<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Paradyne Networks, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
(PARADYNE LOGO)
April 27, 2000
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Paradyne Networks, Inc., which will be held on June 1, 2000 at 10:00 a.m., local
time, at our corporate headquarters, 8545 126th Avenue North, Largo, Florida.
At the annual meeting, stockholders will be asked to vote on the following
matters:
- election of two directors to serve until the 2003 annual meeting of
stockholders; and
- approval of an amendment to The Amended and Restated 1996 Equity
Incentive Plan to increase the number of shares of common stock available
for awards from 6,000,000 shares to 11,000,000 shares.
All of the above matters are described in the accompanying proxy statement.
It is important that your stock be represented at the meeting regardless of the
number of shares you hold and whether or not you plan to attend the meeting. You
can submit your proxy voting instructions via the Internet, by touch tone
telephone or by marking and returning the enclosed proxy card. Please see the
instructions on how to vote attached to the notice of proxy. The method by which
you vote by proxy now will not limit your right to vote at the meeting if you
decide to attend in person. If you do attend and wish to vote in person, you may
simply revoke your proxy at the meeting.
If you plan to attend the meeting, please let us know when you vote via the
Internet or by touch tone telephone or when you return your proxy card. If your
shares are not registered in your own name and you would like to attend the
meeting, please ask the broker, bank or other nominee holding the shares to
provide you with evidence of your share ownership so that you may be admitted to
the meeting.
Sincerely,
/s/ ANDREW S. MAY
Andrew S. May
President and Chief Executive Officer
<PAGE> 3
PARADYNE NETWORKS, INC.
8545 126TH AVENUE NORTH
LARGO, FLORIDA 33773
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 1, 2000
---------------------
NOTICE HEREBY IS GIVEN that the 2000 annual meeting of
stockholders of Paradyne Networks, Inc. will be held at our corporate
headquarters, 8545 126(th) Avenue North, Largo, Florida, on Thursday, June 1,
2000 at 10:00 a.m., local time. The purpose of the meeting is for the
stockholders to consider and vote upon:
- the election of two directors to serve until the 2003 annual meeting of
stockholders;
- an amendment to The Amended and Restated 1996 Equity Incentive Plan to
increase the number of shares of common stock available for awards from
6,000,000 to 11,000,000 shares; and
- such other business as properly may come before the annual meeting or any
adjournments.
Information relating to these matters is set forth in the attached proxy
statement. Stockholders of record at the close of business on April 6, 2000 are
entitled to receive notice of and to vote at the annual meeting and any
adjournments. We encourage you to vote using the Internet, by touch tone
telephone or by returning the enclosed proxy card in the envelope provided.
By order of the board of directors,
/s/ JAMES L. SLATTERY
James L. Slattery
Senior Vice President, Chief Legal and
Intellectual Property Officer and
Corporate Secretary
Largo, Florida
April 27, 2000
<PAGE> 4
HOW TO VOTE
VOTE BY INTERNET
You can submit your proxy voting instructions via the Internet at the
website identified on the enclosed proxy card. Internet voting is available 24
hours a day and will be accessible until midnight Eastern Standard Time on May
31, 2000. You will be given the opportunity to confirm that your voting
instructions have been properly recorded. Our Internet voting procedures are
designed to authenticate stockholders' identities by using individual control
numbers. IF YOU VOTE VIA THE INTERNET, YOU DO NOT NEED TO RETURN YOUR PROXY
CARD.
VOTE BY TELEPHONE
You can submit your proxy voting instructions by touch tone telephone by
calling the phone number identified on the enclosed proxy card. Telephone voting
is available 24 hours a day and will be available until midnight Eastern
Standard Time on May 31, 2000. As with Internet voting, you will be given the
opportunity to confirm that your voting instructions have been properly
recorded. In addition, our telephone voting procedures are designed to
authenticate stockholders' identities by using individual control numbers. IF
YOU VOTE VIA TOUCH TONE TELEPHONE, YOU DO NOT NEED TO RETURN YOUR PROXY CARD.
VOTE BY MAIL
If you choose to submit your proxy voting instructions by mail, please mark
the enclosed proxy card, date and sign it and return it in the enclosed
postage-paid envelope.
YOU CAN SPARE US THE EXPENSE OF FURTHER PROXY SOLICITATION BY VOTING
PROMPTLY BY PROXY IN ONE OF THE THREE WAYS DESCRIBED ABOVE.
VOTE AT THE ANNUAL MEETING
Voting now by proxy will not limit your right to vote at the annual meeting
if you decide to attend in person. If you do attend and wish to vote in person,
you may simply revoke your proxy at the meeting. If your shares are not
registered in your own name and you would like to attend the meeting, please ask
the broker, bank or other nominee holding the shares to provide you with
evidence of your share ownership so that you may be admitted to the meeting.
<PAGE> 5
PARADYNE NETWORKS, INC.
---------------------
PROXY STATEMENT
---------------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 1, 2000
---------------------
The board of directors of Paradyne Networks, Inc., a Delaware corporation,
is furnishing this proxy statement to solicit your proxy for the voting of your
shares at the 2000 annual meeting of stockholders and at any adjournments. We
will hold the annual meeting on Thursday, June 1, 2000 at 10:00 a.m., local
time, at our corporate headquarters, 8545 126th Avenue North, Largo, Florida.
We are mailing this proxy statement and the accompanying proxy card to
stockholders on or about April 27, 2000.
VOTING
GENERAL
The securities that can be voted at the annual meeting consist of common
stock, $.001 par value per share. Each share of common stock entitles its holder
to cast one vote on each matter submitted to the stockholders at the annual
meeting. The record date for determining the stockholders who are entitled to
receive notice of and to vote at the annual meeting has been fixed by the board
of directors as the close of business on April 6, 2000. On the record date,
31,356,435 shares of common stock were outstanding and eligible to be voted at
the annual meeting.
QUORUM AND VOTE REQUIRED
The presence at the annual meeting, in person or by proxy, of the holders
of a majority of the votes entitled to be cast will constitute a quorum for the
transaction of business at the annual meeting. In determining whether a quorum
is present, we will apply the following principles:
- Abstentions and votes withheld from any director nominee will be
considered to be "votes entitled to be cast" and will be counted as
present for purposes of determining the presence or absence of a quorum.
- Broker non-votes will be considered to be "votes entitled to be cast" and
will be counted as present for quorum purposes. Broker non-votes are
votes that brokers holding shares of record for their customers are not
permitted to cast under stock exchange rules because the brokers have not
received specific instructions from their customers as to certain
proposals and as to which the brokers have advised us that they lack
voting authority.
The following stockholder votes will be required for approval of the two
proposals to be considered at the annual meeting:
The proposal to elect two directors to serve until the 2003 annual
meeting (Proposal 1), must be approved by a plurality of the votes
represented at the annual meeting and entitled to be cast on the proposal.
As to this proposal, abstentions, votes withheld and broker non-votes will
have no effect on the outcome of the nominee election.
The proposal to amend The Amended and Restated 1996 Equity Incentive
Plan to increase the number of shares of common stock available for awards
from 6,000,000 shares to 11,000,000 shares (Proposal 2) must be approved by
a majority of the votes represented at the annual meeting and entitled
<PAGE> 6
to be cast on the proposal. As to this proposal, abstentions and votes
withheld will have the same effect as votes against the proposal. Broker
non-votes will have no effect as to the vote to amend our Amended and
Restated 1996 Equity Incentive Plan.
VOTING BY PROXY
If you are unable to attend the annual meeting in person or will attend but
do not wish to vote in person, you may submit your proxy voting instructions via
the Internet or by touch tone telephone by midnight Eastern Standard Time on May
31, 2000, or by completing and returning the enclosed proxy card in time for
receipt no later than the close of business on May 31, 2000. You may submit your
proxy voting instructions via the Internet by accessing the website identified
on the enclosed proxy card and following the instructions on the website. If you
choose to submit your proxy voting instructions by touch tone telephone, please
call the phone number identified on the enclosed proxy card and follow the
prompts. In addition, you may give your voting instructions by specifying your
choices with regard to each proposal on the enclosed proxy card and returning it
in the enclosed envelope.
If you submit a valid proxy to us via the Internet, by telephone or by mail
in time to be voted at the annual meeting and do not revoke the proxy, the
shares represented by the proxy will be voted at the annual meeting in
accordance with your instructions. If you do not give specific instructions, the
shares represented by a valid proxy will be voted "FOR" the election of the two
director nominees named in Proposal 1 and "FOR" Proposal 2 relating to the
amendment to our Amended and Restated 1996 Equity Incentive Plan. If either
nominee for election as a director should become unable to serve for any reason
and the board of directors designates a substitute nominee, the persons named as
proxies on the proxy will vote all valid proxies for the election of the
substitute nominee.
Your submission of a proxy via the Internet, by telephone or by mail does
not affect your right to vote in person should you attend the annual meeting.
However, the only way to revoke a proxy, whether it was given via the Internet,
the telephone or by mail, is by the following methods:
- giving written notice to Paradyne Networks, Inc., 8545 126th Avenue
North, Largo, Florida 33773, Attention: James L. Slattery, Senior Vice
President, Chief Legal and Intellectual Property Officer and Corporate
Secretary;
- executing and delivering a proxy card bearing a later date;
- voting via the Internet or by telephone; or
- voting in person at the annual meeting.
COST OF PROXY SOLICITATION
We are soliciting your proxy on behalf of the board of directors, and we
will bear all of the related costs. We have engaged Georgeson Shareholder
Communications Inc. to assist with the solicitation of proxies for an estimated
fee of $7,500 plus expenses. We will reimburse brokers, fiduciaries and
custodians for their costs in forwarding proxy materials to beneficial owners of
common stock held in their names. Our employees also may communicate with you to
solicit your proxy, but we will not pay them any additional compensation for
doing so.
2
<PAGE> 7
STOCK OWNERSHIP
The following table sets forth information as of the record date, April 6,
2000, unless otherwise indicated, regarding the beneficial ownership of our
voting stock by each person known by us to own more than 5% of any class of our
voting securities, each director and nominee for director, each executive
officer named in the Summary Compensation Table and all directors and executive
officers as a group.
Pursuant to SEC rules, the number of shares of common stock beneficially
owned by a specified person or group includes shares of our common stock subject
to options that are presently exercisable or exercisable within 60 days after
April 6, 2000. Such shares are deemed to be outstanding for the purpose of
computing the percentage of the class beneficially owned by such person or
group, but are not deemed to be outstanding for the purpose of computing the
percentage of the class beneficially owned by any other person or group.
The persons named in the table gave us the stock ownership information
about themselves. Except as explained in the footnotes below, the named persons
have sole voting and investment power with regard to the shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
-----------------------------
TOTAL PERCENT
COMMON STOCK OF CLASS
BENEFICIALLY OWNED OWNED
------------------ --------
<S> <C> <C>
FIVE PERCENT STOCKHOLDERS
Texas Pacific Group(1)...................................... 10,982,870 35.03
201 Main Street, Suite 2420
Fort Worth, Texas 76102
The Sprout Group(2)......................................... 1,605,952 5.12
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
EXECUTIVE OFFICERS AND DIRECTORS
Andrew S. May(3).......................................... 1,115,625 3.44
Sean E. Belanger(4)....................................... 145,000 *
Patrick M. Murphy(5)...................................... 68,125 *
James L. Slattery(6)...................................... 112,500 *
Frank J. Wiener(7)........................................ 50,006 *
Betsy S. Atkins........................................... 13,500 *
David Bonderman(8)........................................ 10,982,870 35.03
Thomas E. Epley(9)........................................ 667,384 2.13
Keith B. Geeslin(10)...................................... 1,627,733 5.19
David M. Stanton(11)...................................... -- *
William R. Stensrud(12)................................... 543,476 1.73
Peter F. Van Camp(13)..................................... 10,000 *
All directors and executive officers as a group (18
persons)(14).............................................. 15,609,218 47.75
</TABLE>
- ---------------
* Represents beneficial ownership of less that 1%.
(1) Includes 9,541,209 shares held by TPG Partners, L.P., 943,680 shares held
by TPG Parallel I, L.P., 165,336 shares held by Communication GenPar, Inc.,
212,034 shares held by TPG Genpar, L.P., 35,726 shares held by FOF
Partners, L.P. and 84,885 shares held by TPG Equity Partners, L.P. The
foregoing entities are affiliated with Texas Pacific Group.
(2) Includes 75,936 shares held by DLJ Capital Corporation (on a proprietary
basis), 52,288 shares held by DLJ Capital Corporation (for the benefit of
an employee deferred compensation plan), 628,962 shares held by Sprout
Capital VII, L.P., 514,193 shares held by Sprout Growth II, L.P., 7,306
shares held by Sprout CEO Fund, L.P., 261,459 shares held by DLJ First ESC,
L.P., 63,738 shares held by Donaldson, Lufkin & Jenrette Inc., 1,417 shares
held by DLJ Growth Associates II, Inc. and 653 shares held by DLJ Capital
Associates VII, Inc. The foregoing entities are associated with The Sprout
Group. Of the
3
<PAGE> 8
aggregate of 1,605,952 shares beneficially owned by these entities,
1,305,873 shares are subject to a voting trust agreement and are held and
voted by an independent third party, Norwest Bank Indiana, N.A., as voting
trustee.
(3) Includes 1,065,625 shares subject to options which are exercisable within
60 days of April 6, 2000.
(4) Includes 45,000 shares subject to options which are exercisable within 60
days of April 6, 2000.
(5) Includes 23,125 shares subject to options which are exercisable within 60
days of April 6, 2000.
(6) Includes 37,500 shares subject to options which are exercisable within 60
days of April 6, 2000.
(7) Includes 2,506 shares subject to options which are exercisable within 60
days of April 6, 2000.
(8) Includes 10,982,870 shares beneficially owned by Texas Pacific Group. See
Footnote (1) for a description of Texas Pacific Group's beneficial
ownership. Mr. Bonderman, through various investment partnerships and
corporations, has a pecuniary interest in the shares held by Texas Pacific
Group. However, Mr. Bonderman disclaims beneficial ownership of the shares
beneficially owned by Texas Pacific Group, except to the extent of his
pecuniary interest therein.
(9) Includes 10,000 shares subject to options under the 1999 Non-Employee
Directors' Stock Option Plan, 524,925 shares held by the Thomas E. Epley
Trust, 110,143 shares held by the Anderson Epley Family Trust, 11,158
shares held by the Epley Children's Trust FBO Thomas E. Epley, Jr. and
11,158 shares held by the Epley Children's Trust FBO Jacqueline E. Epley.
Mr. Epley is the trustee of each of these trusts.
(10) Includes 21,781 shares held by Mr. Geeslin individually and 1,605,952
shares beneficially owned by The Sprout Group. See Footnote (2) for a
description of The Sprout Group's beneficial ownership. Mr. Geeslin
occupies various positions of control of the entities associated with The
Sprout Group. As such, he may be deemed to have voting and dispositive
power over the shares beneficially owned by entities associated with The
Sprout Group. However, Mr. Geeslin disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein.
(11) Mr. Stanton, a director of Paradyne, was the sole director and President of
Communication GenPar, Inc. from 1996 until August 12, 1999.
(12) Includes 397,326 shares held by the Stensrud Family Trust and 146,150
shares held by Mr. Stensrud individually.
(13) Includes 10,000 shares subject to options under the 1999 Non-Employee
Directors' Stock Option Plan.
(14) Includes 1,333,286 shares subject to options with are exercisable within 60
days of April 6, 2000.
4
<PAGE> 9
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
Pursuant to our Certificate of Incorporation and Bylaws, the number of
persons to serve on our board of directors is determined by resolution of our
board of directors from time to time. The board is now comprised of eight
directors and is divided into three classes. The stockholders elect the
directors in each class for a term of three years and until their successors are
elected and qualified. The term of office of one class of directors expires each
year at the annual meeting, and the stockholders elect a new class of directors
each year at that time.
At the annual meeting, the terms of the two Class I directors, Thomas E.
Epley and David Bonderman, will expire. The board of directors has nominated
each of these individuals for re-election at the annual meeting. If re-elected,
each of the nominees will serve a three-year term that will expire at the 2003
annual meeting. If either of the nominees should be unavailable to serve for any
reason, which is not anticipated, the board of directors may:
- designate a substitute nominee, in which case the persons named as
proxies will vote the shares represented by all valid proxies for the
election of such substitute nominee;
- allow the vacancy to remain open until a suitable candidate is located
and nominated; or
- adopt a resolution to decrease the authorized number of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO RE-ELECT THOMAS E. EPLEY AND DAVID BONDERMAN AS CLASS I DIRECTORS
FOR A THREE-YEAR TERM EXPIRING AT THE 2003 ANNUAL MEETING OF STOCKHOLDERS AND
UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED.
INFORMATION REGARDING NOMINEES AND CONTINUING DIRECTORS
Listed below are the names of each of the board's nominees, his age as of
April 27, 2000, his business experience and the year he first became a director.
Also listed is similar information about each of the six incumbent directors
whose terms will continue following the annual meeting.
CLASS I DIRECTORS NOMINATED TO SERVE UNTIL THE 2003 ANNUAL MEETING
Thomas E. Epley............ Thomas E. Epley, age 59, has served as the Chairman
of the board of directors since August 1996. He
also served as President from August 1996 to
December 1996 and Chief Executive Officer from
August 1996 to May 1997. Currently, Mr. Epley
serves as Chairman and Chief Executive Officer of
IAM.com. From August 1996 to April 1997, Mr.
Epley was Chief Executive Officer and President
of GlobeSpan Inc. He has served as a director of
GlobeSpan since August 1996 and was Chairman of
the board of directors from August 1996 to March
1999. He has served as a director and President
and Chief Executive Officer of Paradyne Credit
Corp. since August 1996. From 1993 to 1996, he
was a director of Carlton Communications. From
1991 to 1996, he served as Chairman and Chief
Executive Officer of Technicolor, a provider of
services and products to the entertainment
industry. He is also a limited partner in
Communication Partners, L.P. Mr. Epley holds a
B.S. degree in mechanical engineering from the
University of Cincinnati and an M.B.A. from the
Kellogg School of Northwestern University.
David Bonderman............ David Bonderman, age 57, has served as a director
of Paradyne since June 1999. Mr. Bonderman has
been a managing partner in the Texas
5
<PAGE> 10
Pacific Group, a limited partner in Communication
Partners, L.P., since its formation in 1992.
Prior to forming Texas Pacific Group, Mr.
Bonderman had served as the Chief Operating
Officer of the Robert M. Bass Group, Inc. since
1983. He is a director of several public and
privately held companies including Continental
Airlines, Inc., Bell & Howell Company, Ducati
Motorcycles, S.p.A., Costar Group Inc., Beringer
Wine Estates, Denbury Resources, Inc., Washington
Mutual, Inc., Oxford Health Plans, Inc.,
UroGenesys, Inc., J. Crew Group, Inc., Landis &
Gyr Communications, Virgin Entertainment Group,
Ltd., Ryanai Holdings Ltd., Punch Group Ltd.,
Bally International AG, AerFi Group PLC, Korean
First Bank, eVolution, eStara and ON
Semiconductor. Mr. Bonderman holds a B.A. degree
from the University of Washington and a J.D. from
Harvard Law School.
CLASS II DIRECTORS TO SERVE UNTIL THE 2001 ANNUAL MEETING
Betsy S. Atkins............ Betsy S. Atkins, age 45, has served as a director
of Paradyne since October 1999. Ms. Atkins served
as President and Chief Executive Officer of NCI,
Inc. from 1990 to 1993. From 1989 to 1990, Ms.
Atkins was Vice President of Marketing and Sales
for Ascend Communications Corporation. Ms. Atkins
currently serves as a director of several public
and privately held companies including Lucent
Technologies, Polycom, Inc., Olympic Steel,
Selectica, Inc. and Datacore Software
Corporation. Ms. Atkins holds a B.A. from the
University of Massachusetts.
Keith B. Geeslin........... Keith B. Geeslin, age 47, has served as a director
of Paradyne since June 1999. Mr. Geeslin is a
general partner of The Sprout Group, a venture
capital firm, where he has been employed since
July 1984. In addition, he is a general or
limited partner in a series of investment funds
associated with The Sprout Group, a division of
DLJ Capital Corporation, which is a subsidiary of
Donaldson, Lufkin & Jenrette. The Sprout Group
are direct and indirect equity owners in
Communication Partners, L.P. Mr. Geeslin is also
a director of SDL, Inc., Rhythms NetConnections
Inc., GlobeSpan, and several privately held
companies. Mr. Geeslin received a B.S. degree in
electrical engineering from Stanford University,
an M.A. degree in philosophy, politics and
economics from Oxford University and an M.S.
degree in engineering and economic systems from
Stanford University.
Peter F. Van Camp.......... Peter F. Van Camp, age 44, has served as a director
of Paradyne since June 1999. Mr. Van Camp serves
as President of Internet Markets for UUNET, the
Internet division of MCI WorldCom. Prior to
joining MCI WorldCom, he served as an executive
at CompuServe, Inc. and President of CompuServe
Network Services. Mr. Van Camp holds a B.S.
degree in accounting and computer science from
Boston College.
CLASS III DIRECTORS TO SERVE UNTIL THE 2002 ANNUAL MEETING
Andrew S. May.............. Andrew S. May, age 39, has served as President
since December 1996, Director since January 1997,
and Chief Executive Officer since May 1997. From
October 1995 to November 1996, he served as Vice
President and General Manager of 3Com
Corporation's Network Service Provider division.
From April 1992 to October 1995, Mr. May
6
<PAGE> 11
served as Vice President of Marketing for Primary
Access Corporation, which was acquired by 3Com in
1995. Mr. May holds a B.A. in economics from the
University of New Hampshire.
David M. Stanton........... David M. Stanton, age 37, has served as a director
of Paradyne since August 1996. Mr. Stanton is
currently the founding partner of Francisco
Partners, an investment partnership specializing
in private equity investments in technology
companies. From 1994 until August 1999, Mr.
Stanton was a partner of Texas Pacific Group, a
limited partner in Communication Partners, L.P.
During this time, he also served as Vice
President of TPG Advisors, Inc. and as President
of Communication Genpar, Inc., entities
affiliated with Communication Partners, L.P.
Prior to joining Texas Pacific Group, Mr. Stanton
was a venture capitalist with Trinity Ventures,
where he specialized in information technology,
software and telecommunications investing. Mr.
Stanton currently serves as a director of Denbury
Resources, Inc., and GlobeSpan, Inc. and several
private companies, including Paradyne Credit
Corp., an affiliated entity of Paradyne. Mr.
Stanton holds a B.S. in chemical engineering from
Stanford University and an M.B.A. from the
Stanford Graduate School of Business.
William R. Stensrud........ William R. Stensrud, age 49, has served as a
director of Paradyne since June 1996. Mr.
Stensrud has been a general partner at the
venture capital investment firm of Enterprise
Partners since January 1997. From February 1997
to June 1997, he served as President and Chief
Executive Officer of Rhythms NetConnections,
Inc., a network service provider. Previously,
from January 1992 to July 1995, Mr. Stensrud
served as President and Chief Executive Officer
of Primary Access Corporation which was acquired
by 3Com Corporation, and where Mr. Stensrud
remained as an executive at Primary Access
Corporation through March 1996. Mr. Stensrud is a
director of several public and privately held
companies, including Rhythms NetConnections, Inc.
and Juniper Networks. Mr. Stensrud holds a B.S.
in electrical engineering and computer science
from the Massachusetts Institute of Technology.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors conducts its business through meetings of the full
board and through committees of the board. During the fiscal year ended December
31, 1999, the board of directors held fourteen meetings, the compensation
committee held three meetings and the audit committee held one meeting. Each
director attended at least 75% of all meetings of the full board of directors
and of each committee on which he or she served.
The audit committee reviews with our independent accountants their audit
plan, the scope and results of their audit engagement. Members also consult with
the independent accountants and management with regard to our accounting methods
and the adequacy of our internal accounting controls, and review the range of
the independent accountants' audit and nonaudit fees. Although not required to
do so, the audit committee is in compliance with several of the recently
adopted, although not yet effective, rules of the National Association of
Securities Dealers relating to corporate audit committees. For example, the
audit committee has adopted a charter that outlines the purposes and goals of
the committee and sets forth its governance and operational policies. The audit
committee also has reviewed our audited year-end financial statements and
discussed them and the audit with our management and the auditors. The audit
committee also has discussed with and received assurances from the auditors
regarding their independence. In addition, each of the committee members is
financially literate and has the financial management expertise required by the
rules of The
7
<PAGE> 12
Nasdaq Stock Market, Inc. The audit committee is comprised of Betsy S. Atkins,
Keith B. Geeslin and Peter F. Van Camp.
In February 2000 we contracted with Arthur Andersen, LLP to provide
internal audit services. The Arthur Andersen internal auditors report to the
audit committee. The members of the Arthur Andersen internal audit team met with
our executive officers, both individually and as a group, in March 2000 to help
determine the areas of focus for the internal audit services that will be most
beneficial to us. The results of this assessment will be used to develop an
audit plan that will be presented to the audit committee for approval.
The compensation committee evaluates and approves the salaries and
incentive compensation for our executives and makes recommendations regarding
our Amended and Restated 1996 Equity Incentive Plan, 1999 Employee Stock
Purchase Plan, 1999 Non-Employee Directors' Stock Option Plan and Key Employee
Stock Option Plan. Administration of these plans includes, among other things,
determining which directors, officers and employees will receive awards under
the plan, when the awards will be granted, the type of awards to be granted, the
number of shares involved in each award, the time when any options granted will
become exercisable and, subject to certain conditions, the price and duration of
such options. The compensation committee is comprised of David M. Stanton and
William R. Stensrud.
The board of directors as a whole functions as a nominating committee to
select management's nominees for election to the board. The board of directors
will also consider nominees recommended by stockholders. For a description of
requirements regarding stockholder nominations and other proposals, see
"Stockholders' Proposals For 2001 Annual Meeting."
DIRECTOR COMPENSATION
Upon the commencement of their service as directors, we grant each of our
non-employee directors an option to purchase 10,000 shares of common stock under
our 1999 Non-Employee Directors Stock Option Plan. For each year they continue
to serve and attend at least 75% of the regularly scheduled meetings of the
board of directors and the committees of which he or she is a member during that
year, we grant each director an additional option to purchase 5,000 shares of
common stock. Options granted under the 1999 Non-Employee Director Stock Option
Plan upon the commencement of service as a director may, at the discretion of
the board of directors, be fully vested on the grant date or be vested as to 50%
of the shares with the remaining 50% vesting on the first anniversary of the
grant date. No option granted under the 1999 Non-Employee Director Stock Option
Plan may have a term in excess of ten years from the date on which it was
granted. The exercise price of options granted under the 1999 Non-Employee
Director Stock Option Plan will equal the fair market value of the common stock
on the date of grant.
As of April 6, 2000, 70,000 options to purchase common stock had been
granted pursuant to the 1999 Non-Employee Director Stock Option Plan, of which
options to acquire 20,000 shares were outstanding on such date.
Since July 15, 1999, our non-employee directors have received $1,500 for
participation in meetings of the board of directors and $750 for participation
in committee meetings held on days other than those on which the board of
directors are held. We paid a total of $19,500 in directors' fees in 1999.
We do not compensate directors who are also our employees for their service
as directors.
EXECUTIVE OFFICERS
Our executive officers serve at the discretion of the board of directors
and are comprised of the following officers, in addition to Andrew S. May who is
identified above:
Sean E. Belanger, age 44, has served as Senior Vice President of Worldwide
Sales since June 1997. From November 1996 to May 1997, he served as Vice
President and General Manager of 3Com Corporation's Network Service Provider
division. From September 1992 to November 1996, he was Vice President of Sales
8
<PAGE> 13
for Primary Access Corporation. Mr. Belanger holds a B.S. in business management
from Virginia Polytechnic Institute and State University.
Patrick M. Murphy, age 43, has served as Senior Vice President, Chief
Financial Officer and Treasurer since August 1996. He also has served as a
director and Vice President, Chief Financial Officer, and Treasurer of Paradyne
Credit Corp. since August 1996. From August 1996 to July 1998 he served as
Vice-President, Treasurer and Chief Financial Officer of GlobeSpan, Inc. From
January 1987 to August 1996, he served as Chief Financial Officer of Continental
Broadcasting, Ltd., a television and radio broadcast company. Mr. Murphy holds a
B.S./B.A. in finance from John Carroll University and is a certified public
accountant.
James L. Slattery, age 61, has served as Senior Vice President, Chief Legal
and Intellectual Property Officer and Corporate Secretary since August 1996 and
held various executive positions at Paradyne since April 1985. He has also
served as a director and Vice President and Corporate Secretary for Paradyne
Credit Corp. since August 1996. From August 1996 to March 1999 he served as Vice
President and Secretary of GlobeSpan, Inc. Mr. Slattery holds a B.S. from New
York University in international relations and commerce and a J.D. from
Washington & Lee School of Law.
J. Scott Eudy, age 42, has served as Vice President of Corporate
Development since August 1999. From December 1997 to July 1999 he served as Vice
President of Network Access Products. From February 1981 to September 1996, he
held various sales, engineering and marketing positions with AT&T. Mr. Eudy
holds a B.S. in mechanical engineering and an M.B.A. from Texas Tech University.
Paul H. Floyd, age 42, has served as Vice President of Research and
Development since July 1996. From October 1992 to June 1996, he was Director of
Research and Development for AT&T Paradyne's digital products development group.
Mr. Floyd holds a B.S. and M.S. in electrical engineering from Stevens Institute
of Technology and an M.B.A. from the University of South Florida.
John M. Guest, age 55, has served as Vice President and Chief Information
Officer since October 1996. From April 1990 to October 1996 he served in
numerous management capacities with Paradyne. Prior to joining Paradyne in 1990,
he was a senior manager at AT&T responsible for its data communications product
line. Mr. Guest attended Rutgers University.
Mark Housman, age 47, has served as Vice President of Marketing since May
1997. Previously, Mr. Housman was a Vice President of Sales from October 1994 to
May 1997. Mr. Housman holds a B.S. in mechanical engineering from the New York
Institute of Technology and an M.B.A. in marketing from New York University.
Sherril A. Claus, age 48, has served as Vice President of Human Resources
and Administration since May 1997. From July 1993 to May 1997, she was Vice
President of Human Resources. Ms. Claus holds a B.S. in behavioral science from
San Jose State University.
H. Edward Thompson, age 53, has served as Vice President of Manufacturing
since August 1993. Mr. Thompson holds a B.S. in mechanical engineering from
Georgia Institute of Technology and a Masters of Engineering Administration from
the University of South Florida.
Frank J. Wiener, age 39, has served as Vice President of Broadband Access
Products since August 1999. From August 1996 to August 1999, he served as Vice
President of Paradyne's DSL Products. From February 1989 to August 1996, he
served as a director and manager of various marketing, sales and business
development departments at Paradyne. Mr. Wiener holds a B.S. in electrical
engineering from the University of South Florida.
9
<PAGE> 14
PROPOSAL 2
AMENDMENT OF THE AMENDED AND RESTATED 1996 EQUITY INCENTIVE PLAN
TO INCREASE THE AVAILABLE SHARES OF COMMON STOCK
We currently maintain The Amended and Restated 1996 Equity Incentive Plan,
or the 1996 Plan, under which stock options and other incentive awards may be
granted to our employees, officers, consultants and directors. On March 23,
2000, the board of directors recommended that the 1996 Plan be amended, subject
to the approval of the stockholders, to increase the number of shares of common
stock available for awards from 6,000,000 shares to 11,000,000 shares. We had
237,147 shares available for awards under the 1996 Plan on March 23, 2000. Since
that time, approximately 3,565,600 options have been granted to employees and
officers, subject to stockholder approval of the amendment. As of April 6, 2000,
assuming stockholder approval of the amendment (but not including the automatic
increase discussed below) there were 1,688,016 shares remaining available for
awards under the 1996 Plan. In addition, in connection with our acquisition of
substantially all of the assets of Control Resources Corporation, during the
second quarter of fiscal 2000, we intend to grant approximately 220,000 options
to former employees of Control Resources Corporation who are now employees of
Paradyne.
A summary of the 1996 Plan, as proposed to be amended, is set forth below.
The summary is qualified in its entirety by the full text of the 1996 Plan. We
will provide a copy of the full text of the 1996 Plan to you upon your request
and without charge. Requests should be sent to Paradyne Networks, Inc., 8545
126(th) Avenue North, Largo, Florida 33773, Attention: James L. Slattery, Senior
Vice President, Chief Legal and Intellectual Property Officer and Corporate
Secretary. The proposed amendment is attached to this proxy statement as
Attachment A.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO AMEND THE AMENDED AND RESTATED 1996 EQUITY INCENTIVE PLAN TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR AWARDS FROM
6,000,000 SHARES TO 11,000,000 SHARES.
GENERAL
The purpose of the 1996 Plan is to provide a means by which our employees,
officers, consultants and directors may be given an opportunity to benefit from
the increase in value of our common stock and to provide these persons with
incentives to exert maximum efforts toward the success of Paradyne. As of April
6, 2000, approximately 840 persons were eligible to participate in the 1996
Plan.
The 1996 Plan authorizes the granting of awards to our employees, officers,
consultants and directors and those of our affiliated companies in the following
forms:
- options to purchase shares of common stock, which may be incentive stock
options or non-statutory stock options;
- stock bonus awards; and
- restricted stock.
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended, we may not generally deduct annual compensation in excess of $1 million
paid to our chief executive officer and our four next most highly compensated
executive officers. However, the 1996 Plan is designed to comply with Section
162(m) of the Code so that the grant of options and other awards under the 1996
Plan, including those that are conditioned on performance goals, will be
excluded from the calculation of annual compensation and will be fully
deductible by us.
NUMBER OF SHARES
The aggregate number of shares of common stock currently reserved and
available for awards is 6,000,000, plus an automatic annual increase to be added
on each June 1, beginning with June 1, 2000, equal to the lesser of (i) 5% of
the total number of shares of common stock outstanding on the anniversary date,
or (ii) 4,500,000 shares. The aggregate number of shares available for awards
under the plan is proposed to be
10
<PAGE> 15
increased by 5,000,000, in addition to the automatic increase described in the
previous sentence. Therefore, if stockholders vote at our annual meeting on June
1, 2000 to increase the aggregate number of shares available for awards under
our 1996 Plan to 11,000,000, such increase will be in addition to the automatic
increase resulting from the effect of the "evergreen" feature in our 1996 Plan
which, for the year 2000, will also have taken effect on that date. Subject to
adjustments upon changes to our capital structure, no participant may receive
options for more than 2,500,000 shares during any one calendar year.
ADMINISTRATION
The 1996 Plan is administered by the compensation committee. The
compensation committee has the authority and discretion to designate
participants and to determine the type of awards to be granted to each
participant and the terms and conditions of the award. In addition, the
compensation committee may establish, adopt or revise any rules and regulations
necessary or advisable to administer the 1996 Plan.
AWARDS
Stock Options. The compensation committee is authorized to grant options
to participants, which may be incentive stock options, known as ISOs, or
non-statutory stock options, known as NSOs. All options are evidenced by a
written award agreement or certificate between us and the participant, which
includes the exercise price and the vesting term of the option granted. The
exercise price of an ISO may not be less than the fair market value of the
underlying common stock as of the date of grant. In addition, the terms of any
ISO must meet the requirements of Section 422 of the Internal Revenue Code. ISOs
may only be granted to employees. An ISO may not be granted to any person who at
the time of grant, possesses 10% or more of the total combined voting power of
Paradyne, unless the option exercise price is at least 110% of the fair market
value of the stock subject to the option on the date of grant and the term of
the option does not exceed five years. Further, the aggregate fair market value
of ISOs granted to any individual under the 1996 Plan which become exercisable
for the first time in any one calendar year may not exceed $100,000. Any ISOs or
portions thereof, which exceed this limit are treated as NSOs.
Restricted Stock Awards. The compensation committee may make awards of
restricted stock, which may be granted subject to a repurchase option in favor
of Paradyne that will expire pursuant to a vesting schedule. The purchase price
of restricted stock must be at least 85% of the fair market value of the common
stock on the date of grant. During fiscal 1999, we did not grant any restricted
stock awards.
Bonus Awards. The compensation committee may grant other awards that are
payable in, valued in whole or in part by reference to, or otherwise based on or
related to shares of common stock. These awards may include shares of common
stock awarded purely as a "bonus" and in consideration for past services without
the payment of a purchase price. The compensation committee will determine the
terms and conditions of any such awards. During fiscal 1999, we did not grant
any stock bonus awards.
Limitations on Transfer; Beneficiaries. Generally, no unexercised option
or restricted award will be assignable or transferable by a participant other
than by will or the laws of descent and distribution. However, in the case of
NSOs, the compensation committee may permit other transfers, to the extent set
forth in the applicable option agreement. A participant whose relationship with
Paradyne ceases for any reason, other than death or disability, may generally
exercise vested options in the two month period following cessation of the
relationship (unless the participant's options terminate or expire sooner by
their terms). Vested options may generally be exercised during the twelve month
period after an optionee's relationship with Paradyne ceases due to death or
disability. If a participant holds an outstanding restricted stock award or
stock bonus award at the time the participant's relationship with Paradyne
ceases for any reason, Paradyne may repurchase or reacquire the shares of common
stock subject to the awards under the terms of the applicable award agreement.
11
<PAGE> 16
TERMINATION AND AMENDMENT
The board of directors or the compensation committee may amend, modify or
terminate the 1996 Plan without stockholder approval; provided, however, that
the board or committee may condition any amendment on the approval of
stockholders if approval is necessary or deemed advisable with respect to tax,
securities or other applicable laws, policies or regulations. No termination,
amendment, or modification of the 1996 Plan may adversely affect any award
previously granted, without the written consent of the participant. The
compensation committee may amend the terms of any outstanding award without
approval of the participant; provided, however, that amendment may not, without
the participant's consent, reduce or diminish the value the award would have if
the award had been exercised, vested, cashed in or otherwise settled on the date
of the amendment or termination.
CERTAIN FEDERAL INCOME TAX EFFECTS
Non-statutory Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either us or the participant
upon the grant of a NSO. However, the participant will realize ordinary income
on the exercise of the NSO in an amount equal to the excess of the fair market
value of the common stock acquired over the exercise price, and we will receive
a corresponding income tax deduction. A subsequent sale or exchange of such
shares will result in gain or loss measured by the difference between the
exercise price and the amount realized on such sale or exchange. This gain or
loss will be capital in nature if the shares were held as a capital asset and
will be long-term if the shares were held for the applicable long-term capital
gain holding period.
Incentive Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either us or the participant
upon the grant of an ISO or the participant's exercise of the ISO. If the
participant holds the shares of common stock for the greater of two years after
the date the option was granted or one year after the acquisition of such shares
of common stock, the difference between the aggregate exercise price and the
amount realized upon disposition of the shares of common stock will constitute a
long-term capital gain or loss, and we will not be entitled to a federal income
tax deduction. If the shares of common stock are disposed of in a sale, exchange
or other "disqualifying disposition" during the required holding period, the
participant will realize taxable ordinary income in an amount equal to the
excess of the fair market value of the common stock purchased at the time of
exercise (or, if less, the amount realized on the disposition of the shares)
over the aggregate exercise price, and we will be entitled to a federal income
tax deduction equal to such amount. Upon exercise of an ISO, the participant may
be subject to alternative minimum tax on certain items of tax preference. If an
ISO is exercised at a time when it no longer qualifies as an incentive stock
option, the option will be treated as an NSO.
Restricted Stock. Under present federal income tax regulations, and unless
the participant makes an election to accelerate recognition of the income to the
date of grant, a participant receiving a restricted stock award will not
recognize income, and we will not be allowed to take a tax deduction, at the
time the award is granted. When the restrictions lapse, the participant will
recognize ordinary income equal to the fair market value of the common stock
less any amount paid for such stock, and we will be entitled to a corresponding
tax deduction at that time.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
As of April 6, 2000, options had been granted under the 1996 Plan to the
following persons and were outstanding as of that date. Any future awards will
be made at the discretion of the compensation committee.
12
<PAGE> 17
OPTIONS GRANTED UNDER THE AMENDED AND RESTATED 1996 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING OPTIONS
NAME AND POSITION DOLLAR VALUE ($) OUTSTANDING
----------------- ---------------- --------------------
<S> <C> <C>
Andrew S. May...................................................... (1) 1,225,000
President, Chief Executive Officer and Director
Patrick M. Murphy.................................................. (1) 445,000
Senior Vice President, Chief Financial Officer and Treasurer
Sean E. Belanger................................................... (1) 1,050,000
Senior Vice President, Worldwide Sales
James L. Slattery.................................................. (1) 45,000
Senior Vice President, Chief Legal and Intellectual Property
Officer and Corporate Secretary
Frank J. Wiener.................................................... (1) 212,350
Vice President of Broadband Access Products
All Executive Officers as a Group.................................. (1) 3,639,381
Thomas E. Epley.................................................... -- --
Director
David Bonderman.................................................... -- --
Director
All Non-Employee Directors as a Group (including the above)........ -- --
All Employees (other than Executive Officers) as a Group........... (1) 3,940,092
</TABLE>
- ---------------
(1) The exercise prices of the options range from $2.00 to $28.06 for all
executive officers as a group and from $2.00 to $49.25 for all employees
(other than executive officers) as a group. On a per share basis, the dollar
value will reflect the excess of the fair market value of the common stock
on the date of exercise of the option over the exercise price of the option.
The closing price of the common stock as reported on the Nasdaq National
Market on April 6, 2000 was $24.56.
13
<PAGE> 18
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table summarizes the compensation paid or accrued by us in
each of the fiscal years ended December 31, 1998 and 1999 with regard to Andrew
S. May, our President and Chief Executive Officer, and our four other most
highly compensated executive officers whose salary and bonus for the last fiscal
year exceeded $100,000. We refer to these four executive officers as the "named
executive officers." This table also includes the compensation information for
Thomas E. Epley, our Chairman, who would have been a named executive officer but
for the fact he was not serving as one of our executive officers at the fiscal
year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
FISCAL ----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)
- --------------------------- ------ ---------- --------- ----------------
<S> <C> <C> <C> <C>
Thomas E. Epley................................... 1999 343,464(2) 43,030 2,132(3)
Chairman, Board of Directors 1998 586,541(2) -- 18,102(3)
Andrew S. May..................................... 1999 330,678(4) 148,675 492(5)
President, Chief Executive Officer and Director 1998 323,094(4) 97,425 536(5)
Patrick M. Murphy................................. 1999 224,396(6) 51,335 383(7)
Senior Vice President, Chief Financial Officer 1998 223,628(6) 51,335 479(7)
Sean E. Belanger.................................. 1999 200,838(8) 126,656 389(9)
Senior Vice President, Worldwide Sales 1998 200,018(8) 114,000 492(9)
James L. Slattery................................. 1999 198,382 71,569 2,573(10)
Senior Vice President, Chief Legal and 1998 197,002 71,569 2,155(10)
Intellectual Property Officer and Corporate
Secretary
Frank J. Wiener................................... 1999 180,524 31,725 209(11)
Vice President of Broadband Access Products 1998 180,024 20,750 230(11)
</TABLE>
- ---------------
(1) In accordance with the rules of the SEC, the compensation described in this
table does not include medical, group life insurance or other benefits
which are available generally to all salaried employees of Paradyne and
other perquisites and personal benefits received which do not exceed the
lesser of $50,000 or 10% of any officer's salary and bonus disclosed in
this table.
(2) In order to meet its obligations under an intercompany services agreement
with Paradyne Credit Corporation, Paradyne entered into a Key Employee
Agreement with Thomas E. Epley for the period beginning April 1, 1999 and
ending July 31, 1999. Pursuant to the terms of the Key Employee Agreement,
Mr. Epley was entitled to an annualized base salary of $600,000. Mr. Epley
was neither eligible to participate in our 1996 Equity Incentive Plan nor
was he eligible for a discretionary or incentive bonus. During the term of
this agreement, Mr. Epley served as President and Chief Executive Officer
of Paradyne Credit Corporation. Pursuant to the terms of the intercompany
services agreement, Paradyne Credit Corporation was required to reimburse
Paradyne for all costs related to these services. Either Paradyne or Mr.
Epley had the right to terminate Mr. Epley's employment at any time for any
reason. On June 30, 1999, the Key Employee Agreement was terminated and Mr.
Epley received the remainder of his salary through July 31, 1999 as
provided for in the Key Employee Agreement. Mr. Epley continues to serve as
Chairman of the board of directors of Paradyne.
(3) Mr. Epley received life insurance benefits during 1999 and 1998 and
payments for living expenses in 1998.
(4) Includes $183,822 and $139,522 contributed to the Key Employee Stock Option
Plan for the years 1999 and 1998, respectively.
(5) Mr. May received life insurance benefits during 1999 and 1998.
14
<PAGE> 19
(6) Includes $29,999 and $60,000 contributed to the Key Employee Stock Option
Plan for the years 1999 and 1998, respectively.
(7) Mr. Murphy received life insurance benefits during 1999 and 1998.
(8) Includes $60,000 and $47,344 contributed to the Key Employee Stock Option
Plan for the years 1999 and 1998, respectively.
(9) Mr. Belanger received life insurance benefits during 1999 and 1998.
(10) Mr. Slattery received life insurance benefits during 1999 and 1998.
(11) Mr. Wiener received life insurance benefits during 1999 and 1998.
EMPLOYMENT AGREEMENTS
We are a party to Employment Agreements with Andrew S. May, Patrick M.
Murphy and James L. Slattery. Under the Employment Agreement with Mr. May, dated
as of October 31, 1996 and continuing indefinitely, Mr. May is entitled to
receive an annualized base salary of not less than $300,000. He received a
commencement bonus in the amount of $35,000 and is eligible to receive an annual
cash bonus of up to 50% of his base salary. He is also eligible to participate
in the 1996 Plan. Either Paradyne or Mr. May has the right to terminate Mr.
May's employment at any time for any reason. If we terminate Mr. May's
employment without cause or he resigns for a material breach by us of his
employment agreement, he will receive a severance payment equal to one year's
salary.
Under the Key Employee Agreement with Mr. Murphy, dated as of August 1,
1996 and continuing indefinitely, Mr. Murphy is entitled to receive an
annualized base salary of not less than $215,000. He is eligible for a
discretionary bonus in an annualized amount of up to $70,000. He is also
eligible to participate in the 1996 Plan. Either Paradyne or Mr. Murphy has the
right to terminate Mr. Murphy's employment at any time for any reason. If we
terminate Mr. Murphy's employment without cause, he will receive a severance
payment equal to one year's salary.
Under the Key Employee Agreement with Mr. Slattery, dated as of August 1,
1996 and continuing indefinitely, Mr. Slattery is entitled to receive an
annualized base salary of not less than $189,410. He is eligible for a
discretionary bonus in an annualized amount of up to $85,000. He is also
eligible to participate in the 1996 Plan. Either Paradyne or Mr. Slattery has
the right to terminate Mr. Slattery's employment at any time for any reason. If
we terminate Mr. Slattery's employment without cause, he will receive a
severance payment equal to one year's salary. In December 1999, Mr. Slattery's
employment agreement was amended to provide for the reduction in the number of
hours worked per week with a commensurate reduction in his salary.
Additionally, we have an arrangement with Mr. May governing the vesting of
stock options upon a change in control. The agreement provides that all of Mr.
May's options shall become exercisable upon a change in control. We also have
arrangements with Mr. Murphy and Mr. Slattery governing the vesting of stock
options upon a change of control. Each agreement provides that in the event of a
change in control, 50% of the unvested options held by the officer shall become
immediately exercisable and the remaining unvested shares shall become
exercisable if the officer does not receive comparable employment following the
change of control. Furthermore, if the officer receives comparable employment,
the remaining unvested shares shall become exercisable upon the earlier of the
one year anniversary of the change in control or the officer's termination
without cause. We have agreed to guarantee the value of the unvested shares
equal to the value on the date of the change in control. We have an arrangement
with Sean E. Belanger governing the vesting of stock options upon a change in
control. The arrangement provides that all of Mr. Belanger's options shall
become exercisable in the event Mr. Belanger is not offered comparable
employment following a change of control, and his stock options are not either
assumed or replaced with similar stock options.
15
<PAGE> 20
OPTION GRANTS
The following table provides information with regard to stock option grants
to the named executive officers and Thomas E. Epley pursuant to the 1996 Plan
during fiscal 1999. With certain exceptions, most options expire ten years from
the date of grant and become exercisable at the rate of 25% on the first
anniversary of the grant date and 6.25% every three months thereafter, for full
vesting after four years.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR(1) ($/SH) DATE 5% ($) 10% ($)
---- ---------- ------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Epley................ -- -- -- -- -- --
Andrew S. May.................. -- -- -- -- -- --
Patrick M. Murphy.............. 30,000 1.90 5.00 03/31/2009 94,334 239,061
80,000 5.07 28.06 10/05/2009 1,411,868 3,577,952
Sean E. Belanger............... 80,000 5.07 28.06 10/05/2009 1,411,868 3,577,952
James L. Slattery.............. -- -- -- -- -- --
Frank J. Wiener................ 20,000 1.27 5.00 03/31/2009 62,889 159,374
80,000 5.07 28.06 10/05/2009 1,411,868 3,577,952
</TABLE>
- ---------------
(1) Options to purchase a total of 1,578,460 shares of common stock were granted
to employees in fiscal 1999 under our 1996 Plan.
Amounts reported in the last two columns represent hypothetical amounts
that may be realized upon exercise of options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation of the common stock over the term of the options. The numbers shown
in these two columns are calculated based on SEC rules and do not reflect our
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and common stock holdings depend on the timing of such exercises and
the future performance of the common stock. We do not guarantee that the rates
of appreciation assumed in these two columns can be achieved or that the amounts
reflected will be received by the named executive officers. The two columns do
not take into account any appreciation of the price of the common stock from the
date of grant to the current date.
16
<PAGE> 21
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding (1) the number of
shares of common stock received upon exercise of options by the named executive
officers and Thomas E. Epley during fiscal 1999, (2) the net value realized upon
such exercise, (3) the number of unexercised options held at December 31, 1999
and (4) the aggregate dollar value of unexercised options held at December 31,
1999. The net value realized upon exercise is equal to the difference between
the option exercise price and the fair market value of our common stock at the
date of exercise or at fiscal year end. The closing sale price of our common
stock on the Nasdaq National Market on December 31, 1999 was $27.25 per share.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE AT DECEMBER 31, 1999 (#) DECEMBER 31, 1999 ($)
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Thomas E. Epley............ -- -- -- --
Andrew S. May.............. 50,000 446,000 906,250/318,750 20,632,813/7,298,438
Patrick M. Murphy.......... 45,000 384,750 84,375/130,625 2,130,469/1,210,781
Sean E. Belanger........... 100,000 892,000 87,500/192,500 2,209,375/2,840,625
James L. Slattery.......... -- -- 22,500/ 22,500 568,125/ 568,125
Frank J. Wiener............ 47,500 337,750 12,969/114,531 327,467/ 789,408
</TABLE>
17
<PAGE> 22
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
INTRODUCTION
The compensation committee is responsible for developing our executive
compensation policies and advising the board of directors with respect to these
policies. This report by the compensation committee reviews our policies
generally with respect to the compensation of all executive officers as a group
for fiscal 1999 and specifically reviews the compensation established for our
Chief Executive Officer for fiscal 1999.
The members of the committee are David M. Stanton and William R. Stensrud.
None of the committee members is or has been an officer or employee of us or any
of our subsidiaries.
COMPENSATION POLICY FOR EXECUTIVE OFFICERS
Our executive compensation program for fiscal 1999 was designed to attract
and retain a highly qualified and motivated management team, reward individual
performance and link the interests of the senior executives directly with those
of the stockholders through a highly leveraged compensation program and stock
options. Our 1999 compensation program is comprised of base salary, annual
bonuses and stock options. This program applies to all of our key management
personnel, including our Chief Executive Officer. All of our executives also are
eligible for other employee benefits, including life, health, disability and
dental insurance and our savings plan and employee stock purchase plan.
Base Salary. The compensation committee set the base salaries of top
management for fiscal 1999 after reviewing salary levels in the
Telecommunications industry for comparable executive positions. The compensation
committee set salaries at levels competitive with the base salaries of similarly
situated executives at companies of similar size and revenue levels in our
industry.
Annual Bonuses. The compensation committee based annual cash bonuses for
executive officers in fiscal 1999 on a combination of our financial performance
and the achievement of designated key deliverables particular to each individual
officer's position. The compensation committee established the bonus criteria
and average and target bonus amounts after reviewing similar information
presented in independent surveys. The compensation committee's review ranged
from broad-based overviews of the entire Telecommunications industry to
information regarding entities more similar to us in revenues. Based on such
comparative information, the compensation committee used "median" as a guide for
setting average and target bonus amounts for our top management positions. The
compensation committee uses three performance measurements to determine annual
incentive bonuses for executive officers, other than Mr. May. These performance
measurements are: (1) the achievement of new equipment revenue, (2) the
attainment of a profitability target, and (3) the satisfaction of key
deliverables particular to an individual's position, such as the retention of
employees or the procurement of new orders. Mr. May's annual incentive bonus is
based only on new equipment revenue and Paradyne's profitability.
Stock Options. Stock options are granted periodically under the 1996 Plan
to our senior executive officers. All options granted to executive officers in
1999 have an exercise price equal to the fair market value of the underlying
stock on the date of grant, expire ten years from the date of grant and become
exercisable at the rate of 25% on the first anniversary of the grant date and
6.25% every three months thereafter, for full vesting after four years.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Andrew S. May served as our Chief Executive Officer during fiscal 1999. Mr.
May's fiscal 1999 base salary was $330,678. Based on our financial performance
in fiscal 1999, Mr. May earned an annual incentive bonus of $148,675, which
represented 99% of his annual incentive pay amount. Mr. May did not receive any
stock option grants under the 1996 Plan during fiscal 1999. The compensation
committee set the levels of many components of Mr. May's compensation based upon
comparative information regarding compensation of chief executive officers at
companies of similar size and revenue levels in the Telecommunications industry.
18
<PAGE> 23
Mr. May's total compensation for fiscal 1999 is provided in detail in the
Summary Compensation Table under "Executive Compensation."
POLICY WITH RESPECT TO DEDUCTIBILITY OF COMPENSATION EXPENSE
Section 162(m) of the Internal Revenue Code limits the tax deduction that
we may take with respect to the compensation of certain executive officers,
unless the compensation is "performance based" as defined in the Code. The 1996
Plan is designed to comply with Section 162(m) of the Code so that the grant of
options and other awards under the 1996 Plan, including those that are
conditioned on performance goals, will be excluded from the calculation of
annual compensation and will be fully deductible by us.
CONCLUSION
Our executive compensation program is designed to closely link pay with
performance and the creation of stockholder value. If we achieve average
financial performance levels, our executives will be compensated at "median
levels" for comparable companies. If our performance is exceptionally higher
than the targeted levels, executive compensation will exceed such "median
levels." The compensation committee believes that the program has been and will
continue to be successful in supporting our financial growth and other business
objectives.
COMMITTEE MEMBERS:
David M. Stanton
William R. Stensrud
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<PAGE> 24
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of David M. Stanton and William R.
Stensrud. Mr. Stanton was the sole director and president of Communication
GenPar, Inc. from 1996 until August 12, 1999. Until August 12, 1999, he had a
pecuniary interest in the Paradyne shares formerly held by Communications
Partners, L.P. Mr. Stanton was also a partner of Texas Pacific Group, which
organized TPG Partners, L.P. and TPG Parallel I, L.P.
Mr. Stensrud has a pecuniary interest in the Paradyne shares formerly held
by Communication Partners, L.P. In May 1999, Communication Partners, L.P.
distributed its shares to its limited partners and general partner. Mr. Stensrud
and the Stensrud Family Trust are limited partners of Communication Partners,
L.P. and received an aggregate of 533,476 shares in the distribution.
Mr. Stanton serves as a director of Globespan, Inc. and Paradyne Credit
Corp. and Mr. Stensrud serves as a director of Rhythms NetConnections, Inc. For
a description of transactions involving Communication Partners, L.P., Paradyne
Credit Corp., Globespan and Rhythms NetConnections, see the "Certain
Transactions" section below.
CERTAIN TRANSACTIONS
In July 1996, Communication Partners, L.P., a limited partnership
controlled by Texas Pacific Group, acquired our business as well as the
businesses of Paradyne Credit Corp. and GlobeSpan, Inc. as part of a divestiture
by Lucent. As of May 1999, Communication Partners, L.P. owned approximately
97.1% of our outstanding common stock and approximately 83.2% of the outstanding
capital stock of GlobeSpan. In May 1999, Communication Partners, L.P.
distributed its Paradyne shares and its GlobeSpan shares to its general and
limited partners. Communication Partners, L.P. continues to own 100% of the
capital stock of Paradyne Credit Corp.
Several of our current directors serve as directors of GlobeSpan and
Paradyne Credit Corp. Messrs. Epley, Geeslin and Stanton are directors of
GlobeSpan. Mr. Stensrud was a member of the board of directors of GlobeSpan
until his resignation from GlobeSpan's board of directors in March 1999. Messrs.
Epley and Stanton are directors of Paradyne Credit Corp.
From 1996 until August 12, 1999, one of our directors, Mr. Stanton, was the
sole director and president of Communication GenPar, Inc., the general partner
of Communication Partners, L.P., and, from 1994 to August 12, 1999, was a
partner of TPG Partners, L.P. and TPG Parallel I, L.P., each a limited partner
of Communication Partners, L.P. and the shareholders of Communication GenPar,
Inc. Messrs. Epley and Stensrud, two of our directors, either directly or
through various investment partnerships and corporations, are limited partners
of Communication Partners, L.P. Mr. Bonderman is a managing partner in Texas
Pacific Group, a limited partner in Communications Partners, L.P.
TRANSACTIONS WITH GLOBESPAN, INC.
Cross-License Agreement. As part of the divestiture by Lucent, we entered
into a cross-license agreement with GlobeSpan. Under this agreement, each party
granted to the other party a non-exclusive, non-transferable, irrevocable,
world-wide, royalty-free license to the patents Lucent assigned to the granting
party in the divestiture, for use in the other party's products that existed as
of the date of the divestiture, and subsequent modifications to those products.
Each party also granted to the other party a non-exclusive, non-transferable,
irrevocable, world-wide, royalty-free license to the granting party's other
technical information and intellectual property existing at the time of the
divestiture. These licenses give us the right to make, have made, use, sell and
import our products within the scope of the license grants as well as the tools
used to develop, manufacture, test or repair such products. We were also given
the right to convey to any of our customers the right to use and resell such
products. Each party also granted to the other party a non-exclusive,
non-transferable, irrevocable, world wide, royalty-free license to use
particular listed trademarks. All of these licenses have an indefinite duration,
subject to the expiration of patent and copyright terms.
20
<PAGE> 25
Cooperative Development Agreement/Termination Agreement/Supply
Agreement. Effective December 1998, GlobeSpan and we terminated a Cooperative
Development Agreement pursuant to a termination agreement. The termination
agreement provided that GlobeSpan agreed, effective July 1998, to pay us a total
of $1.5 million in royalties. Approximately $400,000 of these royalties was paid
in 1998 and the remaining $1.1 million was paid in 1999.
In conjunction with the signing of the termination agreement we entered
into a four-year supply agreement with GlobeSpan, which gives us preferential
pricing and other terms in connection with the purchase of GlobeSpan products.
Under the terms of this agreement, GlobeSpan is required to honor our orders for
GlobeSpan products in quantities at least consistent with our past ordering
practices and must afford us at least the same priority for its orders as
GlobeSpan affords other similarly situated highly preferred customers. We were
also granted immunity under GlobeSpan's intellectual property rights for all our
customers that purchase our products that incorporate GlobeSpan products.
GlobeSpan has been selling products to us pursuant to these terms since July
1998. In 1999, we paid to GlobeSpan a total of $3.6 million for products
purchased under the supply agreement.
Various Insurance Policies. Through August 30, 1999, our directors and
officers and the directors and officers of Communication Partners, L.P.,
Communication GenPar, Inc., Paradyne Credit Corp., GlobeSpan and several other
entities were covered under one umbrella insurance policy providing up to $10.0
million of liability coverage. Additionally, Paradyne, Paradyne Credit Corp. and
GlobeSpan were jointly covered under various general liability, property,
casualty and workers' compensation policies. The policies expired on August 30,
1999, by which time GlobeSpan and Paradyne Credit Corp. had procured their own
insurance policies.
401(k) Plan. We maintain a 401(k) plan, which substantially all of
GlobeSpan's employees had participated in due to the administrative economic
benefits of a single employer plan. Effective in May 1999, GlobeSpan adopted its
own 401(k) plan for its employees. Contributions paid by Paradyne on behalf of
GlobeSpan amounted to approximately $176,000 for 1999. All payments made on
behalf of GlobeSpan have been reimbursed.
Real Property Agreements. Under a sublease dated August 1997, and
subsequently amended in August 1998, between GlobeSpan and us, GlobeSpan
subleases property at 100 Schulz Drive, Red Bank, New Jersey. The sublease
reimburses us for 100% of all costs we incur under the primary lease. GlobeSpan
currently pays us approximately $68,000 a month for approximately 50,000
rentable square feet, plus approximately $10,000 per month for rent operating
costs. After October 2001, the rent will increase to approximately $79,000 a
month for a period of six months. The sublease expires in April 2002.
TRANSACTIONS WITH PARADYNE CREDIT CORP.
Services Agreement. As part of the divestiture by Lucent, we entered into
an intercompany services agreement with Paradyne Credit Corp., our equipment
leasing affiliate, under which we agreed to provide:
- general management consulting and services administration, including
rental contract servicing administration and remarketing services;
- administrative services, including risk management, financial and cash
management, tax management and accounting services;
- human resources, staffing and legal services; and
- operational services, including facilities management, office
communications, telecommunication systems, systems management and other
services.
In exchange for these services, Paradyne Credit Corp. will pay us a monthly
service fee to equal to the sum of: (i) all direct costs incurred by us to
provide services to Paradyne Credit Corp., (ii) all indirect costs incurred by
us to provide services to Paradyne Credit Corp. and (iii) a 5% mark up on all
charges. This agreement may be terminated by Paradyne Credit Corp. upon 60 days
notice and by us upon 180 days notice. Payments received for these services
totaled approximately $1.5 million for the year ended December 31, 1999.
21
<PAGE> 26
Purchase and Sale of Equipment. Under an agreement with Paradyne Credit
Corp., we sell equipment manufactured or sold by us to Paradyne Credit Corp. at
prices substantially equal to those we would receive through normal selling
channels. Sales to Paradyne Credit Corp. totaled approximately $3.5 million for
the year ended December 31, 1999. We also may purchase from Paradyne Credit
Corp. equipment that has been returned to Paradyne Credit Corp. after the
termination of an equipment lease. No purchases were made during the year ended
December 31, 1999.
In connection with a sale by Paradyne Credit Corp. of equipment lease
receivable to AT&T Capital Corp., we guaranteed collection of selected
receivables to AT&T Capital Corp. As of December 31, 1999, lease receivables for
which we were contingently liable, but for which we have recourse, were
outstanding in the amount of $165,000. The ultimate responsibility for the
collection of these receivables is with Paradyne Credit Corp.
TRANSACTIONS WITH COMMUNICATION PARTNERS
Subordinated Revolving Promissory Note. In August 1997, Communication
Partners agreed to provide to us a revolving line of credit facility in the
maximum amount of $5.0 million. This agreement was amended in October 1998 to
increase the maximum principal amount of the facility to $10.0 million. There
were no borrowings under this facility in 1999 and no interest paid under this
note for the year ended December 31, 1999. We terminated this facility in
September 1999.
Continuing Limited Guaranty. In October 1998, Communication Partners
entered into a continuing guaranty for the benefit of Bank of America NT&SA in
connection with our revolving credit facility. The maximum liability under this
guaranty was $10.0 million, reduced by any principal amount outstanding under
the subordinated revolving promissory note discussed above. This guaranty was
canceled in March 1999.
OTHER DIRECTOR RELATIONSHIPS
Betsy Atkins, a member of our board of directors, serves as a director for
Lucent Technologies. We have a supply agreement with Lucent under which we are
the exclusive supplier to Lucent of Lucent's requirements for network access
products for resale through June 2001, provided that these products possess
satisfactory design, function, and performance characteristics. For the year
ended December 31, 1999, direct sales and services performed for Lucent totaled
approximately $60.0 million. Additionally, as part of our divestiture by Lucent,
we entered into an intellectual property agreement and a non-competition
agreement with Lucent. Under the intellectual property agreement, Lucent
irrevocably assigned to us and our successors all rights in particular patents
related to our proprietary technology. In exchange, we granted to Lucent a
non-exclusive license to develop, manufacture, test or repair products using the
assigned patents. Under the non-competition agreement, Lucent agreed not to
compete with us with respect to the manufacture and sale of products which
either compete with the principal products of Paradyne or compete with
technologies under development by Paradyne at the time of the divestiture.
William Stensrud and Keith Geeslin, two members of our board of directors,
both serve as directors for Rhythms NetConnections, Inc. For the year ended
December 31, 1999, we sold products totaling approximately $56.6 million to
Rhythms NetConnections.
We believe that our transactions with Lucent and Rhythms NetConnections
were completed at rates similar to those available to our other customers of
similar size and nature.
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
Our bylaws and certificate of incorporation provide for indemnification and
limitation of liability of our directors and executive officers. In addition, we
have entered into indemnification agreements with Messrs. Belanger, Bonderman,
Epley, Geeslin, May, Murphy, Slattery, Stanton, Stensrud, Van Camp and Ms.
Atkins. Under the agreements, we agreed to reimburse and indemnify each
individual for civil or criminal proceedings or governmental investigations
relating to his actions as a director or officer, except if such conduct was
committed in bad faith or was a breach of his duty of loyalty to us.
22
<PAGE> 27
PROMISSORY NOTES FROM OFFICERS
Several of our executive officers have issued to us promissory notes in
connection with the purchase of shares of our common stock. The full recourse
notes accrue interest at rates ranging from 4.72% to 6.65%. The principal
balance of the notes and accrued interest are payable at the earlier of
termination of employment or five years from the date of the note. The notes are
secured by the shares of common stock acquired with the note, which shares are
held in escrow by us. In addition, the shares purchased by Messrs. Eudy, Floyd,
Housman, Murphy (with respect to 7,500 shares) and Wiener vest either on a
quarterly basis or 25% vest on the first anniversary of the note with the
remainder vesting in equal quarterly installments thereafter. All unvested
shares purchased with the notes are subject to repurchase by us if these
executive officers terminate their employment prior to becoming fully vested in
the shares. The following table details the information regarding these
promissory notes with our executive officers:
<TABLE>
<CAPTION>
SHARES OF OUTSTANDING
AMOUNT OF COMMON INTEREST BALANCE ON
OFFICER DATE OF NOTE NOTE ($) STOCK PURCHASED RATE (%) APRIL 6, 2000 ($)*
- ------- ------------ --------- --------------- -------- ------------------
<S> <C> <C> <C> <C> <C>
James L. Slattery............. May 5, 1997 149,850 75,000 6.65 149,850
Sean E. Belanger.............. March 29, 1999 199,800 100,000 4.72 199,800
Paul H. Floyd................. March 26, 1999 74,925 37,500 4.72 74,925
March 26, 1999 62,475 12,500 4.72 62,475
Frank J. Wiener............... March 26, 1999 159,915 42,500 4.72 0
April 2, 1999 24,990 5,000 5.15 0
Mark Housman.................. March 27, 1999 64,935 32,500 4.72 0
Andrew S. May................. March 31, 1999 99,900 50,000 4.72 99,900
Patrick M. Murphy............. March 31, 1999 74,925 37,500 4.72 74,925
April 2, 1999 37,485 7,500 5.15 37,485
J. Scott Eudy................. July 1, 1999 95,595 15,000 5.67 0
July 1, 1999 73,418 22,500 5.67 0
</TABLE>
- ---------------
* Outstanding balance does not include accrued interest as of April 6, 2000.
23
<PAGE> 28
STOCK PERFORMANCE GRAPH
The following stock performance graph and accompanying table compare the
stockholders' cumulative return on the common stock from July 16, 1999 to
December 31, 1999 with the cumulative total return of the S&P 500 Index (U.S.)
and the Nasdaq Telecom Index over the same period. The comparative data assumes
$100.00 was invested on the date of our initial public offering, July 16, 1999,
in the common stock and in each of the indices referred to above and assumes
that any dividends were reinvested. The stock price performance shown in the
table set forth below is not necessarily indicative of future stock price
performance.
<TABLE>
<CAPTION>
PARADYNE NETWORKS, INC. S&P 500 NASDAQ TELECOM
----------------------- ------- --------------
<S> <C> <C> <C>
July 1999 100.00 100.00 100.00
1999 160.29 107.71 135.13
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The United States securities laws require our directors, executive officers
and any persons who beneficially own more than 10% of our common stock to file
with the SEC and the Nasdaq Stock Market initial reports of ownership and
subsequent reports of changes in ownership. To our knowledge, based solely on a
review of the copies of the reports furnished to us and written representations
that no other reports were required, during fiscal 1999 all directors, executive
officers and beneficial owners of more than 10% of our common stock made all
required filings.
STOCKHOLDERS' PROPOSALS FOR 2001 ANNUAL MEETING
Under SEC rules, to be considered for inclusion in our proxy statement for
the 2001 annual meeting, director nominations and other proposals of
stockholders must be submitted in writing not later than December 29, 2000.
In general, stockholder proposals intended to be presented at an annual
meeting, including proposals for the nomination of directors, must be received
by Paradyne not less than 90 days nor more than 120 days before the first
anniversary of the prior year's meeting. Assuming that our 2001 annual meeting
is held on schedule, we must receive this notice no earlier than February 1,
2001 and no later than March 3, 2001. The requirements for submitting such
proposals are set forth in our bylaws.
24
<PAGE> 29
All director nominations and other proposals of stockholders with regard to
the 2001 annual meeting should be submitted by certified mail, return receipt
requested, to Paradyne Networks, Inc., 8545 126th Avenue North, Largo, Florida
33773, Attention: James L. Slattery, Senior Vice President, Chief Legal and
Intellectual Property Officer and Corporate Secretary.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP has audited our financial statements for fiscal
1999. Representatives of PricewaterhouseCoopers LLP will be present at the
annual meeting and will be available to respond to appropriate questions.
By Order of the Board of Directors.
/s/ JAMES L. SLATTERY
James L. Slattery
Senior Vice President, Chief Legal and
Intellectual Property Officer and
Corporate Secretary
Largo, Florida
April 27, 2000
Our 1999 Annual Report for the fiscal year ended December 31, 1999, which
includes audited financial statements, had been mailed to stockholders with
these proxy materials. Except as otherwise required, such materials do not form
any part of the materials for the solicitation of proxies.
25
<PAGE> 30
ATTACHMENT A
AMENDMENT TO PARADYNE NETWORKS, INC.
1996 EQUITY INCENTIVE PLAN
4. SHARES SUBJECT TO PLAN
Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate eleven million (11,000,000) shares of Common Stock,
plus an annual increase to be added on each June 1, beginning with June 1, 2000,
equal to the lesser of (i) five percent (5%) of the total number of shares of
Common Stock outstanding on such anniversary date, or (ii) four million five
hundred thousand (4,500,000) shares. If any Stock Award shall for any reason
expire or otherwise terminate, in whole or in part, without having been
exercised in full (or vested in the case of restricted stock), the stock not
acquired under such Stock Award shall revert to and again become available for
issuance under the Plan.
<PAGE> 31
PARADYNE NETWORKS, INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 1, 2000
10:00 A.M.
8545 126(TH) AVENUE NORTH
LARGO, FLORIDA
PARADYNE NETWORKS, INC.
C/O SHAREOWNER SERVICES, P.O. BOX 64873, ST. PAUL, MN 55164 PROXY
- --------------------------------------------------------------------------------
REVOCABLE PROXY
COMMON STOCK
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 2000 ANNUAL MEETING OF
STOCKHOLDERS. IF YOU CHOOSE TO SUBMIT YOUR PROXY VOTING INSTRUCTIONS VIA THE
INTERNET OR BY TOUCH TONE TELEPHONE, THEN DO NOT RETURN THIS PROXY CARD.
The undersigned hereby appoints Andrew S. May and Patrick M. Murphy, and each of
them, proxies with full power of substitution, to act for and in the name of the
undersigned to vote all shares of common stock of Paradyne Networks, Inc.
("Paradyne") that the undersigned is entitled to vote at the 2000 annual meeting
of stockholders, to be held on Thursday, June 1, 2000 at 10:00 a.m. local time,
at Paradyne's corporate headquarters, 8545 126(th) Avenue North, Largo, Florida,
and at any and all adjournments.
THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY CARD WILL BE VOTED IN THE DISCRETION OF THE PROXIES "FOR" THE
ELECTION OF THE TWO NOMINEES NAMED IN PROPOSAL 1 AND "FOR" PROPOSAL 2. If any
other business is presented to a vote of the stockholders at the annual meeting,
this proxy card will be voted by the proxies in their best judgment. At the
present time, the board of directors does not know of any other business to be
presented to a vote of the stockholders at the annual meeting.
If the undersigned elects to withdraw this proxy on or before the time of the
annual meeting or any adjournments and notifies James L. Slattery, our Senior
Vice President, Chief Legal and Intellectual Property Officer and Corporate
Secretary, at or prior to the annual meeting of that decision, then the power of
this proxy shall be deemed terminated and of no further force and effect. If the
undersigned withdraws this proxy in the manner described above and does not
submit a duly executed and subsequently dated proxy card prior to the annual
meeting, the undersigned may vote all shares of common stock owned by the
undersigned as of the record date, April 6, 2000, in person at the annual
meeting.
Continued, and to be signed and dated, on the reverse side.
<PAGE> 32
<TABLE>
<S> <C>
COMPANY #
CONTROL #
</TABLE>
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE PROXIES TO VOTE YOUR SHARES IN
THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK * * * EASY * * * IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
- - Follow the simple instructions the Voice provides you.
VOTE BY INTERNET -- HTTPS://SSL.CDOCS.COM/PDYN/ -- QUICK * * * EASY * * *
IMMEDIATE
- - Use the Internet to vote your proxy 24 hours a day, 7 days a week.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Paradyne Networks, Inc., c/o Shareowner
Services(SM), P.O. Box 64873, St. Paul, MN 55164-0873.
<TABLE>
<C> <S>
Please mark
votes as in
X this example
</TABLE>
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
* Please detach here *
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
1. The election of (01) Thomas E. Epley
and (02) David Bonderman as Class I
directors for a three-year term expiring
at the 2003 annual meeting of stockholders
and until their successors have been duly
elected and qualified.
2. To approve an amendment to our Amended
and Restated 1996 Equity Incentive Plan to
increase the number of shares available
for awards, as described in the proxy
statement.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the annual meeting and any adjournments thereof.
Mark here for address change and note below [ ] Mark here if you
plan to attend the meeting [ ]
Date
--------------------------------
<TABLE>
<S> <C>
</TABLE>
Signature(s) in Box
Please mark, date and sign
exactly as your name appears on
this proxy card. When shares are
held jointly, both holders
should sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give your full
title. If the holder is a
corporation or a partnership,
the full corporate or
partnership name should be
signed by a duly authorized
officer or partner.
[ ] FOR [ ] WITHHELD
For all nominees except as noted
above
[ ] FOR [ ] AGAINST
[ ] ABSTAIN
