This excerpt taken from the PTEC DEF 14A filed Nov 19, 2007.
On October 5, 2007, the Compensation Committee of the Board approved stock option grants which vest upon the achievement of certain Company performance goals to certain of its executive officers governed by the terms of the 1999 Plan (the Performance Options). A discussion of the Committees reasons for granting
the Performance Options is discussed in our Compensation Disclosure and Analysis section above under the heading Equity Compensation.
At the Annual Meeting, you are being asked to approve the grants and material terms of the Performance Options, and related amendments to the 1999 Plan as described below, in order to satisfy the stockholder approval requirements under Code Section 162(m), so as to permit Phoenix to deduct under U.S. federal income tax law certain compensation amounts that may be paid under the Performance Options which might otherwise not be deductible. As discussed in more detail above in Proposal 4 under the heading Code Section 162(m) Matters, Section 162(m) of the Internal Revenue Code generally prevents public companies from deducting compensation paid in excess of $1 million to certain of their executive officers during any single year. Under current law, this restriction applies to compensation paid to our Chief Executive Officer and our other three most highly compensated officers. Certain performance-based compensation is specifically exempted from this deduction limit if it otherwise meets the requirements of Section 162(m). Although Phoenix may generally grant performance-based options under the 1999 Plan that qualify for the exemption from the deduction limit under Section 162(m), certain restrictions under the 1999 Plan prevented us from doing so under the current stockholder-approved terms of that plan. Specifically, the 1999 Plan provides that grants are limited to a maximum of 125,000 shares to any individual during a fiscal year. Because Phoenix does not intend to grant additional options or other awards under the 1999 Plan if the 2007 Plan is approved by stockholders, we seek stockholder approval to increase the annual limit on the number of shares that may be granted to any individual under the 1999 Plan to 556,250 shares only for the limited purpose of these Performance Option grants. Stockholder approval of an amendment to the 1999 Plan to accommodate the Performance Option grants is also required under applicable NASDAQ rules.
In order to ensure that we approach our compensation process in an integrated fashion, and so as to involve our stockholders in that process, our Compensation Committee has chosen to make approval of the Performance Options contingent upon our also receiving stockholder approval of the 2007 Plan, as discussed in Proposal 4 above. Accordingly, if our stockholders do not approve the 2007 Plan under Proposal No. 4, we will treat this Proposal No. 6 as having also been rejected by our stockholders and the Performance Options will terminate in their entirety if not otherwise approved by our stockholders by October 5, 2008. In the event that both Proposal No. 4 and 6 are not approved by our stockholders, the 1999 Plan will continue to be available to us from which to grant options and other awards and executive officers will be eligible to receive options grants in the future under the current terms of that plan (including the 125,000 share annual option limitation described above). Any such additional option grants made to executive officers under the 1999 Plan under these circumstances will qualify as performance-based compensation to the extent the terms and circumstances surrounding such grants satisfy the requirements of Section 162(m). Similarly, if the 2007 Plan is approved by our stockholders, but the grant and material terms of the Performance Options are not approved, the Performance Options will terminate in their entirety if not otherwise approved by our stockholders by October 5, 2008, and our executives will be eligible to receive future equity grants from the 2007 Plan. Any such future equity award grants made to executive officers under the 2007 Plan will qualify as performance-based compensation to the extent the terms and circumstances surrounding such grants satisfy the requirements of Section 162(m).