<PAGE>
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:
[_] 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 (S)240.14a-11(c) or (S)240.14a-12
RETIX
- -------------------------------------------------------------------------------
(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.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
Notes:
<PAGE>
[LOGO OF RETIX(R)]
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 31, 1998
----------------
To the Shareholders of Retix:
Notice is hereby given that the 1998 Annual Meeting of Shareholders (the
"Annual Meeting") of Retix, a California corporation (the "Company"), will be
held at 21300 Victory Boulevard, Conference Room C, 1st floor, Woodland Hills,
California 91367 on March 31, 1998, at 9:00 a.m., local time, for the
following purposes:
1. To elect the following Class II directors of the Company each to serve
for a two-year term: Bruce Brown, Craig W. Johnson and Ralph Ungermann.
2. To approve the adoption of the Company's 1998 Stock Option Plan, and
the reservation of 5,200,000 shares of Common Stock for issuance
thereunder.
3. To approve an amendment to the Company's Articles of Incorporation
changing the name of the Company from Retix to Vertel Corporation.
4. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors for the Company for the fiscal year ending January 2, 1999.
5. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on February 12, 1998
will be entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the meeting, you are urged
to mark, sign, date and return the enclosed proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. If you decide to
attend the meeting you may vote in person even if you returned a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Craig W. Johnson
Craig W. Johnson,
Secretary
Woodland Hills, California
March 6, 1998
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested
to complete, sign and date the enclosed proxy as promptly as possible and
return it in the envelope provided.
<PAGE>
[LOGO OF RETIX(R)]
----------------
PROXY STATEMENT FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
----------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of Retix
(the "Company"), a California corporation, for use at its 1998 Annual Meeting
of Shareholders (the "Annual Meeting") to be held Tuesday, March 31, 1998 at
9:00 a.m., local time, or at any postponement or adjournment thereof, for the
purposes set forth in this Proxy Statement and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held at 21300
Victory Boulevard, Conference Room C, 1st floor, Woodland Hills, California
91367. The Company's principal executive offices are located at 21300 Victory
Boulevard, Suite 1200, Woodland Hills, California 91367 and the principal
telephone number at that location is (818) 227-1400.
These proxy solicitation materials were mailed on or about March 6, 1998 to
all shareholders entitled to vote at the meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
James Brill, Inspector of Elections) a written notice of revocation or a duly
executed proxy bearing a later date or by attending the meeting and voting in
person.
VOTING AND SOLICITATION
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections with the assistance of the Company's transfer
agent. The Inspector of Elections will also determine whether or not a quorum
is present. Each share of Common Stock is entitled to one vote, and the
Company's Articles of Incorporation provide that there is no cumulative voting
for the election of directors.
Except in certain specific circumstances, the affirmative vote of a majority
of shares represented and voting on a particular matter at a duly held meeting
at which a quorum is present (which shares voting affirmatively also
constitute a majority of the required quorum) is required under California law
for approval of proposals presented to shareholders. In the case of amendments
to the Company's Articles of Incorporation as proposed in Proposal No. 3
below, the affirmative vote of holders of a majority of the Company's Common
Stock entitled to vote is required. In general, California law also provides
that a quorum consists of a majority of the shares entitled to vote,
represented either in person or by proxy. The Inspector of Elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as not voting for purposes of
determining the approval of any matter submitted to the shareholders for a
vote. Any proxy which is returned using the form of proxy enclosed and which
is not marked as to a particular item will be voted for the election of
directors, for the approval of the 1998 Stock Option Plan, to approve the
proposed amendment to the Company's Articles of Incorporation to change the
name of the Company, for ratification of the appointment of the designated
independent auditors and as the proxy holders deem advisable on other matters
that may come before the meeting, as the case may be with respect to the item
not marked. If a broker indicates on the enclosed proxy or its substitute that
it does not have discretionary authority as to certain shares to vote on a
particular matter ("broker non-votes"), those shares will not be considered as
voting with respect to that matter. While there is no definitive specific
statutory or case law authority in California concerning the proper treatment
of abstentions and broker non-votes, the Company believes that the tabulation
procedures to be followed by the
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<PAGE>
Inspector of Elections are consistent with the general statutory requirements
in California concerning voting of shares and determination of a quorum.
The cost of soliciting proxies will be borne by the Company. The Company
will reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to
such beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone, electronic mail, facsimile or telegram. In
addition, the Company has retained Skinner & Company to solicit proxies in
connection with the 1998 Annual Meeting. The Company has agreed to pay Skinner
& Company approximately $3,500 in exchange for such services.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on February 12, 1998
are entitled to notice of and to vote at the meeting. As of February 12, 1998,
24,146,518 shares of the Company's Common Stock were issued and outstanding.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The Company's Board of Directors currently consists of seven persons,
including three Class I directors and four Class II directors. Each Class I
and Class II director is elected for two year terms, with Class I directors
elected in odd-numbered years (e.g., 1999) and the Class II directors elected
in even-numbered years (e.g., 1998). Class II Director Neil Hynes has
indicated that he does not intend to seek re-election to the Company's Board
of Directors at the Annual Meeting for reasons unrelated to the Company and
will resign immediately prior to the Annual Meeting. Therefore, immediately
prior to the Annual Meeting, the Board of Directors expects to amend the
Company's Bylaws, in accordance with the terms thereof, to reduce the number
of directors of the Company to six, thereby reducing the number of Class II
directors to three. Accordingly, at the Annual Meeting, three Class II
directors will be elected.
The Board of Directors has nominated the three persons named below to serve
as Class II directors until the next annual meeting at which Class II
directors are elected and until their successors are elected and qualified.
Unless otherwise instructed, the proxy holders will vote the proxies received
by them for the Company's three nominees named below. In the event that any
nominee of the Company is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in such a manner as
will assure the election of as many of the nominees listed below as possible,
and, in such event, the specific nominees for whom the proxy holders will vote
will be determined by the proxy holders. Assuming a quorum is present and no
additional nominations are made, the three nominees for director receiving the
greatest number of votes cast at the Annual Meeting will be elected.
The names of the nominees for Class II director, and certain information
about them as of February 12, 1998, are set forth below:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
--------------- --- -------------------- --------------
<S> <C> <C> <C>
Bruce Brown............. 47 President and Chief Executive Officer of the Company 1997
Craig W. Johnson........ 51 Director, Venture Law Group, A Professional Corporation, 1993
legal counsel to the Company
Ralph Ungermann......... 56 Chief Executive Officer, First Virtual Corporation 1997
</TABLE>
2
<PAGE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There is no
family relationship between any director or executive officer of the Company.
Mr. Brown was elected to the position of President and Chief Executive
Officer of the Company in fiscal January 1998. Mr. Brown also serves as
President and Chief Executive Officer of Vertel Corporation ("Vertel"), the
principal operating subsidiary of the Company, a position to which he was
elected in November 1995. Mr. Brown joined Vertel in August 1995 and has
served as a director of Vertel since October 1995. From October 1995 to
December 1996, Mr. Brown also served as Chief Financial Officer of Vertel.
Prior to joining Vertel, Mr. Brown served as President of ADC Fibermux
Corporation ("Fibermux"), a supplier of fiber optic networking products from
July 1993 until August 1995. Prior to his role at Fibermux, Mr. Brown was
Executive Vice President, Customer Operations at Ungermann-Bass Networks, Inc.
from October 1990 until July 1993. Mr. Brown holds a B.S. degree from Iowa
State University and an M.P.A. from Drake University.
Mr. Johnson has been Secretary of the Company since July 1992, and a
director since February 1993. Since January 1995, he has been a Director of
Venture Law Group, A Professional Corporation, outside general counsel to the
Company, and from February 1993 until January 1995 he was a partner of Venture
Law Group (a predecessor entity). Prior to February 1993, he was a member of
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, outside general
counsel to the Company in 1993. Mr. Johnson is also a director of Collagen
Corporation, a biomaterials company.
Mr. Ungermann is a founder of First Virtual Corporation, an ATM networking
company, and has served as its Chief Executive Officer since October 1993. Mr.
Ungermann co-founded Ungermann-Bass Networks, Inc. in 1979 and served as its
Chief Executive Officer until it was sold to Tandem Computers, Inc. in 1993,
which was subsequently acquired by Compaq Computer Corporation in 1997. Mr.
Ungermann has also served as a director of Vertel since March 1996. Mr.
Ungermann holds a holds a B.S.E.E. from the University of California at
Berkeley and a M.S.E.E. from the University of California at Irvine.
CLASS I DIRECTORS
The names of the Company's Class I directors, and certain information about
them as of December 27, 1997, are set forth below:
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---------------- --- -------------------- --------------
<S> <C> <C> <C>
Jeffrey M. Drazan....... 39 General Partner, Sierra Ventures, a venture capital firm 1996
Joe Stephan............. 53 Former President and Chief Executive Officer 1996
of the Company
Gilbert P. Williamson... 60 Retired Chairman of the Board of Directors and 1993
Chief Executive Officer of NCR Corporation
</TABLE>
Except as set forth below, each of the Class I directors has been engaged in
his principal occupation set forth above during the past five years.
Mr. Drazan has been a member of the Board of Directors of the Company since
his appointment in January 1996. Mr. Drazan has been a general partner of
Sierra Ventures, a venture capital firm, since 1985. Mr. Drazan currently
serves as a director of Digital Generation Systems, a multimedia network
distribution company and several private companies. Mr. Drazan holds a B.S.E.
in Engineering from Princeton University and an M.B.A. from New York
University.
Mr. Stephan served as President and Chief Executive Officer of the Company
from September 1995 until December 1997. From July 1995 to September 1995, Mr.
Stephan served as a consultant to the Company. Prior to joining the Company,
Mr. Stephan served in several executive positions during his 25 years at NCR
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Corporation, a supplier of computers and other electronic equipment ("NCR"),
including Senior Vice President, International from 1993 to 1995, Vice
President, Europe Group from 1992 to 1993, Vice President, Corporate Marketing
and Strategy Planning from 1991 to 1992 and Vice President, Latin
America/Middle East/Africa from 1986 to 1991.
Mr. Williamson has served as a director of the Company since December 1993.
From September 1991 to May 1993 he served as Chairman of the Board of
Directors and Chief Executive Officer of NCR. He served as President of NCR
from January 1988 until September 1991. Mr. Williamson is also a director of
The Santa Cruz Operation, Inc., a supplier of computer software, Roberds, a
home electronics and furniture retailer, and Citizens Federal Bancorp, an
Ohio-based bank.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of twelve meetings during
the fiscal year ended December 27, 1997. The Board of Directors has an Audit
Committee and a Compensation Committee. It does not have a nominating
committee or a committee performing the functions of a nominating committee.
The Audit Committee of the Board of Directors presently consists of Messrs.
Johnson and Williamson. The Audit Committee held five meetings during the last
fiscal year, four of which were in conjunction with regular meetings of the
Board of Directors. The Audit Committee recommends engagement of the Company's
independent auditors, and is primarily responsible for approving the services
performed by the Company's independent accountants and for reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls.
The Compensation Committee of the Board of Directors presently consists of
Messrs. Hynes, Johnson and Williamson and held five formal meetings during the
last fiscal year. Upon Mr. Hynes' resignation, Mr. Drazan is expected to join
the Compensation Committee. The Compensation Committee makes recommendations
to the Board of Directors regarding the Company's executive compensation
policy.
No incumbent director attended fewer than 75% of the aggregate number of
meetings of the Board of Directors and meetings of the committees of the Board
on which he serves.
COMPENSATION OF DIRECTORS
Non-employee members of the Board of Directors are eligible to receive a
retainer of $1,750 per quarter and $1,000 per meeting of the Board of
Directors attended, and may be reimbursed for costs of attending Board and
Committee meetings. In addition, non-employee members of the Board of
Directors receive options to purchase shares of the Company's Common Stock
pursuant to its 1996 Directors' Stock Option Plan (the "1996 Directors'
Plan").
The 1996 Directors' Plan provides for the grant of nonstatutory options to
non-employee directors of the Company at an exercise price not less than fair
market value of the Company's Common Stock on the date of grant. Each non-
employee director is automatically granted an option to purchase 40,000 shares
of Common Stock (the "Initial Option") on the date on which such person first
becomes a director, whether through election by the shareholders of the
Company or appointment by the Board of Directors to fill a vacancy.
Thereafter, on January 1 of each year, each non-employee director is
automatically granted an option to purchase 10,000 shares of Common Stock (the
"Annual Option") if, on such date, he or she shall have served on the
Company's Board as a non-employee director for at least six months. Options
granted under the 1996 Directors' Plan have a term of ten years. The Initial
Options become exercisable cumulatively to the extent of 25% of the shares
subject to the option on each of the first four anniversaries of the date of
grant. The Annual Options become exercisable in full on the fourth anniversary
of the date of grant. In addition, both the Initial and Annual Options become
exercisable in full upon dissolution or liquidation of the Company, sale of
all or substantially all of the Company's assets, merger or consolidation in
which the Company is not the surviving corporation, or other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are
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<PAGE>
exchanged. Mr. Hynes has indicated that he does not intend to stand for re-
election to the Company's Board of Directors for reasons unrelated to the
Company. In consideration for his past services to the Company, the Board of
Directors of the Company has agreed to release all options to purchase Company
Common Stock held by Mr. Hynes for more than six months prior to his date of
resignation from any vesting restrictions imposed thereon.
Except for automatic option grants under the 1996 Directors' Option Plan,
non-employee directors will not be eligible to receive any additional option
grants or stock issuances under the 1996 Directors' Option Plan. The 1996
Directors' Option Plan provides for neither a maximum nor a minimum number of
shares subject to options that may be granted to any one non-employee
director, but does provide for the number of shares which may be included in
any grant and the method of making a grant.
Prior to 1996, Directors of the Company were issued options under the
Company's 1991 Directors' Stock Option Plan on substantially the terms and
conditions of the 1996 Directors' Plan. No additional options are being issued
under the Company's 1991 Director's Stock Option Plan.
In addition, Messrs. Brown, Drazan, Stephan, Ungermann and Williamson (the
"Subsidiary Directors") are also members of the Board of the Company's
subsidiary, Vertel. In such capacity, the Subsidiary Directors who are not
employees of the Company or one of its subsidiaries are entitled to be
reimbursed for costs of attending Vertel Board and Committee meetings. In
addition, the non-employee Subsidiary Directors receive options to purchase
shares of the Vertel's Common Stock pursuant to Vertel's 1996 Directors' Stock
Option Plan (the "Vertel Plan").
The Vertel Plan provides for the grant of nonstatutory options to all non-
employee directors of Vertel (including the Subsidiary Directors) at an
exercise price of not less than the fair market value of the Vertel's Common
Stock on the date of grant. Under the terms of the Vertel Plan, each non-
employee director of Vertel who also serves as a director of the Company is
automatically granted an initial option (the "Initial Subsidiary Option") to
purchase 10,000 shares of Vertel's Common Stock on the date on which such
person first becomes a director, whether through election by the shareholders
of Vertel or appointment by Vertel's Board of Directors to fill a vacancy. In
addition, under the current provisions of the Vertel Plan, each non-employee
director who joins the Board of Directors of Vertel and does not also serve as
a director of Retix shall be automatically granted options to purchase 20,000
shares of Vertel's Common Stock on the date on which such person first becomes
a director of Vertel, whether through election by the shareholders of Vertel
or appointment by Vertel's Board of Directors to fill a vacancy. Thereafter,
on January 1 of each year, each non-employee director of Vertel is
automatically granted an option ("Subsequent Subsidiary Option") to purchase
2,500 shares (5,000 shares for each non-employee Vertel Director who does not
also serve as a director of the Company) of Vertel Common Stock, if on such
date, he or she shall have served on Vertel's Board for at least six months.
In anticipation of the Option Exchange discussed in Proposal No. 2--Adoption
of the 1998 Stock Option Plan, the Board of Directors of Vertel has suspended
the automatic grants which were to take place on January 1, 1998. Options
granted under the Vertel Plan have a term of ten years. The Initial Subsidiary
Options become exercisable cumulatively to the extent of 25% of the shares
subject to the option on each of the first four anniversaries of the date of
grant. The Subsequent Subsidiary Options become exercisable in full on the
fourth anniversary of the date of grant. In addition, both the Initial and
Subsequent Subsidiary Options become exercisable in full upon any dissolution
or liquidation of Vertel, sale of all or substantially all of Vertel's assets,
merger or consolidation in which the Vertel is not the surviving corporation,
or other capital reorganization in which more than fifty percent (50%) of the
shares of Vertel entitled to vote are exchanged. As of January 1, 1998,
Messrs. Drazan, Ungermann and Williamson have been issued options to purchase
a total of 12,500, 25,000 and 12,500 shares, respectively, of Vertel Common
Stock under the foregoing provisions of the Vertel Plan.
Except for automatic option grants under the Vertel Plan, the Subsidiary
Directors will not be eligible to receive any additional option grants or
stock issuances for Vertel shares under the Vertel Plan. The Vertel Plan
provides for neither a maximum nor a minimum number of shares subject to
options that may be granted to any Subsidiary Director, but does provide for
the number of shares which may be included in any grant and the method of
making a grant.
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<PAGE>
In addition, Mr. Johnson, who is not a director of Vertel, but acts as the
Secretary of Vertel, has received options to purchase 1,000 shares of Vertel's
Common Stock Pursuant to Vertel's 1996 Stock Option Plan. Venture Law Group, A
Professional Corporation, a law firm of which Mr. Johnson is a director and
shareholder, acts as legal counsel to Vertel. An investment partnership
affiliated with this law firm and another director and shareholder of this law
firm received options to purchase a total of 9,000 shares of Vertel Common
Stock pursuant to Vertel's 1996 Stock Option Plan. The options granted to Mr.
Johnson and other entities and persons affiliated with Venture Law Group were
non-statutory options which vest cumulatively to the extent to 25% of the
shares subject to the option on each of the first four anniversaries of the
date of grant.
As a result of their position as directors of Wireless Solutions, a former
direct subsidiary of the Company, Messrs. Drazan, Hynes, Johnson and
Williamson also received options to purchase stock of Wireless Solutions under
its Directors' Stock Option Plan. In connection with the acquisition of
Wireless Solutions by Vertel, these options have been converted into options
to purchase Vertel Common Stock issued under the Vertel Plan, in the case of
Messrs. Drazan and Williamson, and issued under the Vertel 1996 Stock Option
Plan in the case of Messrs. Hynes and Johnson. As a result of these activities
each of Messrs. Drazan, Hynes, Johnson and Williamson received options to
purchase 1,963 shares of Vertel Common Stock in addition to any options to
which they are otherwise entitled under the Vertel option plans.
The Company has announced a program, pursuant to which it expects to
exchange the currently outstanding options to purchase Vertel Common Stock
into options to purchase the Company's Common Stock. Such exchange plan would
include the options described above. See "Proposal No. 2--Adoption of 1998
Stock Option Plan--Purpose."
Directors who are employees of the Company do not receive any additional
compensation for their services as directors.
REQUIRED VOTE
The three persons receiving the highest number of affirmative votes of
shares of the Company's Common Stock present at the Annual Meeting in person
or by proxy and entitled to vote (assuming the presence of a quorum) shall be
elected directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ALL OF THE NOMINEES LISTED
ABOVE.
6
<PAGE>
PROPOSAL NO. 2
ADOPTION OF THE 1998 STOCK OPTION PLAN
At the Annual Meeting, shareholders are being asked to approve the adoption
of the Company's 1998 Stock Option Plan (the "1998 Plan") and the reservation
for issuance thereunder of 5,200,000 shares of the Company's Common Stock. The
Company's Board of Directors voted to adopt the 1998 Stock Option Plan on
December 23, 1997.
GENERAL
The 1998 Plan provides for the grant of options to employees and consultants
of the Company as well as employees or consultants of any corporation in which
the Company owns an equity interest (an "Affiliate"). The 1998 Plan will
become effective upon its approval by the shareholders of the Company and
continue in effect for a term of ten years unless sooner terminated. Options
granted under the 1998 Plan may be either "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonstatutory stock options at the discretion of the Board of
Directors and as reflected in the terms of the written option agreement. The
1998 Plan is not a qualified deferred compensation plan under Section 401(a)
of the Code, and is not subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended.
PURPOSE
Between 1988 and the present, the Company has issued options to purchase
Common Stock to employees of and consultants to the Company and its
subsidiaries pursuant to its 1988 Stock Option Plan (the "1988 Plan"). The
purpose of the 1988 Plan is to attract and retain the best available personnel
for positions of substantial responsibility, to provide additional incentives
to employees of and consultants to the Company and to promote the success of
the Company's business. Because the 1988 Plan is scheduled to expire in 1998
with respect to the grant of new options, the Company has determined that it
is in its best interests to adopt the 1998 Plan to operate in its stead. The
1998 Plan will have the same purposes as the 1988 Plan as described above.
In light of the Company's recent sale of a majority interest in its Sonoma
Systems subsidiary and the acquisition of Wireless Solutions by Vertel, Vertel
now represents all of the operating business of the Company. Thus, the
interests of Vertel have become fully aligned with the interests of the
Company. Additionally, because holding the Company's Common Stock provides
employees of and consultants to Vertel with a degree of liquidity unavailable
to them in their holdings of Vertel Common Stock, the Company has determined
that it should offer equity incentives in the Company to employees of and
consultants to Vertel in order to further align such interests. Therefore, the
management of the Company and the Company's Board of Directors believe it is
in the best interests of the Company to exchange the options to purchase
Vertel Common Stock currently outstanding under Vertel's 1996 Stock Option
Plan and 1996 Directors' Stock Option Plan (the "Vertel Plans") for options to
purchase the Company's Common Stock (the "Option Exchange").
The Option Exchange was unanimously approved by the Board of Directors of
the Company on December 23, 1997, subject to approval of the adoption of the
1998 Plan by the shareholders of the Company. Therefore, upon the approval of
the adoption of the 1998 Plan by the Company's shareholders, the Company plans
to exchange each outstanding option to purchase Vertel Common Stock under the
Vertel Plans for an option to purchase the Company's Common Stock at a ratio
of 1.26 shares of Retix Common Stock per share of Vertel Common Stock
originally subject to such option (the "Exchange Ratio"). The exercise price
per share of such exchanged options will be no less than the original exercise
price per share of Vertel Common Stock divided by the Exchange Ratio. Any
vesting restrictions previously outstanding on the Vertel options will
continue to be applied to the new Retix options, as if the employee or
consultant in question had always held Retix options with such a vesting
pattern.
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<PAGE>
The Exchange Ratio was determined by the Company to represent the fair
market value of the Common Stock of Vertel relative to that of Retix based on
the average closing price of Retix Common Stock for the five days ended
December 18, 1997 and an independent valuation of the assets of Retix as of
such date which were not attributable to value residing in Vertel. Alliant
Partners, an independent investment banking and valuation firm retained by the
Company, has evaluated both the methodology and dollar amounts resulting in
the Exchange Ratio and deemed as fair, from a financial point of view, to the
Retix shareholders.
As of December 27, 1997, there were outstanding options to purchase
3,348,027 shares of Vertel Common Stock which, were the Option Exchange to
occur as of such date, would result in the issuance of options to purchase
4,218,514 shares of the Company's Common Stock under the 1998 Plan. As of
December 27, 1997, the directors and executive officers of the Company held
options to purchase shares of Vertel Common Stock under the Vertel Plans as
follows: Bruce Brown (President, Chief Executive Officer and Director)--
600,000; James Brill (Vice President, Finance and Administration and Chief
Financial Officer)--152,500; Ralph Ungermann (Director)--25,000; Gilbert
Williamson (Director)--14,463; Jeff Drazan (Director)--14,463; Craig W.
Johnson (Secretary and Director)--3,897; and Neil Hynes (Director)--1,963.
Upon the consummation of the Option Exchange, such persons would receive
options to purchase shares of Retix Common Stock under the 1998 Plan as
follows: Mr. Brown--756,000; Mr. Brill--192,150; Mr. Ungermann--31,500;
Mr. Williamson--18,223; Mr. Drazan--18,223; Mr. Johnson--4,190; and Mr.
Hynes--2,473.
ADMINISTRATION
The 1998 Plan may be administered by the Board of Directors or by a
committee of the Board of Directors. If adopted, the 1998 Plan will be
administered by the Board of Directors, and the Compensation Committee of the
Board of Directors. The Committee will have the exclusive authority to grant
stock options and otherwise administer the 1998 Plan with respect to the
Company's directors and officers eligible to participate in the 1998 Plan.
Members of the Board of Directors and its committees will receive no
additional compensation for their services in connection with the
administration of the 1998 Plan. All questions of interpretation of the 1998
Plan will be determined by the Board of Directors or its committees, and its
decisions are final and binding upon all participants.
ELIGIBILITY
The proposed 1998 Plan provides that either incentive stock options or
nonstatutory stock options may be granted to employees (including officers and
directors who are also employees) of the Company, its subsidiaries or
Affiliates. In addition, the proposed 1998 Plan provides that nonstatutory
stock options may be granted to consultants of the Company, its subsidiaries
or Affiliates. Under the terms of the proposed 1998 Plan, outside directors of
the Company are eligible to receive grants as consultants. The Board of
Directors or its committees will select the optionees and determine the number
of shares to be subject to each option. In making such determination, there
are taken into account the duties and responsibilities of the optionee, the
value of the optionee's services, the optionee's present and potential
contribution to the success of the Company and other relevant factors.
The proposed 1998 Plan provides that the maximum number of shares of Common
Stock which may be granted under options to any one employee during any fiscal
year shall be up to 1,000,000 shares, subject to adjustment as provided in the
1998 Plan. There is also a limit on the aggregate market value of shares
subject to all incentive stock options that may be granted to an optionee
during any calendar year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company and
the optionee. Each option is subject to the following principal additional
terms and conditions:
(a) Exercise of the Option. The Board of Directors or its committee
determines when options may be exercised. An option is exercised by giving
written notice of exercise to the Company specifying the
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number of full shares of Common Stock to be purchased and by tendering of
payment of the purchase price. The purchase price of the shares purchased
upon exercise of an option shall be paid in consideration of such form as
is determined by the Board of Directors or its committee and specified in
the option agreement, and such form of consideration may vary for each
option.
(b) Exercise Price. The exercise price under the 1998 Plan is determined
by the Board of Directors or its committee and, in the case of an incentive
stock option, may not be less than 100% of the fair market value of the
Common Stock on the date the option is granted. In the case of an incentive
stock option granted to an optionee who owns more than 10% of the combined
voting power of all classes of stock of the Company, its parent or
subsidiaries, the exercise price must not be less than 110% of the fair
market value on the date of grant. The fair market value per share is equal
to the closing price on the Nasdaq National Market on the date of grant.
The 1998 Plan gives the administrator the authority to set the price of
nonstatutory stock options; provided, however, that in the case of a
nonstatutory stock option granted to any individual who on the last day of
the Company's fiscal year, is the chief executive officer of the Company
(or is acting in such capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer), the
exercise price may not be less than 100% of the fair market value of the
Common Stock on the date the option is granted.
(c) Termination of Employment. If the optionee's employment or consulting
relationship terminates for any reason other than disability or death,
options under the 1998 Plan may be exercised not later than 30 days (or
such other period of time not exceeding three months in the case of an
incentive stock option or six months in the case of a nonstatutory stock
option as is determined by the Board of Directors or its committees) after
such termination and may be exercised only to the extent the option was
exercisable on the date of termination. In no event may an option be
exercised by any person after the expiration of its term.
(d) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his
or her total and permanent disability, options may be exercised within six
months (or such other period of time not exceeding twelve months as is
determined by the Board of Directors or its committees) of termination and
may be exercised only to the extent the option was exercisable on the date
of termination. However, the 1998 Plan provides that the Board of Directors
or its committee may extend such exercise periods following termination, in
its discretion. In no event, however, may the option be exercised after its
termination date.
(e) Death. Under the 1998 Plan, if an optionee should die while employed
or retained by the Company, and such optionee has been continuously
employed or retained by the Company since the date of grant of the option,
the option may be exercised within six months after the date of death (or
such other period of time, not exceeding six months, unless otherwise
extended, as is determined by the Board of Directors or its committees) by
the optionee's estate or by a person who acquired the right to exercise the
option by bequest or inheritance to the extent the optionee would have been
entitled to exercise the option had the optionee continued living and
remained employed or retained by the Company for three months after the
date of death, but in no event may the option be exercised after its
termination date.
If an optionee should die within 30 days (or such other period of time
not exceeding three months, unless otherwise extended, as is determined by
the Board of Directors or its committees) after the optionee has ceased to
be continuously employed or retained by the Company, the option may be
exercised within six months after the date of death by the optionee's
estate or by a person who acquired the right to exercise the option by
bequest or inheritance to the extent that the optionee was entitled to
exercise the option at the date of death, but in no event may the option be
exercised after its termination date.
(f) Term of Options. The 1998 Plan provides that options granted under
the Plan have the term provided in the option agreement; provided, however,
that in the case of an incentive stock option, the term shall be no more
than ten years from the date of grant thereof or such shorter term as may
be provided in the option agreement. In the case of an incentive stock
option granted to an optionee who, at the time the option is granted, owns
stock representing more than ten percent of the combined voting power of
all classes
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of stock of the Company or any parent or subsidiary, the term of the option
shall be five years from the date of grant thereof or such shorter term as
may be provided in the option agreement.
(g) Option Not Transferable. An option is nontransferable by the optionee
other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime and in the
event of the optionee's death by a person who acquires the right to
exercise the option by bequest or inheritance or by reason of the death. In
addition, the 1998 Stock Option Plan gives the administrator the discretion
to grant a non-statutory stock option that has limited transferability
rights (to a charitable trust, to a living trust or to the optionee's
immediate family members).
(h) Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the 1998 Plan as may be
determined by the Board of Directors or its committee, including the
issuance of stock withholding rights. Stock withholding rights allow an
optionee to satisfy withholding obligations in connection with an option
through the surrender of other shares of the Company's stock or the
withholding of shares from the exercise transaction itself.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization that results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option, the number of shares subject to each option, the annual
limitation on grants to employees, as well as the number of shares available
for issuance under the 1998 Plan. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise
provided by the Board of Directors or its committees.
CORPORATE TRANSACTIONS
In the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation,
each option shall be assumed or an equivalent option shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation, unless the administrator determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the optionee
shall have the right to exercise the option as to some or all of the optioned
stock, including shares as to which the option would not otherwise be
exercisable. If the Board (or its committees) makes an option exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the administrator shall notify the optionee that the option shall be
exercisable for a period of 15 days from the date of such notice, and the
option will terminate upon the expiration of such period.
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1998 Plan at any time or from time to
time or may terminate it without approval of the shareholders; provided,
however, that shareholder approval is required for any amendment to the 1998
Plan that increases the number of shares that may be issued as incentive stock
options under the 1998 Plan, modifies the standards of eligibility, modifies
the limitation on grants to employees described in the 1998 Plan or results in
other changes which would require shareholder approval to qualify options
granted under the 1998 Plan as performance-based compensation under Section
162(m) of the Code. The 1998 Plan will terminate in March 2008, provided that
any options then outstanding under the 1998 Plan shall remain outstanding
until they expire by their terms.
SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code, enacted as part of the Omnibus Budget
Reconciliation Act of 1993, provides that a publicly held corporation cannot
deduct compensation of a covered employee (the CEO and the four other most
highly compensated employees for the taxable year whose compensation is
required to be reported to shareholders under the Exchange Act) to the extent
the compensation exceeds $1 million per tax year. There is a
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<PAGE>
statutory exception to this limitation for compensation based on the
attainment of performance goals. Income derived from stock options will
qualify for this exception and thus be treated as performance-based
compensation if granted in accordance with requirements set forth in Section
162(m). The Company is seeking shareholder approval of the 1998 Plan in order
for options granted under the 1998 Plan to qualify as incentive stock options,
to the extent so designated by the Board (or its committees), and as
performance-based compensation under Section 162(m).
FEDERAL INCOME TAX ASPECTS OF THE 1998 PLAN
The following is a brief summary of the U.S. federal income tax consequences
of transactions under the 1998 Plan based on federal income tax laws in effect
as of this date. This summary is not intended to be exhaustive and does not
address all matters which may be relevant to a particular optionee based on
his or her specific circumstances. The summary addresses only current U.S.
federal income tax law and expressly does not discuss the income tax law of
any state, municipality or non-U.S. taxing jurisdiction or gift, estate or
other tax laws other than federal income tax law. The Company advises all
optionees under the 1998 Plan to consult their own tax advisors concerning tax
implications of option grants and exercises and the disposition of stock
acquired upon such exercises under the 1998 Stock Option Plan.
Options granted under the 1998 Plan may be either "incentive stock options,"
as defined in Section 422 of the Code, or nonstatutory stock options.
If an option granted under the 1998 Plan is an incentive stock option, under
U.S. tax laws the optionee will recognize no income upon grant of the
incentive stock option and incur no tax liability due to the exercise,
although the exercise may give rise to alternative minimum tax (see discussion
below). The Company will not be allowed a deduction for federal income tax
purposes as a result of the exercise of an incentive stock option regardless
of the applicability of the alternative minimum tax. Upon the sale or exchange
of the shares more than two years after grant of the option and one year after
receipt of the shares by the optionee, any gain will be treated as long-term
capital gain under U.S. tax laws. If both of these holding periods are not
satisfied, the optionee will recognize ordinary income under U.S. tax laws
equal to the difference between the exercise price and the lower of the fair
market value of the stock at the date of the option exercise or the sale price
of the stock. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director
or 10% shareholder of the Company. The Company will be entitled to a deduction
in the same amount as the ordinary income recognized by the optionee. Any gain
recognized on such a premature disposition of the shares in excess of the
amount treated as ordinary income will be characterized under U.S. tax laws as
long-term capital gain if the sale occurs more than one year after exercise of
the option or as short-term capital gain if the sale is made earlier. The
current federal tax rate on long-term capital gains is capped at 28% for
shares held more than 12 months but not more than 18 months after exercise and
at 20% for shares held more than 18 months after exercise. Capital losses are
allowed under U.S. tax laws in full against capital gains plus $3,000 of other
income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income under U.S. tax laws at the time he or she is granted a
nonstatutory stock option. However, upon its exercise, under U.S. tax laws the
optionee will recognize ordinary income for tax purposes measured by the
excess of the then fair market value of the shares over the exercise price. In
certain circumstances, where the shares are subject to a substantial risk of
forfeiture when acquired or where the optionee is an officer, director or 10%
shareholder of the Company, the date of taxation under U.S. tax laws may be
deferred unless the optionee files an election with the Internal Revenue
Service under Section 83(b) of the Code. The income recognized by an optionee
who is also an employee of the Company will be subject to tax withholding by
the Company by payment in cash or out of the current earnings paid to the
optionee. Upon resale of such shares by the optionee, any difference between
the sales price and the exercise price, to the extent not recognized as
ordinary income as provided above, will be treated under U.S. tax laws as
capital gain or loss, and will qualify for long-term capital gain or loss
treatment if the shares have been held for more than 12 months.
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The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Code. The alternative minimum
tax is calculated by applying a tax rate of 26% to alternative minimum taxable
income of joint filers up to $175,000 ($87,500 for married taxpayers filing
separately) and 28% to alternative minimum taxable income above that amount.
Alternative minimum taxable income is equal to (i) taxable income adjusted for
certain items, plus (ii) items of tax preference less (iii) an exclusion of
$45,000 for joint returns and $33,750 for individual returns. Alternative
minimum tax will be due if the tax determined under the foregoing formula
exceeds the regular tax of the taxpayer for the year.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a nonstatutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to
the excess of the fair market value of the shares on the date of exercise over
the option's exercise price. Because the alternative minimum tax calculation
may be complex, any optionee who upon exercising an incentive stock option
would recognize (together with other alternative minimum taxable income
preference and adjustment items for the year) alternative minimum taxable
income in excess of the exclusion amount noted above should consult his or her
own tax advisor prior to exercising the incentive stock option.
If an optionee pays alternative minimum tax, the amount of such tax may be
carried forward as a credit against any subsequent year's regular tax in
excess of the alternative minimum tax for such year.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Common Stock
represented and voting at the Annual Meeting (which shares voting
affirmatively also represent a majority of the required quorum) is required
for the adoption of the 1998 Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR APPROVAL OF ADOPTION OF THE
1998 PLAN.
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
ARTICLES OF INCORPORATION TO EFFECT NAME CHANGE
In order to communicate better the alignment of the Company's interests with
the interests of Vertel, the Company is asking the shareholders to vote on a
proposal to amend the Company's Amended and Restated Articles of Incorporation
(the "Restated Articles") in order to change the name of the Company from
Retix to Vertel Corporation (the "Name Change"). The Board of Directors has
unanimously approved such an amendment to the Restated Articles. The Company
has reserved the symbol VRTL on the Nasdaq National Market and if the Name
Change is approved by the shareholders, and such symbol continues to be
available to the Company, it is anticipated that the Company's Common Stock
will be traded under such symbol.
Upon consummation of the proposed change of name it will not be necessary to
surrender stock certificates. Instead, when certificates are presented for
transfer, new stock certificates bearing the name of Vertel Corporation will
be issued.
If any action, suit, proceeding or claim has been instituted, made or
threatened, relating to the name change, which makes effectuation of the name
change inadvisable in the opinion of the Company's Board of the Directors or
there exists any other circumstance which would make consummation of the name
change inadvisable in the opinion of the Board of Directors, the proposal to
amend the Restated Articles may be terminated by the Board of Directors either
before or after approval of the name change by the shareholders.
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<PAGE>
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Common Stock
entitled to vote at the Annual Meeting (which shares voting affirmatively also
represent a majority of the required quorum) is required for approval of the
Name Change.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE APPROVAL OF THE AMENDMENT
OF THE RESTATED ARTICLES TO EFFECT THE NAME CHANGE.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending January 2, 1999 and recommends that the shareholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection. Deloitte &
Touche LLP has audited the financial statements of the Company since 1987.
Representatives of Deloitte & Touche LLP are expected to be present at the
meeting and will have the opportunity to make a statement if they desire to do
so. They are also expected to be available to respond to appropriate
questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE COMPANY.
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COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of January 31, 1998 as to (i) each person who is known by the
Company to own beneficially more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the "Named
Executives" in the Summary Compensation Table beginning on page 18, and (iv)
all directors, Named Executives and executive officers as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED(1)
---------------------
5% SHAREHOLDERS, DIRECTORS, NAMED
EXECUTIVES, AND DIRECTORS, NAMED PERCENT
EXECUTIVES AND EXECUTIVE OFFICERS AS A GROUP NUMBER(2) OF TOTAL
-------------------------------------------- ------------- ----------
<S> <C> <C>
Sierra Ventures...................................... 3,457,627 14.3%
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Jeffrey Drazan(2)(3)................................. 22,500 *
Neil Hynes(2)(4)..................................... 80,000 *
Craig W. Johnson(2)(5)............................... 47,500 *
Joe Stephan(6)....................................... 1,061,327 4.4
Steven M. Waszak(6).................................. 235,371 1.0
Gilbert P. Williamson(2)............................. 50,500 *
Bruce Brown(2)....................................... -- --
Lawrence Asten(2).................................... -- --
Ralph Ungermann(2)................................... -- --
Philip Mantle(7)..................................... 358,207 1.5
All directors, Named Executives and executive
officers as a group (11 persons).................... 1,925,405 7.9
</TABLE>
- --------
* Less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Includes options to purchase the Company's Common Stock exercisable within
sixty (60) days of January 31, 1998 as follows: Mr. Drazan--22,500; Mr.
Hynes--80,000; Mr. Johnson--47,000; Mr. Williamson--50,000. Excludes
options issuable upon the consummation of the Option Exchange. If the
Option Exchange were to take place as of the date of this table, the
following persons would hold the following additional options to purchase
the Company's Common Stock exercisable within sixty (60) days of January
31, 1998: Mr. Asten--164,848; Mr. Brown--411,598; Mr. Hynes--2,473; Mr.
Johnson--4,110; Mr. Williamson--8,773; Mr. Drazan--8,773; Mr. Ungermann--
17,546; all directors, Named Executives and executive officers as a
group--2,585,829. None of the foregoing persons would hold more than 1% of
the Company's outstanding Common Stock with the exception of Mr. Brown who
would hold 1.7% of the Company's outstanding Common Stock and all
directors, Named Executives and executive officers as a group, who would
hold 9.7% of the Company's outstanding Common Stock.
(3) Total excludes 3,457,627 shares of the Company's Common Stock held by
Sierra Ventures, V, L.P. ("Sierra"). Mr. Drazan is a general partner of
Sierra and disclaims beneficial ownership of such shares except to the
extent of his monetary interest therein.
(4) Mr. Hynes has indicated that he does not intend to seek re-election to the
Company's Board of Directors at the Annual Meeting for reasons unrelated
to the Company. In consideration for his past services to the Company, the
Board of Directors of the Company has agreed to release all options to
purchase Common Stock held by Mr. Hynes for more than six months prior to
his date of resignation from any vesting restrictions imposed thereon.
(5) Shares held by Mr. Johnson are beneficially owned by various investment
partnerships of which Mr. Johnson and certain other employees of Venture
Law Group, A Professional Corporation, legal counsel to the Company, are
partners. Mr. Johnson disclaims beneficial ownership of such shares except
to the extent of his monetary interest therein aggregating 6,000 shares.
(6) Messrs. Stephan and Waszak resigned as officers of the Company in December
1997.
(7) Mr. Mantle resigned as an officer of the Company in July 1997.
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Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph on page shall not be incorporated by
reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE
EXECUTIVE COMPENSATION PRINCIPLES
This Committee report summarizes the principal components of the Company's
executive officer compensation programs and describes the bases on which
fiscal 1997 compensation determinations were made by the Compensation
Committee with respect to the executive officers of the Company, including the
executive officers who are named in the compensation tables (the "Named
Executives").
The Compensation Committee of the Board of Directors is composed of three
non-employee directors. As members of the Compensation Committee, it is our
responsibility to set and administer the policies which govern compensation
and stock ownership programs, and to set compensation levels of the chief
executive and other executive officers.
The following objectives have been adopted by the Compensation Committee as
guidelines for compensation decisions: (i) to provide a competitive
compensation package that enables the Company to attract and retain key
executives, (ii) to integrate all pay programs with the Company's annual and
long-term business strategy and objectives, and focus executive actions on the
fulfillment of those objectives, and (iii) to provide variable compensation
opportunities that are directly linked with the performance of the Company and
that align executive remuneration with the interests of shareholders.
The Company's executive compensation program consists of base salary, annual
incentive compensation and long term equity incentives in the form of stock
options under the Company's 1988 Plan and, if approved, the 1998 Plan.
Executives are also eligible for benefits generally available to all employees
of the Company, including medical plans, a 401(k) savings plan and
participation in the Company's 1991 Employee Stock Purchase Plan.
Base salary levels for the Company's executive officers are competitively
set relative to companies of comparable size, geographic scope and complexity
to Retix. In determining salaries the Compensation Committee also considers
individual experience, performance and specific issues particular to the
Company.
Annual incentive compensation is provided to executive officers through a
bonus program which rewards achievement of desired levels of corporate and
business unit performance. At the beginning of each fiscal year, the Board of
Directors determines threshold and target goals for Company and business unit
performance. The corporate performance rating is based on achievement by the
Company of revenue and operating profit goals. Bonuses for business unit
performance are based on achievement of defined revenue levels and operating
profitability of the business unit. The Board of Directors determines the
amount of incentive compensation to be paid to the respective executive
officers for achievement by the Company and the business units of performance
goals based upon the recommendations of the Compensation Committee. In
addition, the Board of Directors determines the amount of annual incentive
compensation to be paid under commission agreements to executive officers who
directly manage the Company's sales organization for achieving specified sales
levels based upon the recommendations of the Compensation Committee. The Board
of Directors did not approve discretionary cash bonuses to the Company's
executive officers in 1997.
Longer term incentive compensation consists of grants of stock options under
the Company's stock option plans. The Compensation Committee strongly believes
that by providing those persons who have substantial responsibility for the
execution of its strategic plans, day-to-day management and growth of the
Company with an opportunity to increase their ownership of the Company's
stock, the best interests of shareholders and
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<PAGE>
executives will be closely aligned. Therefore, executives are eligible to
receive stock options from time to time, giving them the right to purchase
shares of Common Stock of the Company at a specified price in the future. The
number of stock options granted to executive officers is based on both
individual performance and competitive practices.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Stephan was paid a base salary of $253,681 during 1997 and received no
bonus. In determining the compensation package of the Chief Executive Officer,
the Compensation Committee considered the Company's 1997 restructuring
activities, Mr. Stephan's leadership role required with respect to such
activities, the magnitude of the activities to reverse the Company's declining
financial trend and improve its financial position and the factors listed
above which are considered for each executive officer. The Compensation
Committee believes that Mr. Stephan's 1997 compensation package includes the
necessary base compensation level required to attract and retain a qualified
Chief Executive Officer, particularly during this period of transition for the
Company.
Mr. Stephan resigned from his position of President and Chief Executive
Officer of the Company on December 27, 1997 as part of the streamlining of the
business of the Company and its combination with the operations of Vertel as a
result of the sale of a majority interest in its former Sonoma Systems
subsidiary to outside investors. Under the terms of Mr. Stephan's employment
agreement with the Company dated September 27, 1995 (the "Employment
Agreement"), Mr. Stephan is entitled to a payment of $325,000, which is the
equivalent of one year's base salary plus a target bonus. In addition, the
Company and Mr. Stephan have entered into an Executive Separation Agreement
pursuant to which the Company will pay Mr. Stephan a one-time severance
payment of $375,000 and Mr. Stephan has released the Company from any and all
claims relating to his employment relationship with the Company. The Company
has also agreed to forgive $281,313 of accrued interest on certain promissory
notes payable to the Company pursuant to which Mr. Stephan purchased Common
Stock of the Company and amend such notes such that they will not accrue
interest on an ongoing basis; the Company and Mr. Stephan had originally
intended for such notes to be non-interest bearing. All shares of the
Company's Common Stock currently held by Mr. Stephan have been released from
any repurchase option in favor of the Company. Mr. Stephan will continue to
serve as a consultant to the Company and as a member of the Board of
Directors. Because Mr. Stephan is no longer employed by the Company, he will
become eligible to participate in the Company's 1996 Directors' Plan as
described above. See "Transactions with Management and Others."
COMPENSATION COMMITTEE
Neil Hynes
Craig W. Johnson
Gilbert P. Williamson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are currently no employee directors serving on the Compensation
Committee. The following non-employee directors served on the Compensation
Committee during 1997: Neil Hynes, Craig W. Johnson and Gilbert P. Williamson.
Mr. Drazan is expected to replace Mr. Hynes on the Compensation Committee upon
Mr. Hynes' resignation from the Board of Directors.
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PERFORMANCE GRAPH
The following graph compares, for the period from January 2, 1993 through
December 27, 1997, the cumulative total shareholder return for the Company, the
Standard & Poor's 500 Stock Index (the "S&P 500"), the Nasdaq
Telecommunications Index (the "Telecom Index") and a group consisting of
publicly traded U.S. companies in the Company's industry (the "Industry
Group"). The Industry Group consists of 14 companies compiled from within the
Investor's Business Daily "Computer-Local Networks Group," as follows: 3Com
Corporation, Artisoft, Bay Networks, Cabletron Systems, Inc., Cheyenne
Software, Inc., Cisco Systems, Inc., Computer Network Technologies, Crosscom
Corporation, Novell, Optical Data Systems, Proteon, Inc., Standard
Microsystems, Storage Technologies and Xircom, Inc.
Measurement points are the last trading days of the Company's fiscal years
ended January 2, 1993, January 1, 1994, December 31, 1994, December 30, 1995,
December 28, 1996, and December 27, 1997. The graph assumes that $100 was
invested on January 2, 1993 in the Common Stock of Retix, the Nasdaq Composite
Index, the Industry Group and the Telecom Index, and further assumes
reinvestment of dividends. The investment returns of each issuer within the
Industry Group and the Telecom Index have been weighted according to the
respective issuer's stock market capitalization at the beginning of each of the
periods presented. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG RETIX, S&P 500 INDEX, NASDAQ TELECOM INDEX AND INDUSTRY GROUP
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period S&P NASDAQ TELECOM INDUSTRY
(Fiscal Year Covered) RETIX 500 INDEX INDEX GROUP
- --------------------- ---------- --------- -------------- --------
<S> <C> <C> <C> <C>
Measurement Pt- 1992 $100 $100 $100 $100
FYE 1993 $ 56.43 $110.08 $154.19 $117.04
FYE 1994 $ 22.86 $111.53 $128.69 $122.95
FYE 1995 $ 12.14 $153.45 $168.51 $200.62
FYE 1996 $ 38.57 $188.68 $172.29 $255.36
FYE 1997 $ 26.78 $251.63 $254.48 $270.5
</TABLE>
17
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows the compensation received by the Company's Chief
Executive Officer and the four other most highly compensated executive
officers of the Company or its subsidiaries for fiscal year 1997 (the "Named
Executives"), and the compensation received by each such individual for the
Company's two prior fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
AWARDS
OPTIONS/SARS
NAME AND PRINCIPAL BONUS/COMMISSION OTHER ANNUAL (SHARES) ALL OTHER
POSITION YEAR SALARY(1) (2)(3) COMPENSATION(4) (5)(6) COMPENSATION(7)
------------------ ---- --------- ---------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Joe Stephan............. 1997 $253,461 -- -- -- $983,415
President and Chief 1996 200,000 75,000 -- 250,000 1,818
Executive Officer(8)(9) 1995 165,845 -- $1,675 775,000 --
Steven Waszak........... 1997 171,884 -- -- -- 253,813
Vice President, Finance 1996 150,000 30,000 -- 50,000 380
and Administration and 1995 149,961 -- -- 100,000 4,911
Chief Financial
Officer(9)
Philip Mantle........... 1997 110,723 -- -- -- 441,222
Senior Vice President, 1996 157,120 58,500 -- 100,000 --
Sales and Marketing(11) 1995 26,292 -- -- 300,000 --
Bruce Brown............. 1997 205,223 11,875 -- -- 1,315
President and Chief 1996 201,218 13,500 -- -- --
Executive Officer of 1995 76,923 -- -- -- --
Vertel(10)
Lawrence Asten ......... 1997 135,000 75,441 4,500 -- --
Senior Vice President, 1996 135,000 52,567 4,500 -- --
Worldwide Sales, 1995 18,200 16,000 750 -- --
Vertel(12)
</TABLE>
- --------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) Includes bonuses and commissions earned in the indicated fiscal year and
paid in the subsequent fiscal year. Excludes bonuses paid in the
indicated fiscal year but earned in the preceding fiscal year.
(3) Executive officers are entitled to discretionary bonuses based on
individual and corporate performance. These bonuses are determined by the
Board of Directors based on the recommendation of the Compensation
Committee. See "Report of the Compensation Committee."
(4) Includes amounts paid for relocation expenses in the case of Mr. Stephan
and automobile allowances in the case of Mr. Asten.
(5) Excludes options to purchase Vertel Common Stock, which are expected to
be exchanged for options to purchase the Company's Common Stock upon the
consummation of the Option Exchange. As of January 31, 1998, Mr. Brown
held options to purchase 600,000 shares of Vertel Common Stock which were
granted to him during 1996 and are expected to be exchanged for options
to purchase 756,000 shares of the Company's Common Stock, and Mr. Asten
held options to purchase 200,000 shares of Vertel Common Stock which were
granted to him during 1996 and are expected to be exchanged for options
to purchase 252,000 shares of the Company's Common Stock.
(6) In January and March 1996, the Board of Directors amended certain stock
options held by Messrs. Stephan, Mantle, and Waszak and certain other
employees and consultants to permit the exercise of unexercised options
then outstanding in exchange for such officers' promissory notes,
including with
18
<PAGE>
respect to options to purchase 1,025,000 shares of the Company's Common
Stock granted to Mr. Stephan, 400,000 shares of the Company's Common Stock
granted to Mr. Mantle and 203,750 shares of the Company's Common Stock
granted to Mr. Waszak.
(7) In the case of Mr. Stephan, 1997 figures consist of the amounts described
under "Report of the Compensation Committee--Chief Executive Officer
Compensation." In the cases of Messrs. Waszak and Mantle, 1997 figures
consist of amounts described under "Transactions with Management and
Others." Remaining 1997 amounts, as well as other amounts in such column
consist of the dollar value of premiums paid on term or split-dollar life
insurance policies for the benefit of the Named Executive.
(8) Mr. Stephan began his employment with the Company as a consultant in July
1995 and was appointed President and Chief Executive Officer in September
1995. Mr. Stephan's annual salary compensation for 1995 includes $44,479
in wages earned as Chief Executive Officer and $121,366 in fees as a
consultant to the Company from July 1995 to September 1995. The
consulting expenses include both services and reimbursed expenses for
travel and other activities undertaken on the Company's behalf.
(9) Messrs. Stephan and Waszak resigned as officers of the Company in
December 1997.
(10) In fiscal January 1998, Mr. Brown assumed the position of President and
Chief Executive Officer of the Company.
(11) In July 1997, Mr. Mantle resigned as an Officer of the Company. Pursuant
to such resignation Mr. Mantle entered into an Executive Separation
Agreement with the Company in January 1998 which entitles him to certain
severance benefits. See "Transactions with Management and Others." Mr.
Mantle began his employment with the Company in November 1995.
(12) Mr. Asten began his employment with Vertel in November 1995. He is not an
executive officer of the Company.
STOCK OPTION GRANTS IN FISCAL YEAR 1997
No options to purchase the Company's Common Stock or Vertel Common Stock
were granted to the Named Executives during Fiscal Year 1997.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND YEAR-END OPTION VALUES
As of December 27, 1997, none of the Named Executives held options to
purchase the Company's Common Stock. Messrs. Brown and Asten, however, held
options to purchase 600,000 and 200,000 shares of Vertel Common Stock,
respectively. Such options are expected to be exchanged pursuant to the Option
Exchange for options to purchase 752,000 shares of the Company's Common Stock
in the case of Mr. Brown and options to purchase 252,000 shares of the
Company's Common Stock in the case of Mr. Asten. Neither Mr. Asten nor
Mr. Brown exercised any options to purchase Vertel Common Stock during fiscal
year 1997. The value of unexercised, in-the-money, options held by Messrs.
Brown and Asten at December 27, 1997, assuming the consummation of the Option
Exchange as of such date, and based on the closing price for the Company's
Common Stock on the Nasdaq National Market as of such date, was $904,310 for
exercisable options and $347,815 for unexercisable options in the case of Mr.
Brown and $434,763 for exercisable options and $191,300 for unexercisable
options in the case of Mr. Asten.
19
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Non-employee members of the Company's Board of Directors are eligible to
receive cash compensation and options to purchase shares of Common Stock in
connection with their service on the Board.
See "Report of the Compensation Committee--Chief Executive Officer
Compensation" for a description of certain transactions related to Mr.
Stephan's termination of employment with the Company.
In accordance with the terms of a pre-existing Employment Agreement between
the Company and Mr. Mantle, in connection with his termination, Mr. Mantle is
entitled to receive a payment of $230,000, which is the equivalent of one
year's base salary plus a target bonus. Under this employment agreement,
shares of Common Stock held by Mr. Mantle shall continue to be released from
the repurchase option in favor of the Company in accordance with their normal
schedule until July 15, 1998. As of July 15, 1998, fifty percent (50%) of any
shares held by Mr. Mantle which continue to be subject to a repurchase option
as of such date, will also be released from such option. In addition, the
Company and Mr. Mantle have also entered into an Executive Separation
Agreement pursuant to which the Company will pay Mr. Mantle a one-time
severance payment of $108,000. The Company has also agreed to forgive $106,222
of accrued interest on certain promissory notes payable to the Company and
amend such notes such that they will not accrue interest on an ongoing basis;
the Company and Mr. Mantle had originally intended for such notes to be non-
interest bearing. Under the original terms of the Employment Agreement, the
term of such notes expire four years after Mr. Mantle's termination.
Mr. Mantle will continue to provide consulting services to the Company until
July 15, 1999 and has agreed to release the Company from any and all claims
arising out of his employment relationship with the Company.
Mr. Waszak has entered into an Executive Separation Agreement with the
Company in connection with his resignation from the Company. Mr. Waszak's
Executive Separation Agreement provides that he shall receive severance
payments equivalent to six months' salary, or $85,000, as well as a one-time
severance payment of $100,000. In addition, the Company has agreed to forgive
$68,356 of accrued interest on certain promissory notes payable to the Company
and amend such notes such that they will not accrue interest on an ongoing
basis; the Company and Mr. Waszak had originally intended for such notes to be
non-interest bearing. The term of such notes, which ordinarily would have
expired upon his resignation, have been extended until December 31, 1998. In
addition, all shares of Common Stock held by Mr. Waszak which are subject to a
repurchase option in favor of the Company shall be released from such
repurchase option. Mr. Waszak has agreed to release the Company from any and
all claims arising out of his employment relationship with the Company.
See note (6) to "Compensation of Executive Officers--Summary Compensation
Table" regarding certain promissory notes described in the preceeding three
paragraphs.
The Company has entered into indemnification agreements with each of its
directors and officers, which may require the Company, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors or officers, to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' liability insurance if
available on reasonable terms.
20
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
certain reports of ownership with the SEC and with the National Association of
Securities Dealers. Such officers, directors and shareholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms that they file.
Based solely on the Company's review of filings made in response to Section
16(a) of the Exchange Act by persons required to make such filings and written
representations from certain of these persons, the Company believes that for
the fiscal year ended December 27, 1997 its officers, directors and ten-
percent shareholders complied with all Section 16(a) filing requirements.
However, based on a further review of prior year filings, the Company believes
Mr. Johnson failed to report timely one automatic option grant under the 1991
Directors' Stock Option Plan for fiscal year 1993; Messrs. Johnson and Hynes
each failed to report timely one automatic grant for fiscal 1995; and Messrs.
Johnson, Hynes and Williamson each failed to report timely one automatic grant
under the 1996 Directors' Stock Option Plan during fiscal 1996. Corrective
filings for each of these grants was made promptly upon the discovery of the
foregoing.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 1999 Annual Meeting must be received by
the Company no later than October 30, 1998, in order that they may be included
in the proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting or any
postponement(s) or adjournment(s) thereof, it is the intention of the persons
named in the enclosed form of Proxy to vote the shares they represent as the
Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ CRAIG W. JOHNSON
CRAIG W. JOHNSON
Secretary
Dated: March 6, 1998
21
<PAGE>
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF RETIX
1998 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Retix, a California corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement, each dated March 6, 1998, and hereby appoints James Brill, proxy
and attorney-in-fact, with full power to each of substitution, on behalf and
in the name of the undersigned to represent the undersigned at the 1998 Annual
Meeting of Shareholders of Retix to be held on March 31, 1998 at 9:00 a.m.,
local time, at 21300 Victory Boulevard, Conference Room C, 1st floor, Woodland
Hills, California 91367 and at any postponement or adjournment thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to
vote if then and there personally present, on the matters set forth below:
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE ADOPTION OF
THE 1998 STOCK OPTION PLAN, FOR THE AMENDMENT TO COMPANY'S ARTICLES OF
INCORPORATION, FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE
LLP AS INDEPENDENT AUDITORS, AND AS SAID PROXY DEEMS ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.
(See reverse side)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
[X] Please mark
your votes
as in this
example
FOR all WITHHOLD
nominees authority to
listed to the vote for all
right (except nominees
1. Election of Directors as indicated) listed to the right
[ ] [ ]
Nominees: Class II:
Bruce Brown, Craig W. Johnson, Ralph Uugermann
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list above.
2. Proposal to approve the adoption of the Company's 1998 Stock Option Plan,
and the reservation of 5,200,000 shares of Common Stock for issuance
thereunder.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to approve an amendment to the Company's Articles of Incorporation
changing the name of the Company from Retix to Vertel Corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Proposal to approve the appointment of Deloitte & Touche LLP as the
independent auditors of the Company for the fiscal year ending January 2,
1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. In this discretion, upon such other matter or matters that may properly
come before the meeting and any postponement(s) or adjournment(s) thereof.
__________________________________ ___________________________________
Signature(s) Date
__________________________________ ___________________________________
Signature(s) Date
Note: (This Proxy should be marked, dated, signed by the shareholder(s) exactly
as his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If shares
are held by joint tenants or as community property, both should sign.)
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
