares that may be issued under the ESPP,
or
(ii) change the designation or class of employees eligible to purchase stock
under the ESPP.
Miscellaneous.
The
proceeds the Company receives from the sale of common stock pursuant to the
ESPP
will be used for general corporate purposes, and the Company will not be
obligated to segregate any payroll deduction. The Company will pay all fees
and
expenses incurred with respect to the ESPP, excluding individual federal,
state,
local or other taxes, in connection with the ESPP.
An
employee’s rights under the ESPP belong to the employee alone and may not be
transferred or assigned to any other person during the employee’s
lifetime.
In
the
event of the proposed dissolution or liquidation of the Company, the offering
period will terminate immediately prior to the consummation of the dissolution
or liquidation, unless otherwise determined by the Committee.
Summary
of Certain Federal Income Tax Consequences
The
following summary is intended only as a guide to the current United States
federal income tax consequences of participation under the ESPP and does
not
purport to address all of the federal or other tax consequences that may
be
applicable to any particular participant. Participants are urged to consult
their personal tax advisors concerning the application of the principles
discussed below to their own situations and the application of state and
local
laws.
The
ESPP
is not subject to either the Employee Retirement Income Security Act of 1974
or
Section 401(a) of the Code.
Amounts
deducted from a participant’s pay under the ESPP are part of a participant’s
regular compensation and remain subject to federal, state and local income
and
employment taxes. A participant in the ESPP will not be subject to federal
income tax when the participant elects to participate in the ESPP or when
the
participant purchases shares of common stock under the ESPP. Instead, the
participant will become subject to tax upon the earlier of the following:
(1)
the year in which the participant makes a sale or other disposition of the
shares; or (2) the year of the participant’s death if he or she has not made a
sale or other disposition of the shares. The rules for determining the amount
of
taxable ordinary income (as opposed to capital gain) to be reported in the
participant’s federal income tax return for that year are summarized below.
Generally,
in order to meet the requirements for beneficial tax treatment under Section
423
of the Code, a participant must not dispose of shares within two years after
the
date the common stock was transferred to the participant under the ESPP.
If the
participant disposes of the shares after the expiration of this required
holding
period, he
or she
will be deemed to have received compensation taxable as ordinary income for
the
taxable year in which the disposition occurs in an amount equal to the lesser
of
(a) the 15% discount originally allowed, or (b) the excess over the purchase
price of (i) the amount actually received for the shares if sold or exchanged
or
(ii) the fair market value of the shares on the date of any other termination
of
his or her ownership (such as by gift).
If
the
participant disposes of the shares before the expiration of the required
holding
period, he or she must include in taxable income at the time of disposition
of
the shares the amount by which the fair market value of the shares on the
purchase date exceeds the discounted purchase price of the shares. This amount
must be reported as ordinary income even if the participant made no profit
or
realized a loss on the sale of the shares or gave them away as a gift.
When
the
participant reports ordinary income as described above, the amount so reported
is added to the purchase price of the shares and this sum becomes his or
her
“basis” for the shares for the purpose of determining capital gain or loss on a
sale or exchange of the shares. There are special rules regarding the tax
basis
of a person who is given the shares by the participant and the tax basis
of the
participant’s estate for shares acquired by it as a result of his or her death.
The Company will not generally be entitled to a deduction with respect to
shares
purchased under the ESPP; however, if the participant must report ordinary
income because of a disposition of the shares prior to the expiration of
the
required holding period, the Company will be entitled to a deduction from
its
income in an amount equal to the ordinary income the participant is required
to
report in his or her income tax return.
Vote
Required for Approval of Adoption of the Employee Stock Purchase
Plan
Approval
of the ESPP will require the affirmative vote of the holders of a majority
of
the shares of common stock present in person or represented by proxy at the
Annual Meeting and entitled to vote.
The
Board of Directors recommends a vote “for” the proposal to adopt the Talk
America Employee Stock Purchase 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,
2005, IS ENCLOSED WITH THIS PROXY STATEMENT. THE COMPANY ALSO HAS FILED THIS
REPORT WITH THE SEC, AND COPIES OF OUR ANNUAL REPORTS 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.TALKAMERICA.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.
2007
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 2007 must
submit it so it will be received by the Company by March 7, 2007, 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 2007 annual meeting of stockholders that are submitted
outside
the processes of SEC Rule 14a-8 under the Securities Exchange 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 2007. In addition, any stockholder
proposal for next year’s annual meeting submitted after May 21, 2007, or, if the
Company changes the date of the 2007 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
Aloysius
T. Lawn, IV,
Secretary
New
Hope,
Pennsylvania
June
28,
2006
ANNEX
A
TALK
AMERICA
EMPLOYEE
STOCK PURCHASE PLAN
1.
Establishment
of Plan.
Talk
America Holdings, Inc. (the "Company")
proposes to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and its Participating Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (the "Plan").
For
purposes of the Plan, "Parent
Corporation"
and
"Subsidiary"
(collectively, "Participating
Subsidiaries")
shall
have the same meanings as "parent
corporation"
and
"subsidiary
corporation"
in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of
1986,
as amended (the "Code").
"Participating
Subsidiaries"
are
Parent Corporations or Subsidiaries that the Compensation Committee (the
“Committee”)
of the
Board of Directors (the "Board")
of the
Company designates from time to time as corporations that shall participate
in
the Plan. The Company intends the Plan to qualify as an "employee
stock purchase plan"
under
Section 423 of the Code (including any amendments to or replacements of such
Section), and the Plan shall be so construed. Any term not expressly defined
in
this Plan but defined for purposes of Section 423 of the Code shall have
the
same definition herein. A total of 250,000 shares of the Company's Common
Stock
is reserved for issuance under this Plan. Such number shall be subject to
adjustments effected in accordance with Section
14
of the
Plan.
2.
Purpose.
The
purpose of this Plan is to provide eligible employees of the Company and
Participating Subsidiaries with a convenient means of acquiring an equity
interest in the Company through payroll deductions, to enhance such employees'
sense of participation in the affairs of the Company and Participating
Subsidiaries, and to provide an incentive for continued employment.
3.
Administration.
The Plan
shall be administered by the Committee. Subject to the provisions of the
Plan
and the limitations of Section 423 of the Code or any successor provision
in the
Code, all questions of interpretation or application of the Plan shall be
determined by the Committee and its decisions shall be final and binding
upon
all participants. Members of the Committee shall receive no compensation
for
their services in connection with the administration of the Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred
in
connection with the administration of the Plan shall be paid by the
Company.
4.
Eligibility.
Any
employee of the Company or the Participating Subsidiaries is eligible to
participate in an Offering Period (as hereinafter defined) under the Plan,
except the following:
(a)
employees who are not employed by the Company or Participating Subsidiaries
ninety (90) days before the beginning of such Offering Period;
(b)
employees who are customarily employed for twenty (20) hours or less per
week;
(c)
employees who are customarily employed for five (5) months or less in a calendar
year;
(d)
employees who, together with any other person whose stock would be attributed
to
such employee pursuant to Section 424(d) of the Code, own stock or hold options
to purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any of its
Participating Subsidiaries or who, as a result of being granted an option
under
the Plan with respect to such Offering Period, would own stock or hold options
to purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any of its
Participating Subsidiaries; and
(e)
employees who are both (i) designated by the Board as “executive officers” and
as officers for purposes of Section 16 of the Securities Exchange Act of
1934,
and (ii) highly compensated employees (within the meaning of Section 414(q)
of
the Code).
5.
Offering
Dates.
The
offering periods of the Plan (each, an "Offering
Period")
shall
be each six-month period ending on April 30 and October 31 of each year,
and the
initial Offering Period shall commence on November 1, 2006 and end on April
30,
2007. The first business day of each Offering Period is referred to as the
"Offering
Date".
The
last business day of each Offering Period is referred to as the "Purchase
Date".
The
Committee shall have the power to change the duration of Offering Periods
with
respect to offerings without stockholder approval if such change is announced
at
least fifteen (15) days prior to the scheduled beginning of the first Offering
Period to be affected.
6.
Participation
in this Plan.
Eligible
employees may become participants in an Offering Period under this Plan on
the
Offering Date after satisfying the eligibility requirements by delivering
an
executed enrollment form provided for this purpose to the Company's human
resources department (the "Human
Resources Department")
not
later than fifteen (15) days before such Offering Date, unless a later time
for
filing the enrollment form authorizing payroll deductions is set by the
Committee for all eligible employees with respect to a given Offering Period.
An
eligible employee who does not deliver an enrollment form to the Human Resources
Department by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period, unless such employee enrolls in the Plan by filing an enrollment
form
with the Human Resources Department not later than fifteen (15) days preceding
a
subsequent Offering Date. Once an employee becomes a participant in an Offering
Period, such employee will automatically participate in the Offering Period
commencing immediately following the last day of the prior Offering Period,
unless the employee withdraws from the Plan or terminates further participation
in the Offering Period as set forth in Section 11
hereof.
Such participant is not required to file any additional enrollment form in
order
to continue participation in the Plan.
7.
Grant
of Option on Enrollment.
Enrollment by an eligible employee in the Plan with respect to an Offering
Period will constitute the grant (as of the Offering Date) by the Company
to
such employee of an option to purchase on the Purchase Date up to that number
of
shares of Common Stock of the Company determined by dividing (a) the amount
accumulated in such employee's payroll deduction account during such Offering
Period by (b) the lower of (i) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Offering Date,
or
(ii) eighty-five percent (85%) of the fair market value of a share of the
Company's Common Stock on the Purchase Date; provided, however, that the
number
of shares of the Company's Common Stock subject to any option granted pursuant
to the Plan shall not exceed the lesser of (a) the Maximum Share Amount set
by the Committee pursuant to Section
10(c)
below
with respect to the Purchase Date, or (b) the maximum number of shares
which may be purchased pursuant to Section
10(b)
below
with respect to the Purchase Date. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section
8
hereof.
8.
Purchase
Price.
The
purchase price per share at which a share of Common Stock will be sold in
any
Offering Period shall be eighty-five percent (85%) of the lesser of (a) the
fair market value on the Offering Date, or (b) the fair market value on the
Purchase Date.
For
purposes of this Plan, the term "fair
market value"
means,
as of any date, the value of a share of the Company's Common Stock determined
as
follows: (a) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date of determination
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded but is not listed or admitted
to trading on a national securities exchange, the average of the closing
bid and
asked prices on the date of determination as reported in The Wall Street
Journal; or (c) if neither of the foregoing is applicable, as reasonably
determined by the Board in its discretion, which determination shall be in
accordance with the standards set forth in Treasury Regulation
§1.421-1(e)(2).
9.
Payment
of Purchase Price; Changes in Payroll Deductions; Issuance of
Shares.
(a)
The
purchase price of the shares is accumulated by regular payroll deductions
made
during each Offering Period. The deductions are made as a whole percentage
of
the participant's compensation that does not exceed twenty percent (20%)
of such
compensation (or such lower limit set by the Committee). Compensation shall
mean
the participant’s total paid earnings from the Company and Participating
Subsidiaries; provided, however, that for purposes of determining a
participant's compensation, any election by such participant to reduce his
or
her regular cash remuneration under Section 125 or 401(k) of the Code shall
be
treated as if the participant did not make such election. Payroll deductions
shall commence on the first payday of the Offering Period and shall continue
to
the end of the Offering Period, unless sooner altered or terminated as provided
in the Plan.
(b)
A
participant may decrease or increase the rate of payroll deductions during
an
Offering Period by filing with the Human Resources Department a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than fifteen (15) days
after the Human Resources Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease
the
rate of payroll deductions for any subsequent Offering Period by filing with
the
Human Resources Department a new authorization for payroll deductions not
later
than fifteen (15) days before the beginning of such Offering
Period.
(c)
All
payroll deductions made for a participant are credited to his or her account
under the Plan and are deposited with the general funds of the Company. No
interest accrues on the payroll deductions. All payroll deductions received
or
held by the Company may be used by the Company for any corporate purpose,
and
the Company shall not be obligated to segregate such payroll
deductions.
(d)
On
each Purchase Date, so long as the Plan remains in effect and provided that
the
participant has not submitted a withdrawal notice in accordance with
Section11
(a)
hereof
which notifies the Company that the participant wishes to withdraw from that
Offering Period under the Plan and have all payroll deductions accumulated
in
the account maintained on behalf of the participant returned to the participant,
the Company shall apply the funds then in the participant's account to the
purchase of whole shares of Common Stock reserved under the option granted
to
such participant with respect to the Offering Period to the extent that such
option is exercisable on the Purchase Date. The purchase price per share
shall
be as specified in Section
8
hereof.
Any cash remaining in a participant's account after such purchase of shares
shall be refunded to such participant in cash, without interest; provided,
however, that any amount remaining in such participant's account on a Purchase
Date which is less than the amount necessary to purchase a full share of
Common
Stock of the Company shall be carried forward, without interest, into the
next
Offering Period. In the event that the Plan has been oversubscribed, all
funds
not used to purchase shares on the Purchase Date shall be returned to the
participant, without interest. No Common Stock shall be purchased on a Purchase
Date on behalf of any employee whose participation in the Plan has terminated
prior to such Purchase Date.
(e)
As
promptly as practicable after the Purchase Date, the Company shall issue
shares
for the participant's benefit representing the shares purchased upon exercise
of
his or her option.
(f)
During a participant's lifetime, such participant's option to purchase shares
hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10.
Limitations
on Shares to be Purchased.
(a)
No
participant shall be entitled to purchase stock under the Plan at a rate
which,
when aggregated with his or her rights to purchase stock under all other
employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000
in fair market value of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding. The
Company
shall automatically suspend the payroll deductions of any participant as
necessary to enforce this limit, provided that when the Company automatically
resumes such payroll deductions, the Company shall apply the rate in effect
immediately prior to such suspension.
(b)
No
more than two hundred percent (200%) of the number of shares determined by
using
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date as the denominator may be purchased by
a
participant on any single Purchase Date.
(c)
No
participant shall be entitled to purchase more than the Maximum Share Amount
(as
defined below) on any single Purchase Date. Not less than thirty (30) days
prior
to the commencement of any Offering Period, the Committee may, in its sole
discretion, set a maximum number of shares which may be purchased by any
employee at any single Purchase Date (the "Maximum
Share Amount").
Until
otherwise determined by the Committee, there shall be no Maximum Share Amount.
In no event shall the Maximum Share Amount exceed the number of shares permitted
under Section
10(b)
above.
If a Maximum Share Amount is set, the Committee will notify all participants
of
such Maximum Share Amount prior to the commencement of the first Offering
Period
to which it applies. Once a Maximum Share Amount is set, it shall continue
to
apply to all succeeding Offering Periods, unless revised by the
Committee.
(d)
If
the number of shares to be purchased on a Purchase Date by all employees
participating in the Plan exceeds the number of shares then available for
issuance under the Plan, then the Committee will make a pro rata allocation
of
the remaining shares in as uniform a manner as shall be reasonably practicable
and as the Committee shall determine to be equitable. In such event, the
Committee shall give written notice of such reduction of the number of shares
to
be purchased under a participant's option to each participant affected
thereby.
(e)
Any
payroll deductions accumulated in a participant's account which are not used
to
purchase stock due to the limitations in this Section
10
shall be
returned to the participant as soon as practicable after the end of the
applicable Offering Period, without interest.
11.
Withdrawal.
(a)
Each
participant may withdraw from an Offering Period under the Plan by signing
and
delivering to the Human Resources Department a written notice to that effect
on
a form provided for such purpose. Such withdrawal may be elected at any time
at
least fifteen (15) days prior to the end of an Offering Period.
(b)
Upon
withdrawal from the Plan, the accumulated payroll deductions shall be returned
to the withdrawn participant, without interest, and the withdrawn participant’s
interest in the Plan shall terminate. If a participant voluntarily withdraws
from the Plan, such participant may not resume participation in the Plan
during
the same Offering Period, but may participate in any Offering Period which
commences on a date subsequent to such withdrawal by filing a new authorization
for payroll deductions in the same manner as set forth above for initial
participation in the Plan.
12.
Termination
of Employment.
Termination of a participant's employment for any reason (including retirement
or death), or the failure of a participant to remain an eligible employee
of the
Company or of a Participating Subsidiary, immediately terminates his or her
participation in the Plan. In such event, the payroll deductions credited
to the
participant's account will be returned to him or her or, in the case of his
or
her death, to his or her legal representative, without interest. For purposes
of
this Section
12,
an
employee will not be deemed to have terminated employment with the Company
or a
Participating Subsidiary in the case of sick leave, military leave or any
other
leave of absence approved by the Committee; provided that such leave is for
a
period of not more than ninety (90) days or reemployment upon the expiration
of
such leave is guaranteed by contract or statute.
13.
Return
of Payroll Deductions.
In the
event a participant's interest in the Plan is terminated by withdrawal,
termination of employment or otherwise, or in the event the Plan is terminated
by the Committee, the Company shall promptly deliver to the participant all
payroll deductions credited to such participant's account. No interest shall
accrue on the payroll deductions of a participant in the Plan.
14.
Capital
Changes.
Subject
to any required action by the stockholders of the Company, the number of
shares
of Common Stock covered by each option under the Plan which has not yet been
exercised and the number of shares of Common Stock which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"),
as
well as the price per share of Common Stock covered by each option under
the
Plan which has not yet been exercised, shall be proportionately adjusted
for any
increase or decrease in the number of issued and outstanding shares of Common
Stock of the Company resulting from a stock split or the payment of a stock
dividend or any other increase or decrease in the number of issued and
outstanding shares of Common Stock effected without receipt of consideration
by
the Company. Such adjustment shall be made by the Committee, whose determination
shall be final, binding and conclusive. Except as expressly provided herein,
no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to an option.
In
the
event of the proposed dissolution or liquidation of the Company, the Offering
Period will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Committee.
The
Committee may, if it so determines in the exercise of its sole discretion,
also
make provision for adjusting the Reserves, as well as the price per share
of
Common Stock covered by each outstanding option, in the event that the Company
effects one or more reorganizations, recapitalizations, rights offerings
or
other increases or reductions of shares of its outstanding Common Stock,
or in
the event of the Company being consolidated with or merged into any other
corporation.
15.
Nonassignability.
Neither
payroll deductions credited to a participant's account nor any rights with
regard to the exercise of an option or the receipt of shares under the Plan
may
be assigned, transferred, pledged or otherwise disposed of in any way (other
than by will, the laws of descent and distribution or as provided in
Section
22
hereof)
by the participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be void and without effect.
16.
Reports.
Individual accounts will be maintained for each participant in the Plan.
Each
participant shall receive promptly after the end of each Offering Period
a
report of his or her account setting forth the total payroll deductions
accumulated, the number of shares purchased, the per share price thereof
and the
remaining cash balance, if any, carried forward to the next Offering
Period.
17.
Notice
of Disposition.
Each
participant shall notify the Company if the participant disposes of any of
the
shares purchased in any Offering Period, if such disposition occurs within
two
(2) years from the Offering Date or within one (1) year from the Purchase
Date
on which such shares were purchased (the "Notice
Period").
Unless such participant is disposing of any of such shares during the Notice
Period, such participant shall keep the certificates representing such shares
in
his or her name (and not in the name of a nominee) during the Notice Period.
The
Company may, at any time during the Notice Period, place a legend or legends
on
any certificate representing shares acquired pursuant to the Plan requesting
the
Company's transfer agent to notify the Company of any transfer of the shares.
The obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the
certificates.
18.
No
Rights to Continued Employment.
Neither
this Plan nor the grant of any option hereunder shall confer any right on
any
employee to remain in the employ of the Company or any Participating Subsidiary,
or restrict the right of the Company or any Participating Subsidiary to
terminate such employee's employment.
19.
Equal
Rights and Privileges.
All
eligible employees shall have equal rights and privileges with respect to
the
Plan so that the Plan qualifies as an "employee stock purchase plan" within
the
meaning of Section 423 or any successor provision of the Code and the related
regulations. Any provision of the Plan which is inconsistent with Section
423 or
any successor provision of the Code shall, without further act or amendment
by
the Company, the Committee or the Board, be reformed to comply with the
requirements of Section 423. This Section
19
shall
take precedence over all other provisions in the Plan.
20.
Notices.
All
notices or other communications by a participant to the Company or the Committee
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by
the
person, designated by the Company for the receipt thereof.
21.
Term;
Stockholder Approval.
This
Plan has been adopted by the Board, and will become effective on the
commencement date of the first Offering Period, as specified in Section
5
above,
provided that the Plan is approved by the stockholders of the Company, in
any
manner permitted by applicable corporate law, within twelve (12) months before
or after the date the Plan is adopted by the Board. No purchase of shares
pursuant to the Plan shall occur prior to such stockholder approval. This
Plan
shall continue until the earlier to occur of (a) termination of this Plan
by the Committee (which termination may be effected by the Committee at any
time), or (b) issuance of all of the shares of Common Stock reserved for
issuance under the Plan.
22.
Designation
of Beneficiary.
(a)
A
participant may file a written designation of a beneficiary who is to receive
any shares and cash, if any, from the participant's account under the Plan
in
the event of such participant's death subsequent to the end of an Offering
Period but prior to delivery to the participant of such shares and cash.
In
addition, a participant may file a written designation of a beneficiary who
is
to receive any cash from the participant's account under the Plan in the
event
of such participant's death prior to a Purchase Date.
(b)
Such
designation of beneficiary may be changed by the participant at any time
by
written notice. In the event of the death of a participant and in the absence
of
a beneficiary validly designated under the Plan who is living at the time
of
such participant's death, the Committee shall deliver such shares or cash
to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Committee), the Committee, in its discretion, may deliver such shares or
cash to
the spouse or to any one or more dependents or relatives of the participant,
or
if no spouse, dependent or relative is known to the Committee, then to such
other person as the Committee may designate.
23.
Conditions
Upon Issuance of Shares; Limitation on Sale of Shares.
Shares
shall not be issued with respect to an option unless the exercise of such
option
and the issuance and delivery of such shares pursuant thereto shall comply
with
all applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, the Securities Exchange Act of 1934,
the
rules and regulations promulgated thereunder, and the requirements of any
stock
exchange or automated quotation system upon which the shares may then be
listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
24.
Applicable
Law.
The Plan
shall be governed by the substantive laws (excluding the conflict of laws
rules)
of the Commonwealth of Pennsylvania.
25.
Amendment
or Termination.
The
Committee may at any time amend or terminate the Plan, except that no amendment
may be made without approval of the stockholders of the Company obtained
in
accordance with Section
21
hereof
within twelve (12) months of the adoption of such amendment if such amendment
would: (a) increase the number of shares that may be issued under this
Plan; or (b) change the designation of the employees (or class of
employees) eligible for participation in the Plan. No amendment, modification
or
termination of the Plan may, without the consent of an eligible employee
then
having an option under the Plan to purchase stock, adversely affect the rights
of such eligible employee under such option.
26.
Acceptance.
The
election by any eligible employee to participate in this Plan constitutes
his or
her acceptance of the terms of the Plan and his or her agreement to be bound
hereby.
27.
Severability.
If any
part of this Plan shall be determined to be invalid or void in any respect,
such
determination shall not affect, impair, invalidate or nullify the remaining
provisions of the Plan, which shall continue in full force and effect.
TALK
AMERICA HOLDINGS, INC.
6805
Route 202
New
Hope,
Pennsylvania 18938
This
Proxy Is Solicited On Behalf Of The Board Of Directors
For
The Annual Meeting Of Stockholders On August 9, 2006
The
undersigned holder of shares of Common Stock of Talk America Holdings,
Inc.
hereby appoints Edward B. Meyercord, III 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 August
9,
2006, at 3:00 p.m., Eastern Time, at the Company's New Hope office located
at
6805 Route 202, New Hope, Pennsylvania 18938, 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, THE PROXIES WILL VOTE FOR APPROVAL OF THE ELECTION
OF
THE DIRECTOR NOMINEE, EDWARD B. MEYERCORD, III , FOR RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT CERTIFIED
PUBLIC
ACCOUNTANTS FOR THE COMPANY FOR 2006 (THE “AUDITOR PROPOSAL”), FOR APPROVAL OF
THE TALK AMERICA EMPLOYEE STOCK PURCHASE PLAN, IN THEIR DISCRETION, UPON
SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT.
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 ONE DIRECTOR, FOR
APPROVAL OF THE AUDITOR PROPOSAL AND FOR
APPROVAL OF THE TALK AMERICA EMPLOYEE STOCK PURCHASE PLAN.
(SEE
REVERSE SIDE)
|
ITEM
1 Election of Directors
Edward
B. Meyercord, III For the
nominee [ ] WITHOLD AUTHORITY to vote for
nominee [
]
ITEM
2
To
Approve the Auditor
Proposal
FOR [ ] AGAINST [
] ABSTAIN [ ]
ITEM
3
To
approve the Talk America Employee Stock Purchase
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
August 9, 2006 and the related proxy statement dated June 28, 2006 and
Annual
Report on Form 10-K for the fiscal year ended December 31, 2005, are hereby
acknowledged.
PLEASE
SIGN, DATE AND MAIL TODAY
Signature(s)
of
Stockholder(s)____________________________________________________________________________________________
Date _____________, 2006
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.