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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 Section 240.14a-11(c) or Section 240.14a-12
VERTEL CORPORATION
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF VERTEL(R)]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 13, 1999
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To The Shareholders of Vertel Corporation:
Notice is hereby given that the 1999 Annual Meeting of Shareholders (the
"Annual Meeting") of Vertel Corporation, a California corporation (the
"Company"), will be held at the Hilton Hotel, 6360 Canoga Avenue, Woodland
Hills, California 91367 on May 13, 1999, at 9:00 a.m., local time, for the
following purposes:
1. To elect the following Class I directors of the Company each to serve
for a two-year term: Jeffrey M. Drazan and Howard Oringer.
2. To authorize an amendment to the Company's 1998 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 2,500,000 shares to an aggregate of 7,700,000 shares.
3. To authorize an amendment to the Company's 1996 Directors' Stock
Option Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 200,000 shares to an aggregate of 560,000 shares.
4. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors for the Company for the fiscal year ending December 31, 1999.
5. To transact such other business as may properly come before the
meeting or any postponement(s) or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors of the Company has fixed the close of business on
April 5, 1999 as the record date for determining the shareholders entitled to
notice of and to vote at the Annual Meeting or any postponement(s) or
adjournment(s) 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.
Your proxy is revocable in accordance with the procedures set forth in the
attached Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Craig W. Johnson
Craig W. Johnson
Secretary
Woodland Hills, California
April 13, 1999
YOUR VOTE IS IMPORTANT
In order to assure your representation at the Annual Meeting, you are
requested to complete, sign and date the enclosed proxy as promptly as
possible and return it in the envelope provided.
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[LOGO OF VERTEL(R)]
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PROXY STATEMENT FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Vertel Corporation (the "Company"), a California corporation, for use at its
1999 Annual Meeting of Shareholders (the "Annual Meeting") to be held
Thursday, May 13, 1999, at 9:00 a.m., local time, or at any postponement(s) or
adjournment(s) 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 the Hilton Hotel, 6360 Canoga Avenue, 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. Effective as of
April 7, 1998, the Company changed its corporate name from Retix to Vertel
Corporation. In connection with the change of the Company's name, the
Company's symbol on the Nasdaq Stock Market also changed from "RETX" to
"VRTL."
These proxy solicitation materials were mailed on or about April 13, 1999 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:
Gordon L. Almquist, 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 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 (i) for
the election of the director nominees, (ii) for the amendment to the Company's
1998 Stock Option Plan, (iii) for the amendment to the Company's 1996
Directors' Stock Option Plan, (iv) for ratification of the
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appointment of the designated independent auditors and (v) as the proxy
holders deem advisable on other matters that may come before the Annual
Meeting, or any postponements or adjournments thereof, 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
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 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 April 5, 1999 are
entitled to notice of and to vote at the meeting. As of April 5, 1999,
25,128,362 shares of the Company's Common Stock were issued and outstanding.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
The Company's Bylaws currently provide for six directors. The Company's
Board of Directors currently consists of six persons, including three Class I
directors and three 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., 2000). Class I director Gilbert P. Williamson 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. Class II director Craig W. Johnson
has indicated that he intends to resign from the Company's Board of Directors
for reasons unrelated to the Company effective immediately prior to the Annual
Meeting. M.Y. (Joe) Stephan resigned as a Class I director in January 1999 for
reasons unrelated to the Company and the vacancy created by Mr. Stephan's
resignation was filled by Howard Oringer in February 1999. The Company intends
to recruit qualified director candidates to fill the Class I vacancy and Class
II vacancy created by the resignations of Mr. Williamson and Mr. Johnson,
respectively. At the Annual Meeting, two Class I directors will be elected.
The Board of Directors has nominated the two persons named below to serve as
Class I directors until the next Annual Meeting of Shareholders at which Class
I directors are elected and until their successors are duly elected and
qualified. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's two 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 two nominees for
director receiving the greatest number of votes cast at the Annual Meeting
will be elected.
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The names of the nominees for Class I director, and certain information
about them as of April 5, 1999, are set forth below:
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since
--------------- --- -------------------- --------------
<S> <C> <C> <C>
Jeffrey M. Drazan....... 40 General Partner, Sierra Ventures 1996
Howard Oringer.......... 56 Managing Director, Communications Capital Group 1999
</TABLE>
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. 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, FaxSav, an Internet-based document 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. Oringer has been a member of the Board of Directors of the Company since
his appointment in February 1999. Mr. Oringer has served as the Managing
Director of the Communications Capital Group, a consulting firm, since
November 1994. For more than five years prior to joining the Communications
Capital Group, Mr. Oringer was employed by Telesciences, Inc. a
telecommunications equipment manufacturing company, where he served most
recently as Chairman of the Board of Directors and Chief Executive Officer.
Mr. Oringer currently serves as a director of Verilink Corporation, a maker of
wide area network access products, Tekelec, Inc., a manufacturer of
telecommunications test equipment, and Digital Microwave Corporation, a
manufacturer of wireless telecommunications equipment. Mr. Oringer holds a
B.S. in Engineering from the Stevens Institute of Technology, an M.S. in
Electrical Engineering from the California Institute of Technology and an
M.B.A. from Santa Clara University.
Class II Directors
The names of the Company's Class II directors, and certain information about
them as of April 5, 1999, are set forth below:
<TABLE>
<CAPTION>
Name of Director Age Principal Occupation Director Since
---------------- --- -------------------- --------------
<S> <C> <C> <C>
Bruce W. Brown.......... 49 President and Chief Executive Officer of the Company 1997
Craig W. Johnson(1)..... 53 Chairman, Venture Law Group 1993
Ralph Ungermann......... 57 Chief Executive Officer, First Virtual Corporation 1997
</TABLE>
(1) Mr. Johnson has indicated that he intends to resign from the Company's
Board of Directors, for reasons unrelated to the Company, effective
immediately prior to the Annual Meeting.
Except as set forth below, each of the Class II directors has been engaged
in his principal occupation set forth above during the past five years.
Mr. Brown was elected to the position of President and Chief Executive
Officer of the Company in January 1998. From November 1995 until January 1998,
Mr. Brown was President and Chief Executive Officer of Vertel Corporation I, a
former operating subsidiary of the Company which merged into the Company and
whose business was substantially the same as the Company's. Mr. Brown joined
Vertel Corporation I in August 1995 and served as a director of Vertel
Corporation I from October 1995 until January 1998. Mr. Brown also served as
Chief Financial Officer of Vertel Corporation I from October 1995 to December
1996. Prior to joining Vertel Corporation I, 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 UB Networks
(previously named Ungermann-Bass), an
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enterprise networking company, 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. Johnson holds a B.A. from Yale
University and a J.D. from Stanford University.
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.
Tandem Computers was subsequently acquired by Compaq Computer Corporation in
1997. Mr. Ungermann holds a B.S. in Electrical Engineering from the University
of California at Berkeley and a M.S. in Electrical Engineering from the
University of California at Irvine.
Board Meetings and Committees
The Board of Directors of the Company held a total of eight meetings during
the fiscal year ended December 31, 1998. 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 Mr.
Williamson. The Company intends to appoint two non-employee directors to the
Audit Committee following Mr. Williamson's resignation from the Board of
Directors. During 1998, the Audit Committee consisted of Mr. Stephan and Mr.
Williamson. The Audit Committee held one meeting during fiscal year 1998. 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. Drazan and Johnson. The Company intends to appoint an additional non-
employee director to the Compensation Committee following Mr. Johnson's
resignation from the Board of Directors. The Compensation Committee held one
formal meeting during fiscal year 1998. The Compensation Committee makes
recommendations to the Board of Directors regarding the Company's executive
compensation policy.
During 1998, 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, with the exception that Mr. Ungermann attended
three out of the eight meetings of the Board of Directors held during 1998.
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
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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 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 exchanged.
Except for automatic option grants under the 1996 Directors' Plan, non-
employee directors will not be eligible to receive any additional option
grants or stock issuances under the 1996 Directors' Plan. The 1996 Directors'
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 same terms
and conditions of the 1996 Directors' Plan. No additional options are being
issued under the Company's 1991 Director's Stock Option Plan. Directors of the
Company are eligible to receive discretionary awards under the Company's 1998
Stock Option Plan and non-statutory stock options outside of the 1998 Stock
Option Plan. See "Transactions with Management and Others.".
In addition, Messrs. Drazan, Ungermann and Williamson (the "Subsidiary
Directors") were also members of the Board of Directors of the Company's
former operating subsidiary, Vertel Corporation I. In such capacity, the
Subsidiary Directors received options to purchase shares of Vertel Corporation
I's Common Stock pursuant to its 1996 Directors' Stock Option Plan. In
addition, Mr. Johnson, who was not a director of Vertel Corporation I, but
acted as its Secretary, received options to purchase shares of Vertel
Corporation I's Common Stock pursuant to its 1996 Stock Option Plan. Venture
Law Group, A Professional Corporation, a law firm of which Mr. Johnson is a
director and shareholder, also acted as legal counsel to Vertel Corporation I.
An investment partnership affiliated with this law firm and another director
and shareholder of this law firm received options to purchase shares of Vertel
Corporation I's Common Stock pursuant to its 1996 Stock Option Plan.
As a result of their position as directors of Wireless Solutions, a former
direct subsidiary of the Company, Messrs. Drazan, 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 Corporation I, these options were converted into options to purchase
shares of Vertel Corporation I's Common Stock.
All of the options held by Messrs. Drazan, Johnson, Ungermann and Williamson
for shares of Vertel Corporation I and Wireless Solutions Common Stock were
subsequently converted into options to purchase Common Stock of the Company
pursuant to an Option Exchange approved by the shareholders of the Company at
the Company's 1998 Annual Meeting of Shareholders. As a result of the
foregoing transactions, Messrs. Drazan, Johnson (including shares issued to
Venture Law Group and other directors of Venture Law Group), Ungermann and
Williamson received options to purchase a total of 18,224, 15,074, 31,500 and
18,224 shares, respectively, of the Company's Common Stock in excess of shares
to which they were otherwise entitled under the Company's 1996 Directors'
Stock Option Plan.
In November 1998, the Company repurchased 1,025,000 shares of its Common
Stock from M.Y. (Joe) Stephan, a former director of the Company, in exchange
for the cancellation of a promissory note with a principal amount of
$2,695,625 and the release of certain claims. Mr. Stephan resigned as a member
of the Board of Directors in January 1999.
Directors who are employees of the Company do not receive any additional
compensation for their services as directors.
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Required Vote
The two 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 THE TWO NOMINEES LISTED ABOVE.
PROPOSAL NO. 2
AMENDMENTS TO THE COMPANY'S 1998 STOCK OPTION PLAN
At the Annual Meeting, shareholders are being asked to approve amendments to
the Company's 1998 Stock Option Plan (the "1998 Plan") to increase the number
of shares reserved for issuance thereunder by 2,500,000 shares to a total of
7,700,000 shares. The following is a summary of principal features of 1998
Plan. This summary, however, does not purport to be a complete description of
all the provisions of the 1998 Plan. Any shareholder of the Company who wishes
to obtain a copy of the actual plan document may do so upon written request to
the Chief Financial Officer at the Company's principal offices at 21300
Victory Boulevard, Suite 1200, Woodland Hills, California 91367.
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
continue in effect until May 2008, unless terminated earlier. 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.
The 1998 Plan was adopted by the Company's Board of Directors in December
1997 and approved by the shareholders at the Company's Annual Meeting of
Shareholders in March 1998. As of March 1, 1999, 422,094 shares of Common
Stock have been issued upon exercise of options granted under the 1998 Plan,
options to purchase 4,675,541 shares of Common Stock were outstanding and
102,365 shares remained available for future grant under the 1998 Plan
(without taking into account the proposed amendment for which shareholder
approval is being sought). As of March 1, 1999, the aggregate fair market
value of shares subject to options outstanding under the 1998 Plan was
approximately $8,182,000, based upon the closing price of the Common Stock on
The Nasdaq Stock Market as of such date. The actual benefits, if any, to the
holders of stock options granted under the 1998 Plan are not determinable
prior to the exercise of options as the value, if any, of such options to
their holders is represented by the difference between the market price of a
share of the Company's Common Stock on the date of exercise and the exercise
price of the holders' option, as set forth below. As of March 1, 1999, the
following Named Executive Officers (as defined herein) and directors of the
Company have received grants under the 1998 Plan: Mr. Brown (1,506,000 shares,
of which 756,000 shares were issued upon conversion of existing subsidiary
options); Mr. Curtis (182,299 shares, of which 132,299 shares were issued upon
conversion of existing subsidiary options); Mr. Irani (200,000 shares, of
which 189,000 shares were issued upon conversion of existing subsidiary
options); Mr. Rampey (236,000 shares, of which 126,000 shares were issued upon
conversion of existing subsidiary options); Ms. Yu (276,400 shares, of which
176,400 shares were issued upon conversion of existing subsidiary options);
and Messrs. Drazan, Johnson, Ungermann and Williamson, of which 18,224, 3,734,
31,500 and 18,224 shares, respectively, were issued upon conversion of
existing subsidiary options. In addition, as of such date, options to purchase
2,203,160 shares of Common Stock are held by all current employees (including
officers of the Company but excluding the Named Executive Officers).
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Purpose
The purposes of the 1998 Plan are 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.
Administration
The 1998 Plan is administered by the Board of Directors and the Compensation
Committee of the Board of Directors. The Compensation Committee has 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 the
Compensation Committee receive no additional compensation for their services
in connection with the administration of the 1998 Plan. All questions of
interpretation of the 1998 Plan are determined by the Board of Directors or
the Compensation Committee, whose decisions are final and binding upon all
participants.
Eligibility
The 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 1998 Plan provides that nonstatutory stock options may be
granted to employees and consultants of the Company, its subsidiaries or
Affiliates. Under the terms of the 1998 Plan, outside directors of the Company
are eligible to receive grants as consultants. The Board of Directors or the
Compensation Committee selects the optionees and determines 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 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 the Compensation
Committee determines when options may be exercised. An option is exercised
by giving written notice of exercise to the Company specifying the 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 the Compensation Committee and
specified in the option agreement, and such form of consideration may vary
for each option.
(b) Exercise Price and Consideration. The exercise price under the 1998
Plan is determined by the Board of Directors or the Compensation 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 average of the closing prices on the
Nasdaq Stock Market for the five trading days preceding 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
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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. The
consideration to be paid upon exercise of options shall be determined by
the administrator and may include cash, check or other forms of
consideration permitted under the 1998 Plan.
(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 three months
(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. However, the 1998 Plan provides
that the Board of Directors or the Compensation Committee may extend such
exercise periods following termination, in its discretion. 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 twelve months, unless otherwise
extended, as is determined by the Board of Directors or the Compensation
Committee) 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 twelve 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 three months (or such other period of
time not exceeding three months, unless otherwise extended, as is
determined by the Board of Directors or the Compensation Committee) 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 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 Plan gives the administrator the discretion to grant a
non-statutory stock option with limited transferability rights (to a
charitable trust, to a living trust or to the optionee's immediate family
members).
8
<PAGE>
(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 tax 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 that 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 annual limitation on grants to employees described in the 1998 Plan or
results in other changes that 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 May 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 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).
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
9
<PAGE>
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 income 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
upon sale of the shares 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. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee
upon such a sale prior to expiration of the holding periods. 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 20% whereas
the maximum federal tax rate on other income is 39.6%. 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.
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.
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, $33,750 for unmarried individual returns and
$22,500 in the case of married taxpayers filing separately (which exemption
amounts are phased out for upper-income taxpayers). 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.
10
<PAGE>
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 approval of the amendments to the 1998 Plan.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR APPROVAL OF THE AMENDMENTS TO
THE 1998 PLAN.
PROPOSAL NO. 3
AMENDMENTS TO THE COMPANY'S 1996 DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders are being asked to approve
amendments to the Company's 1996 Directors' Stock Option Plan (the "Directors'
Plan") in order to increase the number of shares available for issuance
thereunder by 200,000 shares to an aggregate of 560,000 shares. The following
is a summary of principal features of the Directors' Plan. This summary,
however, does not purport to be a complete description of all the provisions
of the Directors' Plan. Any shareholder of the Company who wishes to obtain a
copy of the actual plan document may do so upon written request to the Chief
Financial Officer at the Company's principal offices at 21300 Victory
Boulevard, Woodland Hills, California 91367.
General and Purpose
The Directors' Plan provides for the grant of nonstatutory stock options to
non-employee directors of the Company. It is designed to work automatically
and not to require administration; however, to the extent administration is
necessary, it will be provided by the Board of Directors.
The Directors' Plan was adopted by the Board of Directors in January 1996
and approved by the shareholders in June 1996. As of March 1, 1999, 20,000
shares of Common Stock have been issued upon exercise of options granted under
the Directors' Plan, options to purchase 260,000 shares of Common Stock were
outstanding and 80,000 shares remained available for future grant under the
Directors' Plan (without taking into account the proposed amendment for which
shareholder approval is being sought). As of March 1, 1999, the aggregate fair
market value of shares subject to options outstanding under the Directors'
Plan was approximately $455,000, based upon the closing price of the Common
Stock on The Nasdaq Stock Market as of such date. The actual benefits, if any,
to the holders of stock options granted under the Directors' Plan are not
determinable prior to the exercise of options as the value, if any, of such
options to their holders is represented by the difference between the market
price of a share of the Company's Common Stock on the date of exercise and the
exercise price of the holders' option, as set forth below. As of March 1,
1999, the following non-employee directors of the Company have received grants
under the Directors' Plan: Mr. Drazan (70,000 shares); Mr. Johnson (70,000
shares); Mr. Oringer (40,000 shares); Mr. Ungermann (10,000 shares); and Mr.
Williamson (70,000 shares). If the proposed amendment to increase the number
of shares available for grant under the Directors' Plan is approved by the
shareholders at the Annual Meeting and the Class I directors are elected as
proposed (see Proposal No. 1 above), the following non-employee directors will
receive options to purchase the number of shares of Common Stock indicated
between the date of the Annual Meeting and the date of next year's annual
meeting of shareholders: Mr. Drazan (10,000 shares); Mr. Oringer (10,000
shares); and Mr. Ungermann (10,000 shares) (such grants take into account the
anticipated resignations of Messrs. Johnson and Williamson).
11
<PAGE>
The purposes of the Directors' Plan are to provide an incentive for
directors to continue to serve the Company as directors and to assist the
Company in recruiting highly qualified individuals when vacancies occur on the
Board of Directors.
The Directors' Plan is not a qualified deferred compensation plan under
Section 401(a) of the Internal Revenue Code and is not subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
Grant and Exercise of Option
The Directors' Plan provides that each person who becomes a non-employee
director after the effective date of the Directors' Plan shall be
automatically granted a "First Option" to purchase 40,000 shares of Common
Stock on the date on which such person first becomes a non-employee director,
whether through election by the shareholders of the Company or appointment by
the Board of Directors to fill a vacancy. A "Subsequent Option" to purchase
10,000 shares of Common Stock is automatically granted to each non-employee
director on the first day of each fiscal year, provided that on that date the
non-employee director has served on the Board of Directors for at least six
months.
The Directors' 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 that may be included in
any grant and the method of making a grant. No option granted under the
Directors' Plan is transferable by the optionee other than by will or the laws
of descent or distribution or pursuant to the terms of a qualified domestic
relations order (as defined by the Code), and each option is exercisable,
during the lifetime of the optionee, only by such optionee.
The Directors' Plan provides that each First Option granted thereunder
becomes exercisable in installments cumulatively as to 25% of the Shares
subject to the First Option on each of the first, second, third and fourth
anniversaries of the date of grant of the First Option, and as to 100% of the
Shares subject to the Subsequent Option on the fourth anniversary of the date
of grant of the Subsequent Option. The options remain exercisable for up to
ninety days following the optionee's termination of service as a director of
the Company, unless such termination is a result of death, in which case the
options remain exercisable for up to a six-month period, or disability, in
which case the options remain exercisable for up to a six-month period.
During the fiscal year ended December 31, 1998, the following non-employee
directors each received an option to purchase 10,000 shares of the Company's
Common Stock: Mr. Drazan, Mr. Johnson, Mr. Ungermann and Mr. Williamson.
Exercise Price and Term of Options
The exercise price of all stock options granted under the Directors' Plan
shall be equal to the fair market value of a share of the Company's Common
Stock on the date of grant of the option, which is defined to be the closing
sale price of the Company's Common Stock on The Nasdaq Stock Market on the
immediately preceding trading date. Options granted under the Directors' Plan
have a term of ten years.
Merger or Sale of Assets
In the event of the dissolution or liquidation of the Company, a sale of all
or substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving corporation or any other capital reorganization
in which more than 50% of the shares of the Company entitled to vote are
exchanged, each non-employee director shall either (a) be given a reasonable
time within which to exercise the option, including any part of the option
that would not otherwise be exercisable, prior to the effectiveness of such
dissolution, liquidation, sale, merger or reorganization, at the end of which
time the option shall terminate, or (b) receive the right to exercise the
option, including as to shares
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<PAGE>
underlying the option which would not otherwise be exercisable (or receive a
substitute option with comparable terms, as to an equivalent number of shares
of stock of the successor corporation).
Amendment and Termination
The Board of Directors may at any time amend or terminate the Directors'
Plan, except that such termination cannot affect options previously granted
without the agreement of any optionee so affected. Notwithstanding the
foregoing, the provisions regarding the grant of options under the Directors'
Plan may be amended only once in any six-month period, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder.
If not terminated earlier, the Directors' Plan will expire in 2006.
U.S. Federal Income Tax Information
The following is a brief summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Plan, and does not purport to be complete, and
does not discuss the income tax laws of any municipality, state or foreign
country in which an optionee may reside. The Company advises all eligible
directors 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 Directors' Plan.
Options granted under the Directors' Plan are nonstatutory stock options. An
optionee will not recognize any taxable income under U.S. tax law at the time
he or she is granted a nonstatutory stock option. However upon its exercise,
the optionee will generally recognize ordinary income for U.S. income tax
purposes measured by the excess of the then fair market value of the shares
over the option price. Upon resale of such shares by the optionee, any
difference between the sale price and the exercise price, to the extent not
recognized as ordinary income as provided above, will be treated as capital
gain (or loss), and will be long-term capital gain if the optionee has held
the shares more than one year. The Company will be entitled to a tax deduction
in the amount and at the time that the optionee recognizes ordinary income
with respect to shares acquired upon exercise of a nonstatutory stock option.
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 approval of the amendments to the Directors' Plan.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE APPROVAL OF THE AMENDMENT
OF THE 1996 DIRECTORS' STOCK OPTION PLAN.
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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 December 31, 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 March 1, 1999 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 Executive
Officers as defined in the Summary Compensation Table herein, and (iv) all
directors, Named Executive Officers and executive officers as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Owned(1)
---------------------
5% Shareholders, Directors, Named
Executive Officers, and Directors, Named Percent
Executives and Executive Officers as a Group Number(2) of Total
- -------------------------------------------- ------------- ----------
<S> <C> <C>
Sierra Ventures...................................... 4,457,627 17.7%
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, California 94025
Jeffrey M. Drazan(2)(3).............................. 42,185 *
Craig W. Johnson(2)(4)............................... 63,733 *
Howard Oringer(2).................................... 0 --
Gilbert P. Williamson(2)............................. 67,185 *
Bruce W. Brown(2).................................... 569,400 2.2%
Ralph Ungermann(2)................................... 19,425 *
Jeffrey Curtis(2).................................... 82,686 *
Cyrus Irani(2)....................................... 120,836 *
Fred Rampey(2)....................................... 41,998 *
Ningning Yu(2)....................................... 113,925 *
All directors, Named Executive Officers and executive
officers as a group (11 persons).................... 1,121,373 4.3%
</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 March 1, 1999 as follows: Mr. Drazan (42,185); Mr.
Johnson (63,733); Mr. Williamson (67,185); Mr. Brown (567,000); Mr.
Ungermann (19,425); Mr. Curtis (82,686); Mr. Irani (117,139); Mr. Rampey
(41,998); and Ms. Yu (113,925).
(3) Total excludes 4,457,627 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) 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.
15
<PAGE>
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 set forth herein 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 basis on which
fiscal 1998 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
Executive Officers").
The Compensation Committee of the Board of Directors is currently composed
of two 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 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 Vertel Corporation. 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. In 1998,
the Board of Directors approved discretionary performance-based cash bonuses
for each of the Company's Vice Presidents and the Chief Executive Officer
pursuant to a Management Incentive Plan. The Management Incentive Plan
authorizes cash bonuses equal to a certain percentage of base salary for all
executive vice presidents and the Chief Executive Officer based upon
sequential quarterly operating revenues and annual profits of the Company.
During 1998, Bruce Brown, Cyrus Irani and Fred Rampey earned bonuses under
such plan equal to 33%, 43%, and 42%, respectively, of such officer's targeted
bonus amount for 1998.
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<PAGE>
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 the Company's strategic plans, day-to-day management and growth
with an opportunity to increase their ownership of the Company's stock, the
best interests of shareholders and 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.
During 1998, the members of the Company's Compensation Committee felt that,
in light of the market for qualified technology industry executives, it was
important to provide an environment in which management was comfortable
operating with a view towards the Company's long-term performance, without the
distractions associated with short-term fluctuations in the Company's
operating results or the possible effects of a merger or acquisition of the
Company. As a result, the Company's Compensation Committee in October 1998
approved a Retention Agreement for each employee of the Company at the Vice
President level and above, including the Chief Executive Officer. Under the
terms of the Retention Agreements, these officers have agreed to continue to
be employed by the surviving corporation for at least six (6) months following
a merger or acquisition of the Company and in consideration, the Company has
agreed that if the officer's employment with such entity is involuntarily
terminated within the first year following such a change of control, the
officer will be entitled (a) to continue to receive his or her regular salary
for one (1) year following such termination (b) to receive a bonus equal to
one-half (1/2) of such officer's average bonus during each of the preceding
three (3) years, and (c) to have the vesting with respect to any options or
restricted stock then held by such officer accelerated such that the number of
vested shares is equivalent to that number that would have vested had the
officer continued to be employed by the surviving entity for two (2) years
following the change of control. See "Transactions With Management and
Others."
Chief Executive Officer Compensation
Mr. Brown was paid a base salary of $228,980 during 1998 and earned a bonus
of $22,900. In determining the compensation package of the Chief Executive
Officer, the Compensation Committee considered the Company's overall
performance in 1998, as well as the factors listed above which are considered
for each executive officer. The Compensation Committee believes that Mr.
Brown's 1998 compensation package includes the necessary base compensation
level required to attract and retain a qualified Chief Executive Officer.
In evaluating Mr. Brown's compensation for 1999, the Compensation Committee
considered the amount of his current stock ownership, including the portion
that was unvested, changes in the compensation for similarly situated Chief
Executives and the relative level of difficulty involved in attaining his
bonus-related objectives. Based on these, as well as other factors, the Board
set Mr. Brown's annual salary at $265,000 and set his target bonus amount at
$132,500. Mr. Brown's target bonus amount for 1999 may be earned based upon
meeting or exceeding certain consolidated pre-tax income and revenue for each
quarter during 1999 and other performance criteria, such as increasing the
visibility of the Company in the investment community, increasing shareholder
value, expansion activities, recruiting and achieving Year 2000 compliance.
As a senior member of management, Mr. Brown also entered into a Retention
Agreement on the terms described above.
17
<PAGE>
Compliance with Internal Revenue code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation
exceeding $1 million paid to certain of the corporation's executive officers.
However, compensation which qualifies as "performance-based" is excluded from
the $1 million limit if, among other requirements, the compensation is payable
upon attainment of pre-established, objective performance goals under a plan
approved by the shareholders.
The compensation paid to the Company's executive officers for the 1998
fiscal year did not exceed the $1 million limit per officer, nor is it
expected that the compensation to be paid to the company's executive officers
for fiscal 1999 will exceed that limit. The Company's 1998 Stock Option Plan
is structured so that any compensation income realized by an executive officer
as a result of the exercise of an outstanding option or the sale of option
shares under the 1998 Stock Option Plan would qualify as "performance-based"
compensation which will not be subject to the $1 million limitation. Because
it is very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach the $1 million
limit, the Compensation Committee has decided at this time not to take any
other action to limit or restructure the elements of cash compensation payable
to the Company's executive officers. The Compensation Committee will continue
to monitor the compensation levels potentially payable under the Company's
cash compensation programs, but intends to retain the flexibility necessary to
provide total cash compensation in line with competitive practice, the
Company's compensation philosophy and the Company's best interests.
COMPENSATION COMMITTEE
Jeffrey M. Drazan
Craig W. Johnson
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 1998: Jeffrey M. Drazan, Craig W. Johnson and Gilbert P.
Williamson.
18
<PAGE>
PERFORMANCE GRAPH
The following graph compares, for the period from January 1, 1994 through
December 31, 1998, the cumulative total shareholder return for the Company,
the Standard & Poor's 500 Stock Index (the "S&P 500") and the Nasdaq
Telecommunications Index (the "Telecom Index").
Measurement points are the last trading days of the Company's fiscal years
ended December 31, 1994, December 30, 1995, December 28, 1996, December 27,
1997 and December 31, 1998. The graph assumes that $100 was invested on
January 1, 1994 in the Common Stock of Vertel Corporation, the S&P 500 and the
Telecom Index, and further assumes reinvestment of dividends. The investment
returns of each issuer within 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 VERTEL CORPORATION, S&P 500 AND NASDAQ TELECOM INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period VERTEL S&P
(Fiscal Year Covered) CORPORATION 500 TELECOM INDEX
- ------------------- ----------- --------- -------------
<S> <C> <C> <C>
FYE 1994 $ 40.51 $101.32 $121.44
FYE 1995 $ 21.52 $139.40 $139.33
FYE 1996 $ 68.35 $171.40 $142.46
FYE 1997 $ 47.46 $228.58 $210.96
FYE 1998 $ 17.09 $293.91 $344.31
</TABLE>
* Assumes $100 invested at 1/1/94 in Common Stock of the Company and in each
of the comparative indices.
19
<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 1998 (the "Named
Executive Officers"), and the compensation received by each such individual
for the Company's two prior fiscal years.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary(1) Bonus(2)(3) Compensation Options Compensation(4)
------------------ ---- --------- ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Bruce Brown............. 1998 $228,980 $22,900 -- -- $ 609
President and Chief 1997 205,223 11,875 -- -- 1,315
Executive Officer 1996 201,218 13,500 -- -- --
Jeffrey Curtis(5)....... 1998 110,192 50,326 -- -- 33
Former Vice President, 1997 82,039 61,733 -- -- --
Sales, Americas and 1996 70,000 38,157 -- -- --
Asia Pacific
Cyrus Irani............. 1998 142,907 14,700 -- -- 326
Vice President, 1997 121,501 6,175 -- -- --
Professional 1996 84,923 -- -- -- --
Services
Fred Rampey............. 1998 157,590 15,700 -- -- 357
Vice President, 1997 8,324 -- -- -- --
Engineering 1996 -- -- -- -- --
Ningning Yu(6).......... 1998 132,305 -- -- -- 357
Former Vice President, 1997 115,415 29,810 -- -- --
Engineering 1996 93,052 16,000 -- -- --
</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) Amounts represent life insurance premiums paid by the Company on behalf of
such Named Executive Officer during the period indicated.
(5) Mr. Curtis resigned from the Company in January 1999.
(6) Ms. Yu resigned from the Company in January 1999.
20
<PAGE>
STOCK OPTION GRANTS IN FISCAL YEAR 1998
The following table provides information with respect to the stock option
grants made during the year ended December 31, 1998 under the Company's 1998
Stock Option to the Named Executive Officers. No stock appreciation rights
were granted to these individuals during such fiscal year.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------------
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of
Securities Granted to Stock Price Appreciation
Underlying Employees Exercise or for Option Term ($) (2)
Options in Fiscal Base Price Expiration -------------------------
Name Granted Year(1) ($ per share) Date 5% ($) 10% ($)
- ---- ---------- ---------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce Brown (5)......... 378,000 7.4% $0.79365 11/01/05 188,668 478,122
378,000 7.4% $3.96825 10/01/06 943,341 2,390,611
Jeffrey Curtis (3) (5).. 132,299 2.6% $2.23015 06/09/07 185,553 470,228
50,000 1.0% $1.45000 09/28/08 45,595 115,546
Cyrus Irani (5)......... 50,400 1.0% $0.79365 03/18/06 25,156 63,750
25,200 0.5% $3.96825 04/14/07 62,889 159,374
88,200 1.7% $1.98412 07/05/07 110,056 278,904
25,200 0.5% $1.98412 10/09/06 31,445 79,687
11,000 0.2% $1.45000 09/28/08 10,031 25,420
Fred Rampey (5)......... 126,000 2.5% $3.69047 12/17/07 292,436 741,089
10,000 0.2% $1.45000 09/28/08 9,119 23,109
Ningning Yu (4) (5)..... 176,400 3.5% $2.23015 06/09/07 247,406 626,976
100,000 2.0% $2.53125 07/14/08 159,189 403,416
</TABLE>
(1) Based on options to purchase an aggregate of 5,097,635 shares (net of
cancellations) granted to employees (including employee directors) during
the fiscal year ended December 31, 1998. The foregoing total excludes
options granted to consultants and non-employee directors.
(2) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately
prior to the expiration of their terms, assuming the specified compounded
rates of appreciation of the exercise price per share from the date of
grant to the end of the option term. Actual gains, if any, on stock option
exercises are dependent upon a number of factors, including the future
performance of the Common Stock and the timing of the option exercises, as
well as the optionee's continued employment through the term of the
option. There can be no assurance that the amounts reflected in this table
will be achieved.
(3) Mr. Curtis resigned from the Company in January 1999.
(4) Ms. Yu resigned from the Company in January 1999.
(5) At the Company's Annual General Meeting of Shareholders in March 1998, the
Shareholders approved the conversion of certain existing subsidiary
options to options of the Company. The shares issued on conversion are
included above and total 756,000 shares for Mr. Brown; 132,299 shares for
Mr. Curtis; 189,000 shares for Mr. Irani; 126,000 shares for Mr. Rampey;
and 176,400 shares for Ms. Yu.
21
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain summary information concerning shares
of Common Stock acquired upon exercise of stock options and represented by
outstanding stock options, for each of the Named Officers as of December 31,
1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options
Shares End at Fiscal Year-End (1)
Acquired On Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce Brown............. -- -- 541,800 214,200 338,820 --
Jeffrey Curtis (2)...... -- -- 82,686 99,613 -- 12,000
Cyrus Irani............. -- -- 103,477 96,523 45,176 2,640
Fred Rampey............. -- -- 31,499 104,501 -- 2,400
Ningning Yu (3)......... -- -- 110,250 166,150 -- --
</TABLE>
- --------
(1) Determined based on the closing price of the Company's Common Stock as
reported on The Nasdaq Stock Market on December 31, 1998 ($1.69 per
share).
(2) Mr. Curtis resigned from the Company in January 1999.
(3) Ms. Yu resigned from the Company in January 1999.
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 "Proposal No. 1 Compensation
of Directors."
During 1998, the Company repurchased 1,025,000 shares of its Common Stock
from M.Y. (Joe) Stephan, a former director of the Company, in exchange for the
cancellation of a promissory note with a principal amount of $2,695,625 and
the release of certain claims. Mr. Stephan resigned as a member of the Board
of Directors in January 1999.
On January 5, 1999, the Company entered into a Consulting Agreement with Mr.
Stephan pursuant to which Mr. Stephan agreed to be retained by the Company to
provide certain consulting services to the Company from January 5, 1999
through December 31, 2001. In consideration for entering into such Consulting
Agreement, on January 5, 1999, Mr. Stephan was granted a fully vested
nonstatutory stock option to purchase 256,250 shares of the Company's Common
Stock.
On January 26, 1999, Howard Oringer, a director of the Company, received a
nonstatutory stock option exercisable for up to 50,000 shares of Common Stock.
Such stock option was granted outside of the 1998 Stock Option Plan and vests
over 20 (twenty) days of consulting services rendered by Mr. Oringer at a rate
of 2,500 shares per such day of consulting services rendered. Also on January
26, 1999, Mr. Oringer received a second nonstatutory stock option exercisable
for up to 50,000 shares of Common Stock. Such second stock option was granted
outside of the 1998 Stock Option Plan and vests at the rate of 25,000 shares
upon the closing of each of up to two acquisitions pursuant to which the
Company acquires all or substantially all of the acquired company's assets or
capital stock or through a merger with any such acquired company; provided,
however, that the Company's financial model for any such acquisition shall
provide the Company with a minimum of $5 million in annual revenue to the
Company on a consolidated basis.
The Company entered into Retention Agreements with each of its Vice
Presidents and the Chief Executive Officer, which agreements are described
herein under "Report of the Compensation Committee--Executive Compensation
Principles."
22
<PAGE>
On January 12, 1999, the Company entered into an Employment Agreement with
Bruce Brown, President and Chief Executive Officer, which governs any
termination of Mr. Brown's employment that occurs prior to any change of
control as contemplated by the Company's Retention Agreement with Mr. Brown
dated October 23, 1998. Such Employment Agreement terminates upon a change of
control and provides, among other things, that in the event of an involuntary
termination, Mr. Brown shall receive (i) a severance payment equal to 12
(twelve) months' salary, which amount shall be paid in one lump sum payment
within two weeks of the date of such involuntary termination; (ii) a pro-rated
portion of any target quarterly bonus accrued to Mr. Brown through the date of
such involuntary termination; and (iii) continuation of health insurance
benefits for 12 (twelve) months following such termination date. Under the
terms of his Employment Agreement, Mr. Brown agrees to certain non-competition
and non-solicitation provisions during the term of his employment and any
severance period.
On January 12, 1999, the Company entered into an Employment Agreement with
Cyrus Irani, Vice President Professional Services Unit, which governs any
termination of Mr. Irani's employment that occurs prior to any change of
control as contemplated by the Company's Retention Agreement with Mr. Irani
dated October 23, 1998. Such Employment Agreement terminates upon a change of
control and provides, among other things, that in the event of an involuntary
termination, Mr. Irani shall a receive severance payment equal to: (i) either
(A) an amount equal to 12 (twelve) months' salary if such termination occurs
within the first year following the date of the Employment Agreement, or (B)
an amount equal to 6 (six) months' salary if such termination occurs after the
first year following the date of the Employment Agreement, with such amount to
be paid in one lump sum payment within two weeks of the date of such
involuntary termination; (ii) a pro-rated portion of any target quarterly
bonus accrued to Mr. Irani through the date of such involuntary termination;
and (iii) continuation of health insurance benefits for the applicable
severance period. Under the terms of his Employment Agreement, Mr. Irani
agrees to certain non-competition and non-solicitation provisions during the
term of his employment and any applicable severance period.
On January 12, 1999, the Company entered into an Employment Agreement with
Gordon Almquist, Vice President Finance & Administration and Chief Financial
Officer, which governs any termination of Mr. Almquist's employment that
occurs prior to any change of control as contemplated by the Company's
Retention Agreement with Mr. Almquist dated October 23, 1998. Such Employment
Agreement terminates upon a change of control and provides, among other
things, that in the event of an involuntary termination, Mr. Almquist shall
receive a severance payment equal to: (i) either (A) an amount equal to 12
(twelve) months' salary if such termination occurs within the first year
following the date of the Employment Agreement, or (B) an amount equal to 9
(nine) months' salary if such termination occurs after the first year
following the date of the Employment Agreement, with such amount to be paid in
one lump sum payment within two weeks of the date of such involuntary
termination; (ii) a pro-rated portion of any target quarterly bonus accrued to
Mr. Almquist through the date of such involuntary termination; and (iii)
continuation of health insurance benefits for the applicable severance period.
Under the terms of the Employment Agreement, Mr. Almquist agrees to certain
non-competition and non-solicitation provisions during the term of his
employment and any applicable severance period.
On January 12, 1999, the Company entered into an Employment Agreement with
Ruth Cox, Vice President Marketing, which governs any termination of Ms. Cox'
employment that occurs prior to any change of control as contemplated by the
Company's Retention Agreement with Ms. Cox dated October 23, 1998. Such
Employment Agreement terminates upon a change of control and provides, among
other things, that in the event of an involuntary termination, Ms. Cox shall
receive a severance payment equal to: (i) either (A) an amount equal to 12
(twelve) months' salary if such termination occurs within the first year
following the date of the Employment Agreement, or (B) an amount equal to 6
(six) months' salary if such termination occurs after the first year following
the date of the Employment Agreement, with such amount to be paid in one lump
sum payment within two weeks of the date of such involuntary termination; (ii)
a pro-rated portion of any target quarterly bonus accrued to Ms. Cox through
the date of such involuntary termination; and (iii) continuation of
23
<PAGE>
health insurance benefits for the applicable severance period. Under the terms
of her Employment Agreement, Ms. Cox agrees to certain non-competition and
non-solicitation provisions during the term of her employment and any
applicable severance period.
On January 18, 1999, the Company entered into an Employment Agreement with
Richard Hamilton, Vice President Customer Services, which governs any
termination of Mr. Hamilton's employment that occurs prior to any change of
control as contemplated by the Company's Retention Agreement with Mr. Hamilton
dated January 18, 1999. Such Employment Agreement terminates upon a change of
control and provides, among other things, that in the event of an involuntary
termination, Mr. Hamilton shall receive a severance payment equal to: (i)
either (A) an amount equal to 12 (twelve) months' salary if such termination
occurs within the first year following the date of the Employment Agreement,
or (B) an amount equal to 6 (six) months' salary if such termination occurs
after the first year following the date of the Employment Agreement, with such
amount to be paid in one lump sum payment within two weeks of the date of such
involuntary termination; (ii) a pro-rated portion of any target quarterly
bonus accrued to Mr. Hamilton through the date of such involuntary
termination; and (iii) continuation of health insurance benefits for the
applicable severance period. Under the terms of his Employment Agreement, Mr.
Hamilton agrees to certain non-competition and non-solicitation provisions
during the term of his employment and any applicable severance period.
On March 12, 1999, the Company entered into an Employment Agreement with
William Atkinson, Senior Vice President Worldwide Sales, which governs any
termination of Mr. Atkinson's employment that occurs prior to any change of
control as contemplated by the Company's Retention Agreement with Mr. Atkinson
dated March 12, 1999. Such Employment Agreement terminates upon a change of
control and provides, among other things, that in the event of an involuntary
termination, Mr. Atkinson shall receive a severance payment equal to: (i)
either (A) an amount equal to 12 (twelve) months' salary if such termination
occurs within the first year following the date of the Employment Agreement,
or (B) an amount equal to 9 (nine) months' salary if such termination occurs
after the first year following the date of the Employment Agreement, with such
amount to be paid in one lump sum payment within two weeks of the date of such
involuntary termination; (ii) a pro-rated portion of any target quarterly
bonus accrued to Mr. Atkinson through the date of such involuntary
termination; and (iii) continuation of health insurance benefits for the
applicable severance period. Under the terms of his Employment Agreement, Mr.
Atkinson agrees to certain non-competition and non-solicitation provisions
during the term of his employment and any applicable severance period.
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.
24
<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 its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that for the fiscal year ended December 31, 1998 all Section 16(a) filing
requirements applicable to its officers, directors and ten-percent
shareholders were met.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 2000 Annual Meeting must be received by
the Company no later than November 6, 1999, 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
CRAIG W. JOHNSON
Secretary
Dated: April 13, 1999
25
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF VERTEL CORPORATION
1999 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Vertel Corporation, a California corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders
and Proxy Statement, each dated April 12, 1999, and hereby appoints Gordon L.
Almquist as proxy and attorney-in-fact on behalf and in the name of the
undersigned to represent the undersigned at the 1999 Annual Meeting of
Shareholders of Vertel Corporation to be held on May 13, 1999 at 9:00 a.m.,
local time, at the Hilton Hotel, 6360 Canoga Avenue, 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:
(SEE REVERSE SIDE)
- --
<PAGE>
Please mark [X]
your votes
as in this
example
1. Election of Directors
FOR all nominees WITHHOLD Authority Nominees: Class I:
listed to the right to vote for all Jeffrey Drazan
(except as indicated) nominees listed to the right Howard Oriner
[ ] [ ]
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list to the right.
2 Proposal to approve the amendment of the Company's 1998
Stock Option Plan to increase the number of shares reserved
for issuance thereunder by 2,500,000 to 7,700,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to approve the amendment of the Company's 1996 Directors' Stock
Option Plan to increase the number of shares reserved for issuance
thereunder by 200,000 to 560,000 shares.
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 December 31,
1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. In his discretion, upon such other matter or matters that may properly come
before the meeting and any postponement(s) or adjournment(s) thereof.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT OF
THE 1998 STOCK OPTION PLAN, FOR THE AMENDMENT OF THE 1996 DIRECTORS' STOCK
OPTION PLAN, 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.
Date:___________________________________________________________________ , 1999
- -------------------------------------------------------------------------------
Signature(s)
Date:___________________________________________________________________ , 1999
- -------------------------------------------------------------------------------
Signature(s)
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.)
