<PAGE>
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: [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
VERTEL CORPORATION
(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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-1l(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF VERTEL(R)]
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 2000
----------------
To The Shareholders of Vertel Corporation:
Notice is hereby given that the 2000 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 18, 2000, at 9:00 a.m., local time, for the
following purposes:
1. To elect the following Class II directors of the Company each to
serve for a two year term: Bruce W. Brown and Ralph K. Ungermann.
2. To approve the adoption of the Company's 2000 Stock Option Plan
covering 2,000,000 shares of Common Stock.
3. To authorize an amendment of the Company's Articles of Incorporation
to increase the number of authorized shares of common stock from 50,000,000
to 100,000,000.
4. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors for the Company for the fiscal year ending December 31, 2000.
5. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors of the Company has fixed the close of business on
March 22, 2000 as the record date for determining the shareholders entitled to
notice of and to vote at the Annual Meeting or any postponement or adjournment
thereof.
A stockholder list will be available at the Company's corporate office
beginning May 1, 2000, during normal business hours, for examination by any
shareholder registered on the Company's stock ledger on the Record Date, for
any purpose germane to the meeting.
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.
A copy of our 1999 Annual Report to Shareholders, which includes the
Company's Form 10-K, is also enclosed.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gordon L. Almquist
Gordon L. Almquist
Secretary
Woodland Hills, California
April 13, 2000
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.
<PAGE>
[LOGO OF VERTEL(R)]
----------------
PROXY STATEMENT FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 2000
----------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Vertel Corporation, a California corporation, for use at the Company's 2000
Annual Meeting of Shareholders (the "Annual Meeting") to be held Thursday, May
18, 2000, at 9:00 a.m., local time, or at any postponement or adjournment
thereof, for the purposes set forth in this Proxy Statement and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at the Hilton Hotel, 6360 Canoga Avenue, Woodland Hills, California
91367.
Vertel's principal executive offices are located at 21300 Victory
Boulevard, Suite 700, Woodland Hills, California 91367. The principal
telephone number at that location is (818) 227-1400. In April 1998, the
Company changed its corporate name from Retix to Vertel Corporation and its
symbol on the Nasdaq Stock Market changed from "RETX" to "VRTL."
These proxy solicitation materials will be mailed to shareholders beginning
April 13, 2000.
Record Date and Share Ownership
Only shareholders of record at the close of business on March 22, 2000 are
entitled to notice of and to vote at the meeting. As of March 22, 2000,
27,548,898 shares of the Company's Common Stock were issued and outstanding.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted, by delivering a written notice of
revocation or a signed proxy bearing a later date to the Company (Attention:
Gordon L. Almquist, Inspector of Elections) or by attending the meeting and
voting in person.
Quorum and Voting
A majority of the outstanding shares of Common Stock entitled to vote must
be present in person or by proxy in order to have a quorum to conduct business
at the Annual Meeting. Each share of Common Stock is entitled to one vote.
Except as otherwise disclosed, the affirmative vote of a majority of shares
represented and voting at the meeting (which shares voting affirmatively also
constitute a majority of the required quorum) is required for approval of
proposals presented to shareholders.
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. In determining whether or not a quorum is present, the Inspector of
Elections will treat abstentions and "broker non-votes" as shares that are
present. A "broker non-vote" is a proxy submitted by a broker that does not
indicate a vote for some or all of the proposals because the broker does not
have discretionary voting authority and has not received instructions from its
client as to how to vote on a particular proposal. "Broker non-votes" are not
counted, but abstentions are counted, in determining the total number of votes
cast on a proposal. An abstention has the effect of a negative vote on matters
requiring approval by a majority of votes present.
1
<PAGE>
Any proxy that is not marked as to a particular item will be voted (i) FOR
the election of the director nominees, (ii) FOR approval of the Company's 2000
Stock Option Plan, (iii) FOR amendment of the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock from
50,000,000 to 100,000,000, (iv) FOR ratification of the appointment of the
designated independent auditors and (v) as the proxy holders deem advisable on
other matters that may properly come before the Annual Meeting or any
postponement or adjournment thereof with respect to the item not marked.
Solicitation
The Company will pay the cost of soliciting proxies and 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 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 for such
services plus out-of-pocket expenses.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of directors must be at least
five and not more than nine and currently fix the number at five. The Board of
Directors currently consists of five persons, including three Class I
directors and two Class II directors. Each Class I and Class II director is
elected for a two year term, with Class I directors elected in odd-numbered
years (e.g., 1999) and Class II directors elected in even-numbered years
(e.g., 2000). At the Annual Meeting, two Class II directors will be elected.
Class II Nominees for Election as Directors
The Board of Directors has nominated Bruce W. Brown and Ralph K. Ungermann
to serve as Class II directors until the next Annual Meeting of Shareholders
at which Class II 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.
Each of the nominees has consented to serve if elected. In the event that any
nominee of the Company is unable 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.
The names of the Company's Class II nominees, and certain information about
them as of March 22, 2000, are set forth below:
<TABLE>
<CAPTION>
Name of Director Age Principal Occupation Director Since
---------------- --- -------------------- --------------
<C> <C> <S> <C>
Bruce W. Brown.......... 50 President and Chief Executive 1997
Officer of the Company
Ralph K. Ungermann...... 58 Chariman, FVC.COM, Inc. 1997
</TABLE>
Mr. Brown was elected to the position of President and Chief Executive
Officer of Vertel 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 on its Board of Directors from
October 1995 until January 1998. Mr. Brown also served as Chief Financial
Officer of Vertel Corporation I from October 1995 to December 1996. Mr. Brown
served as President of ADC Fibermux Corporation, a supplier of fiber optic
networking products from July 1993 until August 1995. Mr. Brown was Executive
Vice President, Customer Operations at UB Networks, Inc. (previously
Ungermann-Bass Networks, Inc.), an 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. Ungermann has served as Chairman of FVC.COM, Inc., a broadband video
networking company, since founding the company in 1993 and was its Chief
Executive Officer from inception to January 1999. FVC.COM was previously named
First Virtual Corporation and engaged in ATM networking. Mr. Ungermann co-
founded UB Networks, Inc. (previously Ungermann-Bass Networks, Inc.) in 1979
and served as its Chief Executive Officer until it was sold to Tandem
Computers, Inc. in 1993. Mr. Ungermann holds a B.S. in Electrical Engineering
from the University of California at Berkeley and an M.S. in Electrical
Engineering from the University of California at Irvine.
3
<PAGE>
Class I Directors Continuing in Office
<TABLE>
<CAPTION>
Name of Director Age Principal Occupation Director Since
---------------- --- -------------------- --------------
<C> <C> <S> <C>
Jeffrey M. Drazan....... 41 General Partner, Sierra 1996
Ventures
Howard Oringer.......... 57 Managing Director, 1999
Communications Capital Group
Jack P. Reily........... 49 President, Reily 1999
Communications Consulting,
Inc.
</TABLE>
Mr. Drazan, a member of the Board of Directors since January 1996, has been
a general partner of Sierra Ventures, a venture capital firm, since 1985. Mr.
Drazan currently serves as a director of FairMarket, Inc., an online auction
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 since his appointment in January
1999. Mr. Oringer has served as the Managing Director of Communications
Capital Group, a consulting firm, since November 1994. For more than five
years prior to joining 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.
Mr. Reily has been a member of the Board since July 1999. He has served as
President of Reily Communications Consulting, Inc., a merger and acquisitions
advisory service and strategic business planning firm, since 1998. He has
served as Executive Director of the Hardware Practice Group of Broadview
International, an investment banking firm located in Silicon Valley,
California, since 1997. From 1982 to 1997, he held senior management positions
with ADC Telecommunication, Inc. in Minneapolis, Minnesota, most recently as
Vice President of Business Development. He received a BSEE in 1972 and an MSEE
in 1976 from the University of Texas at Austin.
Board Meetings and Committees
The Vertel Board of Directors held 12 meetings during the fiscal year ended
December 31, 1999. The Board of Directors has an Audit Committee, a
Compensation Committee and a Nominating Committee. Messrs. Oringer and Reily
serve on the Audit Committee, Messrs. Ungermann and Drazan serve on the
Compensation Committee, and Messrs. Brown and Drazan serve on the Nominating
Committee.
The Audit Committee held one meeting during fiscal year 1999. 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 held three meetings during fiscal year 1999. The
Compensation Committee makes recommendations to the Board of Directors
regarding the Company's executive compensation policies and assists in
administering stock option plans.
The Nominating Committee held one meeting during fiscal year 1999 to
consider and recommend the appointment of Mr. Reily as a Director of the
Company.
During 1999, each incumbent director attended more than 75% of the
aggregate number of meetings of the Board of Directors and meetings of the
committees of the Board on which he served, and the majority of directors
attended all such meetings.
4
<PAGE>
Compensation of Directors
Non-employee members of the Board of Directors receive a retainer of $1,750
per quarter and a fee of $1,000 for each meeting of the Board of Directors
attended. Committee members are paid $1,000 for a committee meeting attended on
a day without a Board meeting. Directors may be reimbursed for costs of
attending Board and committee meetings.
Non-employee members of the Board 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
nonqualified stock options at an exercise price not less than fair market value
on the date of grant. Each non-employee director is automatically granted an
option to purchase 40,000 shares of Common Stock (the "Initial Options") on the
date on which he 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 who
has served for at least six months is automatically granted an option to
purchase 10,000 shares of Common Stock (the "Annual Options"). Options granted
under the 1996 Directors' Plan have a term of ten years. The Initial Options
become exercisable in increments of 25% of the total shares on each of the
first, second, third and fourth 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, a merger or consolidation in which
the Company is not the surviving corporation, or other capital reorganization
in which more than 50% of the shares of the Company entitled to vote are
exchanged.
Directors of the Company are eligible to receive discretionary awards under
the Company's 1998 Stock Option Plan and nonqualified stock options outside of
the 1998 Stock Option Plan. Discretionary grants of nonqualified options to
purchase 100,000 shares were made to each non-employee director in fiscal year
1999. See "Transactions with Management and Others."
A director who is an employee of the Company does not receive compensation
for service as a director.
Required Vote
The affirmative vote of a majority of shares of Common Stock represented and
voting at the Annual Meeting (which shares affirmatively voting constitute a
majority of the required quorum) is required to elect the nominees as
directors.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE TWO NOMINEES LISTED ABOVE.
5
<PAGE>
PROPOSAL NO. 2
APPROVAL OF THE COMPANY'S 2000 STOCK OPTION PLAN
Shareholders are asked to approve the adoption of the Company's 2000 Stock
Option Plan (the "2000 Plan") at the Annual Meeting. The following summary of
principal features of the 2000 Plan is not a complete description of all the
provisions of the plan. A shareholder who wishes to obtain a copy of the plan
may do so by writing to the Chief Financial Officer at the Company's principal
offices at 21300 Victory Boulevard, Suite 700, Woodland Hills, California
91367.
General
The 2000 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
2000 Plan will continue in effect until May 2010, unless terminated earlier.
Options granted under the 2000 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 nonqualified stock options.
The 2000 Plan was adopted by the Company's Board of Directors on February
17, 2000, subject to shareholder approval. No options have been granted under
the 2000 Plan.
Benefits
It is not presently possible to determine the dollar value of award
payments that may be made, or the individuals who may be selected for such
awards, in the future under this plan. Stock option grants under the 1998
Stock Option Plan made in fiscal year 1999 to the Named Executive Officers are
shown in the Summary Compensation Table and the Stock Options table. Options
granted in fiscal year 1999 to all current executive officers as a group
aggregated 3,042,100 and to all current non-executive officer employees as a
group aggregated 5,994,756. While non-executive directors (non-employee
directors) may be eligible to participate in this new plan, traditionally the
Company has made grants to non-executive directors only under its 1996
Directors' Plan or outside of its stock option plans. See Proposal No. 1--
Election of Directors and Transactions with Management.
Purpose
The purposes of the 2000 Plan are to attract and retain the best available
personnel, to provide additional incentives to employees of and consultants to
the Company and to promote the success of the Company's business.
Administration
The 2000 Plan is administered by either the Board of Directors or a
designated committee of the Board of Directors (the "Administrator"). The
Administrator has the exclusive authority to grant stock options, interpret
the plan and otherwise administer the plan.
Eligibility
Options may be granted to employees (including officers and directors) and
consultants of the Company, its subsidiaries or Affiliates. Outside directors
of the Company are eligible to receive grants as consultants. The
Administrator selects optionees and determines the number of shares to be
subject to each option, taking 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.
6
<PAGE>
The maximum number of shares of Common Stock that may be granted under
options to any one employee or consultant during any fiscal year is 1,000,000
shares, subject to adjustment as provided in the plan. Under the Code, the
aggregate market value of shares subject to all incentive stock options
granted to an optionee during any calendar year is limited to $100,000.
Terms of Options
Exercise. The Administrator determines when options may be exercised.
Exercise Price. The Administrator determines the exercise price of an
option, which in the case of an incentive stock option or any grant to a
person who is likely to be a Named Executive Officer, as defined in the
Summary Compensation Table, may not be less than 100% of fair market value of
the Common Stock. 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 fair market value. Fair market value is the 4 p.m.
Eastern Time closing sales price of a share of Common Stock on the Nasdaq
Stock Market on the last trading day prior to the date of grant. The
Administrator has the authority to set the exercise price of nonqualified
stock options, subject to the limitations applicable to Named Executive
Officers. The exercise price may be paid by cash, check, cashless exercise
through a broker, withholding of shares or other means determined by the
Administrator.
Termination of Employment. Options may be exercised not later than three
months (or other period not exceeding three months in the case of an incentive
stock option or six months in the case of a nonqualified stock option as
determined by the Administrator) after termination for any reason other than
disability or death, to the extent the option was exercisable on the date of
termination. The Administrator may extend exercise periods following
termination, in its discretion. No option may be exercised after the
expiration of its term.
Disability or Death. Options may be exercised within six months (or other
period not exceeding 12 months as determined by the Administrator) after
termination because of disability or death to the extent exercisable on the
date of termination. The Administrator may extend exercise periods following
termination, in its discretion. No option may be exercised after its
expiration date. If an optionee dies within three months (or other period not
exceeding three months, unless otherwise extended by the Administrator) after
termination, an option may be exercised within six months after the date of
death to the extent that the optionee was entitled to exercise the option at
the date of death.
Term of Options. Options granted under the plan will have the term provided
in the option agreement except that an incentive stock option will have a term
of no more than ten years from the date of grant, or five years if an optionee
owns stock representing more than 10% of the combined voting power of all
classes of stock of the Company or any parent or subsidiary.
Options Not Transferable. An option generally may not be transferred except
by will or the laws of descent and distribution, however, the 2000 Plan gives
the Administrator the discretion to grant nonqualified stock options with
limited rights to transfer an option to immediate family members, a living
trust or a charitable trust.
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 must 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 and the number of shares available for
issuance under the 2000 Plan. In the event of proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise
provided by the Administrator.
7
<PAGE>
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 must be assumed or an equivalent option must be substituted by the
successor corporation or its parent or subsidiary, unless the Administrator
determines that the optionee will 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.
Amendment and Termination
The Board of Directors may amend the 2000 Plan or may terminate it without
approval of the shareholders, except that shareholder approval is required for
any amendment that increases the number of shares that may be issued as
incentive stock options or modifies eligibility requirements, the annual
limitation on the number of shares subject to grants or results in changes
that would require shareholder approval to qualify options as performance-
based compensation under Section 162(m) of the Code. The 2000 Plan will
terminate in May 2010, but options then outstanding will remain outstanding
until they expire.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Code 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 under the Securities Exchange Act of 1934) to the
extent the compensation exceeds $1 million per tax year, except if the
compensation is based on the attainment of performance goals. Income derived
from stock options with an exercise price equal to fair market value on the
date of grant qualify for this exception and will be treated as performance-
based compensation if granted in accordance with requirements set forth in
Section 162(m).
Federal Income Tax Aspects of the 2000 Plan
The following is a brief summary of the U. S. federal income tax treatment
that will generally apply to options granted under the 2000 Plan based on
federal income tax laws in effect as of this date. This summary is not
intended to be exhaustive and optionees should consult their own tax advisors
concerning tax implications of option grants and exercises and the disposition
of stock acquired upon such exercise.
With respect to an incentive stock option, generally an optionee is not
taxed and the Company is not entitled to a deduction on either the grant or
exercise of the incentive stock option as long as the requirements of Section
422 continue to be met. The exercise may, however, give rise to alternative
minimum tax (see discussion below). 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 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.
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.
Options that do not qualify as incentive stock options are referred to as
nonqualified stock options. An optionee will not recognize taxable income and
the Company will not be entitled to a deduction at the time of grant of a
nonqualified stock option. Upon its exercise, the optionee will recognize
ordinary income measured by the excess of the then fair market value of the
shares over the exercise price and the Company will be entitled to a deduction
in an equal amount. Income recognized by an optionee who is also an employee
of the Company will be subject to tax withholding by the Company. 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,
8
<PAGE>
will be treated 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
alternative minimum tax under Section 55 of the Code. Alternative minimum tax
will be due if the tax determined under a prescribed 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 nonqualified 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.
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 shares of 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 2000 Plan.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR APPROVAL OF THE 2000 PLAN.
9
<PAGE>
PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE
AUTHORIZED SHARES OF COMMON STOCK.
On February 17, 2000, the Board of Directors unanimously approved a
proposal to amend the Company's Articles of Incorporation in order to increase
the number of shares of Common Stock, par value $0.01 per share, which the
Company is authorized to issue from 50,000,000 to 100,000,000. Shareholders
are asked to consider and approve the amendment at the Annual Meeting.
The additional 50,000,000 shares of Common Stock would have the same rights
and privileges as shares of Common Stock presently authorized and outstanding.
Common Stock of the Company is not entitled to preemptive rights or cumulative
voting. The amendment will not result in an increase in the 2,000,000 shares
of Preferred Stock the Company is authorized to issue. No Preferred Stock has
been issued.
The Board of Directors believes it is desirable to increase the number of
authorized shares of Common Stock so that sufficient shares will be available
for issuance pursuant to future options and for other proper corporate
purposes. Having such shares available for issuance will give the Company
greater flexibility and will allow shares to be issued as determined by the
Board of Directors without the expense and delay of a special shareholders'
meeting. Corporate purposes could include, without limitation: (i) issuance of
Common Stock to pay the purchase price for assets or stock of businesses the
Company may wish to acquire, (ii) payment of stock dividends or issuances
pursuant to stock splits, (iii) issuance of Common Stock upon exercise of
options granted under the Company's various stock option plans or in
connection with other employee benefit plans, (iv) issuance of Common Stock
upon the exercise of warrants or the conversion of other securities
convertible into Common Stock which may be outstanding from time to time and
(v) issuance in connection with offerings to raise capital for the Company.
Additional authorized shares of Common Stock would be available for
issuance at such times and for such purposes as the Board of Directors may
deem advisable without further action by the Company's shareholders, except as
may be required by the Articles of Incorporation and applicable laws and
regulations. Issuance of shares of Common Stock authorized by the amendment to
the Articles of Incorporation could adversely affect the rights of
shareholders of the Company, including substantial voting dilution.
The amendment, if adopted, makes it more difficult for any person or group
of persons, other than the current principal shareholders and management, to
acquire control of the Company by expanding the ability of the Company to
issue shares and thereby dilute the voting power of a person or group that
might accumulate shares in order to attempt to effect a change in control. The
amendment has been proposed by the Board of Directors for the reasons set
forth above, however, and not for anti-takeover reasons. The Company is not
aware of any present effort to accumulate shares of Common Stock or to attempt
to change control of the Company.
As of March 22, 2000, the Company had 27,548,898 shares of Common Stock
issued, 4,357,739 shares of Common Stock reserved for issuance upon exercise
of options granted under the 1996 and 1998 Stock Option Plans and 573,917
shares of Common Stock reserved for issuance pursuant to other outstanding
nonqualified stock options.
If approved by shareholders, the amendment will become effective upon the
filing of Amended and Restated Articles of Incorporation with the Secretary of
State of California, which will occur as soon as reasonably practicable
following approval.
Required Vote
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required for approval of the amendment to the Company's
Articles of Incorporation.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR APPROVAL OF THE AMENDMENT OF
THE COMPANY'S ARTICLES OF INCORPORATION.
10
<PAGE>
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, 2000 and recommends that shareholders vote for
ratification of the appointment. If stockholders do not approve the
appointment, 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 and 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.
11
<PAGE>
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, 2000 as to (i) each of the Company's directors,
(ii) each of the Named Executive Officers (as defined in the Summary
Compensation Table) and (iii) all directors and executive officers as a group.
Based on a review of Schedule 13G filings, the Company does not know of any
person who beneficially owns more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Beneficial of
Name of Beneficial Owner(1) Ownership(2)(3) Class
--------------------------- --------------- -------
<S> <C> <C>
Jeffrey M. Drazan.................................. 162,743 *
Howard Oringer..................................... 50,000 *
Jack P. Reily...................................... 17,500 *
Ralph K. Ungermann................................. 1,050 *
Gordon L. Almquist................................. 11,054 *
Bruce W. Brown..................................... 321,300 1.1%
Richard L. Hamilton................................ 11,254 *
Cyrus D. Irani..................................... 47,403 *
Stephen J. McDaniel................................ 4,075 *
All directors and executive officers as a group (9
persons).......................................... 626,379 2.2%
</TABLE>
- --------
*Less than 1%.
(1) Shares are deemed to be "beneficially owned" by a person if the person,
directly or indirectly, has or shares (i) the power to vote or to direct
the voting of such shares or (ii) the power to dispose or direct the
disposition of such shares. In addition, beneficial ownership includes
shares which the person has the right to acquire within 60 days.
(2) 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.
(3) Includes options to purchase the Company's Common Stock exercisable within
60 days after March 1, 2000, as follows: Mr. Drazan (75,073); Mr. Oringer
(50,000); Mr. Reily (17,500); Mr. Ungermann (1,050); Mr. Almquist
(11,054); Mr. Brown (318,100); Mr. Hamilton (11,054); Mr. Irani (47,403)
and Mr. McDaniel (4,075).
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 and shall not be deemed to be "soliciting
material" or to be filed with the Securities and Exchange Commission or
subject to Regulation 14A or 14E under the Securities Exchange Act of 1934, or
to the liabilities of Section 18 of that act.
12
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
Executive Compensation Principles
This report summarizes the principal components of the Company's executive
officer compensation programs and describes the basis on which fiscal year
1999 compensation determinations were made by the Compensation Committee with
respect to the executive officers of the Company named in the compensation
tables, including the Chief Executive Officer (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 policies that 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 compensation with the interests of shareholders.
Base Salary
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 Stock Option Plan. Executives are also
eligible for benefits generally available to all employees of the Company,
including medical plans and a 401(k) savings plan.
Base salary levels for Vertel executive officers are competitively set
relative to companies of comparable size, geographic scope and complexity
based on independent salary surveys. In determining salaries, the Compensation
Committee also considers individual experience, performance and specific
issues particular to the Company.
Incentive Compensation
Annual incentive compensation is provided to executive officers through a
bonus program that rewards achievement of pre-established corporate financial
performance goals and the achievement of certain management goals tailored to
the officer's position. At the beginning of each fiscal year, the Board of
Directors sets threshold and target goals for corporate financial performance.
The corporate performance goals for fiscal year 1999 were based on corporate
revenue and pre-tax earnings, and management goals were based on defined
objectives for each officer.
At the beginning of the fiscal year, the Board of Directors set target
amounts of incentive compensation to be paid for achievement of these
performance goals, based on recommendations of the Compensation Committee.
These amounts are generally a percentage of base salary, ranging from around
33% to 50% for the Chief Executive Officer. If target performance goals are
exceeded, bonus payments may increase to up to 130% of target amounts. If
threshold goals are not achieved, no bonus is paid. Performance is reviewed
quarterly and bonuses, if earned, are paid on a quarterly basis. The Board may
modify performance goals throughout the year if business or corporate
conditions merit changes.
For Mr. Irani and Mr. McDaniel, the two executives with sales management
responsibilities, the Board of Directors establishes annual incentive
compensation under commission agreements tied to specified sales levels.
For fiscal year 1999, the Company substantially underperformed against its
revenue and pre-tax earnings goals. Bonus payments to the corporate officers
were made at approximately 25% of targets and were based on
13
<PAGE>
the officers' achievement of individual management goals. Although Mr.
Almquist and Mr. Hamilton each achieved their management goals for the third
quarter of 1999 and would have been entitled to receive a bonus, neither
accepted payment due to the Company's lower than expected performance. The
bonus program for Messrs. Almquist and Hamilton for the fourth quarter of 1999
was modified and based entirely on performance goals. As a result of the
Company's performance during the fourth quarter of 1999, no quarterly
corporate financial bonuses were paid to Messrs. Almquist and Hamilton. Mr.
Irani's and Mr. McDaniel's bonuses were tied to sales, with performance goal
achievement at 105% and 77% of target, respectively.
Long-term incentive compensation consists of grants of stock options under
the Company's stock option plans. The Compensation Committee strongly believes
that by providing executives 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
interests of executives will be more closely aligned with those of
shareholders. Therefore, executives are eligible to receive stock options from
time to time. The number of stock options granted to executive officers is
based on both individual performance and competitive practices.
Chief Executive Officer Compensation.
Mr. Brown was paid a base salary of $262,783 during 1999 and a bonus of
$32,566. In determining the compensation package of the Chief Executive
Officer, the Compensation Committee considered the factors described above for
all executive officers. Mr. Brown's bonus was earned entirely based on
individual management goal achievement in the first two quarters. For the last
two quarters, his bonus was tied entirely to corporate financial performance
so that he received no additional bonus payments. If corporate performance
goals had been achieved at 100% of the targets, Mr. Brown would have earned a
bonus of $132,500. Mr. Brown's compensation for 1999 was in the mid range
compared to companies in the competitive salary survey. The Compensation
Committee believes that Mr. Brown's 1999 compensation package included the
necessary base compensation level required to attract and retain a qualified
Chief Executive Officer.
As a senior member of management, Mr. Brown is a party to a Retention
Agreement on the terms described following the Summary Compensation Table.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Code generally disallows a tax deduction to publicly
held companies for compensation exceeding $1,000,000 paid to certain of the
corporation's executive officers unless the compensation qualifies as
"performance-based". To be performanced-based, the compensation may be payable
only upon attainment of pre-established, objective performance goals under a
plan approved by shareholders.
The compensation paid to the Company's executive officers for 1999 did not
exceed the $1,000,000 limit for any officer, nor is it expected that the
compensation to be paid to the Company's executive officers for fiscal 2000
will exceed that limit. The Company's 1998 Stock Option Plan and the proposed
2000 Plan are 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 would qualify as performance-based compensation. Because
it is very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will be over the $1,000,000
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 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 shareholder's best interests.
COMPENSATION COMMITTEE
Ralph K. Ungermann
Jeffrey M. Drazan
14
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No employee director serves on the Compensation Committee. Messrs. Drazan
and Ungermann served on the Compensation Committee during 1999. A former
member of the Board, Craig W. Johnson, also served until his resignation from
the Board in May 1999.
PERFORMANCE GRAPH
The following graph compares, for the period from January 1, 1995 through
December 31, 1999, 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 30, 1995, December 28, 1996, December 27, 1997, December 31,
1998 and December 31, 1999. The graph assumes that $100 was invested on
January 1, 1995 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
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period VERTEL TELECOM
(Fiscal Year Covered) CORPORATION S&P 500 INDEX
- ------------------- ----------- ------- -------
<S> <C> <C> <C>
Measurement Pt- 1994 $100 $100 $100
FYE 1995 $ 53.13 $137.58 $130.91
FYE 1996 $168.75 $169.17 $133.86
FYE 1997 $117.17 $225.60 $195.75
FYE 1998 $ 42.20 $290.08 $322.30
FYE 1999 $135.95 $351.12 $561.26
</TABLE>
* Assumes $100 invested at January 1, 1995 in Common Stock of the Company and
in each of the comparative indices.
15
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows compensation of the Company's Chief Executive
Officer and the four other most highly compensated executive officers of the
Company or its subsidiaries who were serving as executive officers on December
31, 1999 (the "Named Executive Officers") for the last three fiscal years.
<TABLE>
<CAPTION>
Name and Principal Other Annual All Other
Position Year Salary(1) Bonus(2) Compensation(3) Options(4) Compensation(5)
- ------------------ ---- --------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bruce W. Brown.......... 1999 $262,783 $ 32,566 900,000 $ 528
President and Chief 1998 $228,980 $ 22,900 756,000(6) $ 609
Executive Officer 1997 $205,223 $ 11,875 -- $1,315
Gordon L. Almquist ..... 1999 $169,385 $ 16,575 165,300 $ 511
Vice President, Finance
and 1998 $ 41,509 $ 16,000 150,000 $ 203
Administration, Chief
Financial Officer and
Secretary
Cyrus D. Irani ......... 1999 $159,200 $ 55,414(7) 200,000 $ 180
Vice President,
Research 1998 $142,907 $ 14,700 200,000(6) $ 326
and Development and 1997 $121,501 $ 6,175 -- $ --
Professional Services
Unit
Stephen J. McDaniel .... 1999 $138,202 $153,166(7) $35,055(8) 222,200 $ 109
Vice President,
Worldwide 1998 $126,576 $ 57,695(7) $36,138(8) 77,800(6) $ --
Sales 1997 $ 86,011 $ 63,234(7) $ 9,175(8) -- $ --
Richard L. Hamilton .... 1999 $120,000 $ 54,610(9) 315,300 $ 506
Vice President,
Operations
</TABLE>
- --------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) Includes annual bonuses based on individual and corporate performance paid
with respect to fiscal year 1999 and performance-based commissions. These
bonuses are determined by the Board of Directors based on the
recommendation of the Compensation Committee. See "Report of the
Compensation Committee."
(3) Unless otherwise indicated, no Named Executive Officer had executive perks
exceeding the lesser of $50,000 or 10% of salary plus bonus and none
exercised any options during fiscal year 1999.
(4) Options granted in fiscal year 1999 were either under the 1998 Stock
Option Plan, or outside the 1998 Stock Option Plan, but under the same
grant and exercise criteria as the 1998 Stock Option Plan. For information
on the 1998 Stock Option Plan, see the Stock Option Table on page 19.
(5) Amounts represent life insurance premiums paid by the Company on behalf of
each Named Executive Officer during the fiscal year.
(6) Amount includes options totaling 756,000 for Mr. Brown, 189,000 for Mr.
Irani and 37,800 for Mr. McDaniel issued by the Company upon conversion of
previously outstanding options issued in 1996 and 1997 of the Company's
subsidiary, Vertel Corporation I. The conversion was approved by
shareholders in 1998.
(7) Amount represents commissions on sales.
(8) Includes auto allowance and Company contributions to medical insurance and
pension arrangements to November 1999, when Mr. McDaniel was based in the
United Kingdom and not participating in Company plans for U.S. employees.
Mr. McDaniel relocated to the United States in November 1999, when he
became an executive officer of the Company.
(9) Includes a $45,000 hiring bonus.
16
<PAGE>
In October 1998, the Compensation Committee approved a Retention Agreement
for each officer of the Company, including the Chief Executive Officer and
each of the Named Executive Officers. Under the terms of the Retention
Agreements, these officers have agreed to continue to be employed by the
surviving corporation for at least six months following a merger or
acquisition of the Company and 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 (i) to
continue to receive his or her regular salary for one year following such
termination, (ii) to receive a bonus equal to one-half of the officer's
average bonus during each of the preceding three years and (iii) to have the
vesting with respect to any options or restricted stock accelerated so 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 years following the change of control.
The Company entered into an employment agreement with each of the Named
Executive Officers in 1999 and amended those agreements in December 1999. The
Employment Agreement with Mr. Brown governs any termination of his employment
that occurs prior to any change of control as contemplated by the Company's
Retention Agreement with Mr. Brown dated October 23, 1998. The Employment
Agreement terminates upon a change of control and provides, among other
things, that in the event of an involuntary termination before January 12,
2001, Mr. Brown will receive (i) a severance payment equal to 12 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 months following such termination date. Under his Employment Agreement,
Mr. Brown agrees to certain non-competition and non-solicitation provisions
during the term of his employment and any severance period.
The Employment Agreement with Mr. Almquist 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. His Employment Agreement terminates upon a change of control
and provides, among other things, that in the event of an involuntary
termination prior to January 12, 2001, Mr. Almquist will receive a severance
payment equal to: (i) either (A) an amount equal to 12 months' salary if such
termination occurs within the first two years following the date of the
Employment Agreement, or (B) an amount equal to nine months' salary if such
termination occurs after the second 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 Employment Agreement, Mr.
Almquist agrees to certain non-competition and non-solicitation provisions
during the term of his employment and any applicable severance period.
The Employment Agreement with Mr. Irani 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.
The Employment Agreement terminates upon a change of control and provides,
among other things, that in the event of an involuntary termination before
January 12, 2001, Mr. Irani will receive a severance payment equal to: (i)
either (A) an amount equal to 12 months' salary if such termination occurs
within the first two years following the date of the Employment Agreement, or
(B) an amount equal to six months' salary if such termination occurs after the
second 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 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.
The Employment Agreement with Mr. McDaniel governs any termination of his
employment that occurs prior to any change of control as contemplated by the
Company's Retention Agreement with Mr. McDaniel dated November 1, 1999. The
Employment Agreement terminates upon a change of control and provides, among
other
17
<PAGE>
things, that in the event of an involuntary termination before November 1,
2000, Mr. McDaniel will receive a severance payment equal to: (i) either (A)
an amount equal to 12 months' salary if such termination occurs within the
first year following the date of the Employment Agreement, or (B) an amount
equal to 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. McDaniel through the date of such involuntary termination and (iii)
continuation of health insurance benefits for the applicable severance period.
Under his Employment Agreement, Mr. McDaniel agrees to certain non-competition
and non-solicitation provisions during the term of his employment and any
applicable severance period.
The Employment Agreement with Mr. Hamilton 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. The Employment Agreement terminates upon a change of control
and provides, among other things, that in the event of an involuntary
termination before January 18, 2001, Mr. Hamilton will receive a severance
payment equal to: (i) either (A) an amount equal to 12 months' salary if such
termination occurs within the first two years following the date of the
Employment Agreement, or (B) an amount equal to six months' salary if such
termination occurs after the second 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 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.
The Company has 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 from 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.
18
<PAGE>
STOCK OPTION GRANTS IN FISCAL YEAR 1999
The following table provides information with respect to the stock option
grants made during the year ended December 31, 1999 under the Company's 1998
Stock Option Plan and outside the 1998 Stock Option Plan (but under the same
grant and exercise requirements as the 1998 Stock Option Plan) to the Named
Executive Officers. The 1998 Stock Option Plan is substantially identical to
the proposed 2000 Plan described in Proposal No. 2, except that the exercise
price per share for options granted prior to December 1999 was based on fair
market value calculated as the average of the closing prices on the NASDAQ
Stock Market on the five trading days prior to the date of grant. In December
1999, the definition of fair market value in this plan was amended to be
consistent with the proposed plan.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Securities % of Total Option Term
Underlying Options Granted Exercise or ($)(2)
Options to Employees in Base Price Expiration -----------------
Name Granted Fiscal Year (1) ($ per share) Date 5% ($) 10% ($)
- ---- ---------- --------------- ------------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bruce W. Brown.......... 750,000 14.5% $1.6376 01/11/2009 722,408 1,957,434
150,000 2.9% $1.9900 12/02/2009 187,725 475,732
Gordon L. Almquist...... 115,300 2.2% $1.6376 01/11/2009 118,745 300,932
50,000 1.0% $1.9900 12/02/2009 62,575 158,577
Cyrus D. Irani.......... 150,000 2.9% $1.4500 05/12/2009 136,785 346,639
50,000 1.0% $1.9900 12/02/2009 62,575 158,577
Stephen J. McDaniel..... 40,000 0.8% $2.7700 07/13/2009 69,682 176,587
182,200 3.5% $1.9900 12/02/2009 228,023 577,856
Richard L. Hamilton..... 265,300 5.1% $1.6376 01/11/2009 273,277 692,410
50,000 1.0% $1.9900 12/02/2009 62,575 158,577
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 5,179,600 shares granted to
employees (including employee directors) during the fiscal year ended
December 31, 1999. 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.
19
<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 Executive Officers as of
December 31, 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options
Shares at Fiscal Year-End at Fiscal Year-End (1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce W. Brown.......... -- -- 617,400 1,038,600 $2,107,422 $3,571,207
Gordon L. Almquist...... -- -- 46,875 268,425 $ 186,938 $1,021,849
Cyrus D. Irani.......... -- -- 141,459 258,541 $ 518,751 $ 958,500
Stephen J. McDaniel..... -- -- 37,700 262,300 $ 136,888 $ 888,134
Richard L. Hamilton..... -- -- -- 315,300 $ -- $1,180,646
</TABLE>
- --------
(1) Determined based on the closing price of the Company's Common Stock as
reported on the Nasdaq Stock Market on December 31, 1999 ($5.44 per
share).
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During 1999, the Board of Directors granted each non-employee director of
the Company a nonqualified stock option to purchase up to 50,000 shares of
Common Stock. The options vest at a rate of 2,500 shares per day of consulting
services rendered by the respective director to the Company, up to 20 days.
The Board of Directors also granted each non-employee director a second
nonqualified stock option to purchase up to 50,000 shares of Common Stock.
These options vest if the director assists the Company in consummating one or
two mergers or acquisitions, with 25,000 shares vesting upon the closing of
each of up to two acquisitions where the Company acquires all or substantially
all of the assets or capital stock of, or merges with, another company that is
projected to add at least $5,000,000 in annual revenue on a consolidated
basis.
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 10% of a
registered class of the Company's equity securities, to file certain reports
of ownership with the Securities and Exchange Commission 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) reports that they file. The rules require the Company to
disclose the identity of persons who did not file reports on a timely basis.
Based solely on its review of the copies of reports received by it, or
written representations from certain reporting persons that no Form 5 reports
were required for those persons, the Company believes that for the fiscal year
ended December 31, 1999, all Section 16(a) filing requirements applicable to
its officers, directors and 10% shareholders were met except that a Form 3
report with respect to Stephen J. McDaniel's selection as an executive officer
was inadvertently filed late.
20
<PAGE>
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
The 2001 Annual Meeting of Shareholders is expected to be held on May 17,
2001. If you wish to make a proposal to be included in the Company's Proxy
Statement for the 2001 Annual Meeting you must assure that the proposal is
received by the Secretary of the Company no later than the close of business
on December 14, 2000, unless the date of the meeting is delayed by more than
30 days from this year's meeting, in which case you may find the deadline in
one of Vertel's future quarterly reports on Form 10-Q.
If you wish to nominate a candidate for election to the Board of Directors
or propose other business at the 2001 Annual Meeting, you must give complete
and timely written notice to the Secretary of the Company, in accordance with
the Company's Bylaws. The deadline for the 2001 Annual Meeting is not less
than 20 days nor more than 60 days prior to the meeting, provided that in the
event that less than 30 days notice or prior public disclosure of the date of
the meeting is given by the Company, notice by a shareholder will be timely if
it is received not later than the close of business on the 10th day following
the day on which the Company gave public notice of the date of the meeting. If
you would like a copy of Vertel's Bylaws, you may write to Vertel Investor
Relations. If a proposal is not timely and properly made in accordance with
the procedures set forth in the Bylaws, it will be defective and may not be
brought before the meeting. If the proposal is nonetheless brought before the
meeting and the chairman of the meeting does not exercise the power and duty
to declare the proposal defective, the persons named in the proxy may use
their discretionary voting with respect to the proposal.
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 or adjournment thereof, it is the intention of the persons named
on the enclosed proxy card to vote the shares they represent as the Board of
Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gordon L. Almquist
Gordon L. Almquist
Secretary
Dated: April 13, 2000
21
<PAGE>
SUPPLEMENT TO
PROXY STATEMENT
VERTEL CORPORATION
2000 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 2000 Stock Option Plan are to
attract and retain the best available personnel, to provide additional incentive
to the Employees and Consultants of the Company and to promote the success of
the Company's business. Options granted hereunder may be either Incentive Stock
Options or Nonqualified Stock Options, at the discretion of the Administrator
and as reflected in the terms of each written Option agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any Committee appointed pursuant to
Section 4 of the Plan.
(b) "Affiliate" shall mean an entity other than a Subsidiary (as defined below)
in which the Company owns an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in Section 4(a) below.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 4(a) of the Plan, if one is appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
(h) "Company" shall mean Vertel Corporation, a California corporation.
(i) "Consultant" means any person, including an advisor, who is engaged by the
Company or any Parent, Subsidiary or Affiliate to render services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not, so long as a Director's eligibility is not
precluded by Applicable Laws.
(j) "Continuous Status as an Employee or Consultant" shall mean the absence of
any interruption or termination of service as an Employee or Consultant.
Continuous Status as an employee or Consultant shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Administrator; provided that such leave is for a period
of not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute. For purposes of this Plan, a change in status
from Employee to Consultant or from Consultant to Employee will not constitute a
termination of employment.
(k) "Director" shall mean a member of the Board.
(l) "Employee" shall mean any person (including any Named Executive, Officer or
Director) employed by the Company or any Parent, Subsidiary or Affiliate of
the Company. The payment
* Shares of Common Stock authorized hereunder will be registered on Form S-8
following shareholder approval.
<PAGE>
by the Company of a director's fee to a Director shall not be sufficient to
constitute "employment" of such Director by the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the National
Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") Stock Market, its Fair Market Value shall be the 4 p.m.
Eastern Time closing sales price for such stock as quoted on such
exchange or market for the last trading day before the date of
determination (if no sales were reported, the closing bid on that day
shall be used), as such price is reported in The Wall Street Journal
or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the NASDAQ Stock Market) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the average of the bid and asked prices for the Common
Stock for the last trading day before the date of determination; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" shall mean an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written Option agreement.
(p) "Named Executive" shall mean any individual who, on the last day of the
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or is among the four highest compensated officers of
the Company (other than the chief executive officer) determined in accordance
with the executive compensation disclosure rules under the Exchange Act.
(q) "Nonqualified Stock Option" shall mean an Option not intended to qualify as
an Incentive Stock Option, as designated in the applicable written Option
agreement.
(r) "Officer" shall mean a person who is an executive officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" shall mean a stock option granted pursuant to the Plan.
(t) "Optioned Stock" shall mean the Common Stock subject to an Option.
(u) "Optionee" shall mean an Employee or Consultant who receives an Option.
<PAGE>
(v) "Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 2000 Stock Option Plan.
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act as
amended from time to time, or any successor provision.
(y) "Share" shall mean a share of the Common Stock, as adjusted in accordance
with Section 14 of the Plan.
(z) "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of the
Plan, the maximum aggregate number of shares that may be optioned and sold under
the Plan is 2,000,000 shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock. If an Option should expire, terminate
unexercised or become unexercisable for any reason without having been exercised
in full, the unpurchased Shares that were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan.
Notwithstanding any other provision of the Plan, shares issued under the Plan
and later repurchased by the Company shall not become available for future grant
under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, and
by the legal requirements relating to the administration of incentive
stock option plans, if any, of applicable securities laws and the
Code (collectively, the "Applicable Laws"), grants under the Plan may
(but need not) be made by different administrative bodies with
respect to Directors, Officers who are not Directors and Employees
who are neither Directors nor Officers.
(ii) Administration with respect to Directors and Officers. With
respect to grants of Options to Employees or Consultants who are also
Officers or Directors of the Company, grants under the Plan shall be
made by (A) the Board, if the Board may make grants under the Plan in
compliance with Rule 16b-3 and with Section 162(m) of the Code so as
to qualify grants of Options to Named Executives as performance-based
compensation, or (B) a Committee designated by the Board, which
Committee shall be constituted so that grants comply with Rule 16b-3
and to qualify as performance-based compensation under Section 162(m)
of the Code for persons who are or are likely to become Named
Executives and otherwise so as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons. With respect to
grants of Options to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered
by (A) the Board or (B) a Committee
<PAGE>
designated by the Board, which Committee shall be constituted in such
a manner as to satisfy Applicable Laws.
(iv) General. If a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed
by the Board. From time to time the Board may increase the size of
any Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a
Committee and thereafter directly administer the Plan, all to the
extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subsection (ii), to the extent permitted by
Rule 16b-3 and to the extent required under Section 162(m) of the
Code to qualify grants of Options to Named Executives as performance-
based compensation.
(b) Powers of the Administrator. Subject to the provisions of the Plan and in
the case of a Committee, the specific duties delegated by the Board to such
Committee, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
(ii) to select the Employees and Consultants to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be covered
by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but
not limited to, the share price and any restriction or limitation, or
any vesting acceleration or waiver of forfeiture restrictions
regarding any Option and/or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator
shall determine, in its sole discretion);
(vii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option
was granted.
(c) Effect of Administrator's Decision. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
5. Eligibility.
<PAGE>
(a) Recipients of Grants. Nonqualified Stock Options may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided, however, that Employees of an Affiliate shall not be
eligible to receive Incentive Stock Options. An Employee or Consultant who has
been granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options.
(b) Type of Option. Each Option shall be designated in a written option
agreement as either an Incentive Stock Option or a Nonqualified Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year (under
all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonqualified Stock Options. For purposes of
this Section 5(b), Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the time the Option with respect to such Shares is granted.
(c) No Employment Rights. The Plan shall not confer upon any Optionee any right
with respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its approval by the
shareholders of the Company as described in Section 20 of the Plan. It shall
continue in effect for a term of ten years unless sooner terminated under
Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated 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 10% of the 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.
8. Limitation on Grants to Employees. Subject to adjustment as provided in
this Plan, the maximum number of Shares which may be subject to Options granted
to any one Employee or Consultant under this Plan for any fiscal year of the
Company shall be 1,000,000.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option (A) granted to an
Employee who, at the time of the grant of such Incentive Stock Option,
owns stock representing more than 10% of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant; or (B) granted to any other
<PAGE>
Employee, the per Share exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option (A) granted to a
person who, at the time of the grant of such Option, is, or is likely
to be a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of
grant; or (B) granted to any person other than a Named Executive, the
per Share exercise price shall be the price determined by the
Administrator.
(b) Permissible Consideration. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall be
determined by the Administrator (and, in the case of an Incentive Stock Option,
shall be determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) any combination of the foregoing methods
of payment or (8) such other consideration and method of payment for the
issuance of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan. An Option may not be exercised for a fraction of a Share. An Option
shall be deemed to be exercised when written notice of such exercise has been
given to the Company by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment allowable under Section 9(b)
of the Plan. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 14 of the Plan. Exercise of an Option in any manner shall
result in a decrease in the number of Shares which thereafter may be available,
both for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
<PAGE>
(b) Termination of Status as an Employee or Consultant. In the event of
termination of an Optionee's Continuous Status as an Employee or Consultant,
such Optionee may, but only within 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 Nonqualified Stock Option, as is determined by the
Administrator, with such determination being made in the case of an Incentive
Stock Option at the time of grant of the Option) after the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent that he or she was entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the optionee does not exercise
such Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 10(b), in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (as defined in Section
22(e)(3) of the Code), he or she may, but only within six months (or such other
period of time not exceeding 12 months as is determined by the Administrator,
with such determination in the case of an Incentive Stock Option being made at
the time of grant of the Option) from the date of such termination (but in no
event later than the date of expiration of the term of such Option as set forth
in the Option Agreement), exercise his or her Option to the extent he or she was
entitled to exercise it at the date of such termination. To the extent that he
or she was not entitled to exercise the Option at the date of termination, or if
he does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee during the term
of the Option:
(i) While the Optionee is an Employee or Consultant of the Company
and shall have been in Continuous Status as an Employee or Consultant
since the date of grant of the Option, the Option may be exercised,
at any time within six months (or such other period of time, not
exceeding 12 months, as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at
the time of grant of the Option) following the date of death (but in
no event later than the date of expiration of the term of such Option
as set forth in the Option agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest
or inheritance but only to the extent the right to exercise would
have accrued had the Optionee continued living and remained in
Continuous Status as an Employee or Consultant 12 months (or such
other period of time as is determined by the Administrator as
provided above) after the date of death, subject to the limitation
set forth in Section 5(b); or
(ii) within three months (or such other period of time not exceeding
three months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at
the time of grant of the Option) after the termination of Continuous
Status as an Employee or Consultant, the Option may be exercised, at
any time within six months following the date of death (but in no
event later than the date of expiration of the term of such Option as
set forth in the Option agreement), by the Optionee's estate or by a
person who acquired the
<PAGE>
right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of
termination.
(e) Extension of Exercise Period. The Administrator shall have full power and
authority to extend the period of time for which an option is to remain
exercisable following termination of an Optionee's Continuous Status as an
Employee or Consultant from the periods set forth in Sections 10(b), 10(c) and
10(d) above or in the Option agreement to such greater time as the Board shall
deem appropriate, provided, that in no event shall such Option be exercisable
later than the date of expiration of the term of such Option as set forth in the
Option agreement.
(f) Rule 16b-3. Options granted to persons subject to Section 16(b) of the
Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
11. Withholding Taxes. As a condition to the exercise of Options granted
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with the exercise, receipt or
vesting of such Option. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, or (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender and (ii) have a fair market value on the date of
surrender equal to or less than Optionee's marginal tax rate times the ordinary
income recognized, or (d) by electing to have the Company withhold from the
Shares to be issued upon exercise of the Option that number of Shares having a
fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
Date"). Any surrender by an Officer or Director of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of an Option must
comply with applicable provisions of Rule 16b-3. All elections by an Optionee to
have Shares withheld to satisfy tax withholding obligations shall be made in
writing in a form acceptable to the Administrator and shall be subject to the
following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular Shares of
the Option as to which the election is made; and
(c) all elections shall be subject to the consent of the Administrator.
<PAGE>
In the event the election to have Shares withheld is made by an Optionee and the
Tax Date is deferred under Section 83 of the Code because no election is filed
under Section 83(b) of the Code, the Optionee shall receive the full number of
Shares with respect to which the Option is exercised but such Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
13. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution; provided that the Administrator
may in its discretion grant transferable Nonqualified Stock Options pursuant to
agreements specifying (i) the manner in which such Nonqualified Stock Options
are transferable; (ii) that any such transfer shall be limited to the following
recipients: a charitable trust established by the Optionee, a living trust
established by the Optionee or a member of Optionee's immediate family and
(iii) that any such transfer shall be subject to the Applicable Laws. The
designation of a beneficiary by an Optionee will not constitute a transfer. An
Option may be exercised, during the lifetime of the Optionee, only by the
Optionee or a transferee permitted by this Section 13.
14. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each outstanding
Option, the number of shares of Common Stock that have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, the maximum number of shares of Common Stock for which Options may be
granted to any Employee under Section 8 of the Plan, and the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of the proposed dissolution or
liquidation of the Company, each Option will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. 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
<PAGE>
the Option would not otherwise be exercisable. If the Administrator makes an
Option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option shall be exercisable for a period of 15 days from the date of such
notice, and the Option will terminate upon the expiration of such period.
15. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator;
provided however that in the case of any Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the Plan from
time to time in such respects as the Board may deem advisable; provided that,
the following revisions or amendments shall require approval of the shareholders
of the Company in the manner described in Section 20 of the Plan:
(i) any increase in the number of Shares subject to the Plan
available for grant as Incentive Stock Options, other than an
adjustment under Section 14 of the Plan;
(ii) any change in the designation of the class of persons eligible
to be granted Options; or
(iii) any change in the limitation on grants to Employees as described
in Section 8 of the Plan or other changes that would require
shareholder approval to qualify Options granted hereunder as
performance-based compensation under Section 162(m) of the Code or
Incentive Stock Options under Section 422 of the Code.
(b) Shareholder Approval. If any amendment requiring shareholder approval under
Section 16(a) of the Plan is made subsequent to the first registration of any
class of equity securities by the Company under Section 12 of the Exchange Act,
such shareholder approval shall be solicited as described in Section 20 of the
Plan.
(c) Effect of Amendment or Termination. Any such amendment or termination of
the Plan shall not affect Options already granted and such Options shall remain
in full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Optionee and the Board, which
agreement must be in writing and signed by the Optionee and the Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated
<PAGE>
thereunder and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
18. Reservation of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. Agreements. Options shall be evidenced by written agreements in such form
as the Board shall approve.
20. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company not later than 12 months after the date of adoption
by the Board. Shareholder approval shall be obtained in the manner and to the
degree required under applicable federal and state law and the rules of any
stock exchange upon which the Shares are listed.
As adopted by the Board of Directors on February 17, 2000, subject to
shareholder approval on May 18, 2000.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF VERTEL CORPORATION
2000 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 13, 2000, and hereby appoints Bruce W.
Brown and Gordon L. Almquist as proxies and attorneys-in-fact, jointly or
severally, with full power of substitution, on behalf and in the name of the
undersigned to represent the undersigned at the 2000 Annual Meeting of
Shareholders of Vertel Corporation to be held on May 18, 2000 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.
<PAGE>
Please mark
your votes [X]
as in
this example
1. Election of Directors
FOR all nominees listed to the right (except as indicated)
[ ]
WITHHOLD Authority to vote for all nominees listed to the right
[ ]
Nominees: Class I:
Bruce W. Brown
Ralph K. Ungermann
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 adoption of the Company's 2000 Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to amend the Company's Articles of Incorporation to increase the
number of authorized shares of Common Stock from 50,000,000 to 100,000,000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Proposal to approve the appointment of Deloitte & Touche LLP as the
independent auditors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. In their discretion, upon such other matter or matters as may properly come
before the meeting and any postponement or adjournment 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 ADOPTION OF
THE 2000 STOCK OPTION PLAN, FOR THE AMENDMENT OF THE ARTICLES OF
INCORPORATION, FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE
LLP AS INDEPENDENT AUDITORS, AND AS THE PROXIES DEEM ADVISABLE IN THEIR
DISCRETION ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
Date:___________________________________________________________________ , 2000
_______________________________________________________________________________
Signature(s)
Date:___________________________________________________________________ , 2000
_______________________________________________________________________________
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.
