SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of the Commission
|X| Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NETRIX 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
- --------------------------------------------------------------------------------
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
NETRIX CORPORATION
13595 DULLES TECHNOLOGY DRIVE,
HERNDON, VIRGINIA 20171
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, JULY 27, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Netrix Corporation, a Delaware corporation, will be held on Tuesday, July 27,
1999 at 10:00 a.m. at The Yale Club, 50 Vanderbilt Avenue, New York, New York,
10017 to consider and act upon the following matters:
1. To elect two Class I directors to serve until the 2002 annual meeting;
2. To increase the number of authorized shares of the Netrix Corporation's
capital stock to 45,000,000 authorized shares;
3. To approve Netrix Corporation's 1999 Long-Term Incentive Plan;
4. To ratify the selection by the Board of Directors of Arthur Andersen LLP as
the Netrix Corporation's independent public accountants for 1999; and
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Annual Meeting.
Stockholders of record at the close of business on May 28, 1999 will be
entitled to notice of and to vote at the meeting or any adjournment thereof.
Netrix Corporation's stock transfer books will remain open following the record
date.
All stockholders of record are cordially invited to attend the meeting.
Regardless of whether you expect to attend the meeting, please complete, sign
and date the enclosed proxy card and return it in the enclosed envelope to
ensure that your shares are represented at the meeting.
By Order of the Board of Directors,
/s/ Norman F. Welsch
Chief Financial Officer and Secretary
Herndon, Virginia
June 11, 1999
<PAGE>
NETRIX CORPORATION
13595 DULLES TECHNOLOGY DRIVE
HERNDON, VIRGINIA 20171
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 27, 1999
This proxy statement and the enclosed proxy card are being furnished to
you in connection with the upcoming Annual Meeting of Stockholders of Netrix
Corporation. The meeting will be held on July 27, 1999. Our Board of Directors
is soliciting proxies from holders of our common stock to ensure each
stockholder has an opportunity to vote on all matters submitted to a vote of
stockholders at the Annual Meeting, whether or not the stockholder will be
attending the meeting in person.
We mailed The Notice of Meeting, this proxy statement, the enclosed
proxy card and our Annual Report on Form 10-K for the fiscal year ended December
31, 1998 to our stockholders on or about June 21, 1999.
Copies of the exhibits to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 are available from us upon written request and
payment of an appropriate processing fee. A request for exhibits should be sent
to: Investor Relations, Netrix Corporation, 13595 Dulles Technology Drive,
Herndon, Virginia 20171.
HOW TO VOTE. You may vote on each matter to be submitted to a vote of
stockholders at the meeting by marking the appropriate box on the proxy card,
signing it and returning it to us in the enclosed envelope. When the proxy card
is properly signed and returned, your shares will be voted at the meeting by the
proxyholders named on the proxy card in accordance with your directions. If the
proxy card is returned without any box marked for a specified matter and without
instructions on the proxy card for voting with respect to the matter, the shares
will be voted on that matter either in favor of the matters set forth in the
accompanying Notice of Meeting or as recommended by the Board of Directors.
MATTERS TO BE SUBMITTED TO A VOTE. The only matters known to us to be
submitted to a vote of stockholders at the Annual Meeting are:
(1) the election of two Class I directors;
(2) a proposal to increase the number of authorized shares of Netrix's
capital stock to 45,000,000 shares;
(3) a proposal to approve our 1999 Long-Term Incentive Plan;
(4) a proposal to ratify Arthur Andersen LLP as our independent public
accountants for fiscal year 1999.
When you sign and return a proxy card, the proxy card gives the
proxyholders the discretionary authority to vote your shares in accordance with
their best judgment on any other business that may come before the meeting.
Therefore, unless you specify otherwise on the proxy card, the proxyholders will
vote your shares on any other business as recommended by the Board of Directors.
<PAGE>
REVOKING PROXIES. You may revoke your proxy at any time before its
exercise by delivering a written revocation or a subsequently dated proxy to the
Secretary of Netrix or by casting a ballot in person at the Annual Meeting. Your
attendance at the Annual Meeting alone, however, will not in and of itself be
deemed to revoke a proxy unless you give affirmative notice at the Annual
Meeting that you revoke the proxy and vote in person by ballot at the meeting.
Your voting by ballot will cancel any proxy which you previously returned as to
any matter on which you vote on in person by ballot.
NAMING OTHER PROXIES. You may designate as your proxy someone other
than the persons named on the enclosed proxy card by crossing out those names
and inserting the name(s) of the person(s) you wish to have act as your proxy.
If you designate your own proxies, you should designate no more than three
persons. If you want to designate persons to act as your proxy, you must deliver
the proxy card to the designated person or persons and they must be present and
vote at the Annual Meeting. Proxy cards on which you have designated other
proxyholders should not be returned to us.
WHO MAY VOTE. Holders of our Common Stock as of the close of business
on May 28, 1999 are entitled to notice of and to vote at the Annual Meeting.
Each share of our common stock, par value $.05 per share, is entitled to one
vote. As of May 28, 1999, 11,493,009 shares of common stock were outstanding.
VOTES REQUIRED AND TABULATION OF VOTES. Under our By-Laws, the
presence, either in person or by proxy, of stockholders holding a majority of
the outstanding shares of common stock entitled to vote at the meeting is
necessary to constitute a quorum for the transaction of business. Shares of
common stock present in person or represented by proxy (including shares that
abstain or do not vote with respect to one or more of the matters presented for
stockholder approval) will be counted for purposes of determining whether a
quorum is present.
Only those votes cast for or against a proposal are used in determining
the results of a vote. Shares that abstain from voting as to a particular
matter, and shares held in "street name" by brokers or nominees who indicate on
their proxies that they do not have discretionary authority to vote their shares
as to a particular matter, will not be counted as votes in favor of such matter,
and will also not be counted as votes cast or shares voting on such matter.
Abstentions and broker non-votes are each included for purposes of determining
the presence or absence of a sufficient number of shares to constitute a quorum.
With respect to the approval of any particular proposal, abstentions are
considered present at the meeting, but since they are not affirmative votes for
the proposal they will have the same effect as votes against the proposal.
Broker non-votes, on the other hand, are not considered present at the meeting
for the particular proposal for which the broker withheld authority to vote.
The following votes are necessary to adopt the proposals expected to be
acted upon at our annual meeting:
2
<PAGE>
ELECTION OF DIRECTORS: Directors are elected by a plurality, and the
two nominees who receive the most votes will be elected. Abstentions and broker
non-votes will not be taken into account in determining the outcome of the
election.
INCREASE OF OUR CAPITAL STOCK: To be adopted, the amendment to our
Certificate of Incorporation to increase our capital stock must receive the
affirmative vote of the majority of the shares entitled to vote. Brokers do not
generally have discretion to vote shares on this matter without instruction from
the beneficial owners. For purposes of this proposal, abstentions and broker
non-votes have the effect of negative votes.
APPROVAL OF THE 1999 LONG TERM INCENTIVE PLAN: To be adopted, the Plan
must receive the affirmative vote of the majority of the shares present in
person or by proxy at the meeting and entitled to vote. Brokers do not generally
have discretion to vote shares on this matter without instruction from the
beneficial owners. Since uninstructed shares may not be voted, broker non-votes
do not affect the outcome. Abstentions have the effect of negative votes.
APPROVAL OF AUDITORS: To be adopted, this proposal must receive the
affirmative vote of the majority of the shares present in person or by proxy at
the meeting and entitled to vote. Brokers have discretion to vote shares on this
matter without instruction from the beneficial owners. For purposes of this
proposal, abstentions and broker non-votes have the effect of negative votes.
In addition to the solicitation of proxies by mail, our officers or
other employees, without extra remuneration, may solicit proxies by telephone or
personal contact. We will also request brokerage houses, nominees, custodians
and fiduciaries to forward soliciting material to beneficial owners of shares of
common stock and will pay such persons for forwarding such material. Given the
relatively short notice period preceding the Annual Meeting, we may retain a
solicitation agent to help us obtain proxies. We believe the cost of a
solicitation agent would be less than $10,000. We will pay all costs for the
solicitation of proxies by our Board of Directors.
A list of stockholders entitled to vote at the meeting will be
available for examination by stockholders during ordinary business hours during
the 10 days prior to the meeting at Kelley Drye & Warren LLP, 101 Park Avenue,
New York, New York 10178.
3
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth, as of May 28, 1999, the number and
percentage of outstanding shares of Common Stock owned beneficially by: (1) each
stockholder known by us to own more than 5% of the outstanding shares of common
stock; (2) each Director of Netrix and nominee to become a Director; (3) each of
the executive officers named in the compensation tables below; and (4) all of
our Directors and executive officers as a group. The number of shares of
Netrix's Common Stock outstanding as of May 28, 1999 was 11,493,009.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
NAME AND ADDRESS(1) POSITION WITH THE COMPANY OF SHARES(2) OF SHARES
- ---------------------------------------------- ----------------------------------- --------------- ---------------
<S> <C> <C> <C>
5% STOCKHOLDERS:
Special Situations Fund III, L.P.(3) None 1,454,200(4) 12.5
153 East 53rd Street, 51st Floor
New York, NY 10022
Pioneer Investment Management Inc.(5) None 1,130,000(6) 9.8
60 State Street
Boston, MA 02109
New Enterprise Associates IV, None 582,009(6) 5.1
Limited Partnerships(6)
1119 St. Paul Street
Baltimore, MD 21202
Arthur J. Marks (7) None 803,039(6) 7.0
New Enterprise Associates,
Limited Partnerships
1119 St. Paul Street
Baltimore, MD 21202
DIRECTORS AND EXECUTIVE OFFICERS:
Steven T. Francesco Director, Chairman of the Board
and Chief Executive Officer -- --
John M. Faccibene Director -- --
Lynn C. Chapman Director and President 141,000 1.2
William T. Rooker, Jr.** Director 9,000 *
Douglas J. Mello Director -- --
Richard Yalen Director -- --
Gregory C. McNulty Nominee for Director -- --
G. Brent Wilson Vice President - 113,026 1.0
Engineering Services
Karl W. Finkelnburg Vice President - 30,036 *
Sales & American Operations
All Officers and Directors as a Group (9 persons) 263,026 2.2
</TABLE>
- ----------------------
* less than one percent
** Mr. Rooker presently is a Director but will not be standing for reelection at
the 1999 Annual Meeting.
4
<PAGE>
(1) Except as otherwise noted, each person's address is c/o Netrix
Corporation, 13595 Dulles Technology Drive, Herndon, Virginia
20171.
(2) The number of shares of common stock beneficially owned by each person is
determined under the rules of the Securities and Exchange Commission, and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares of common stock which the individual
has the right to acquire within 60 days after May 28, 1999 through the
exercise of any stock option or other right. The inclusion herein of any
shares of common stock deemed beneficially owned does not constitute an
admission of beneficial ownership of those shares. Unless otherwise
indicated, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially
owned by them.
(3) This information is based on a Schedule 13G dated February 12, 1999.
(4) Consists of 1,294,200 shares of common stock and 160,000 shares
receivable upon conversion of preferred stock. (5) This information is
based on a Schedule 13G dated September 2, 1998.
(6) This information is based on a Schedule 13G dated February 16, 1999.
(7) This information is based on a Schedule 13G dated February 16, 1999.
Includes 582,009 shares held by New Enterprise Associates IV, Limited
Partnership and 200,000 shares held by New Enterprise Associates V,
Limited Partnership. Mr. Marks is a general partner of the general
partners of New Enterprise Associates IV, Limited Partnership and New
Enterprise Associates V, Limited Partnership, respectively.
5
<PAGE>
ITEM 1: ELECTION OF DIRECTORS
Our Board of Directors is classified into three classes, designated as
Class I, Class II and Class III Directors, with members of each class holding
office for staggered three year terms. Currently, we have authorized two Class I
Directors, two Class II Directors and three Class III Directors. The terms of
the Class I Directors are scheduled to expire at the 1999 Annual Meeting. At the
present time, there is one Class III vacancy. It is expected that the Board of
Directors, in conjunction with its Nominating Committee, will identify a
suitable candidate for that position and fill the Class III vacancy at some time
after the Annual Meeting. Should any nominee to be a Director become unavailable
for election for any reason not presently known or contemplated, the persons
named on the proxy will have the discretionary authority to vote pursuant to the
proxy for a substitute.
Biographical information with respect to each Director and each nominee
to become a Director, including age, position held with Netrix, term of office
as a director, employment during the past five years, and identification of
certain other directorships held is set forth below.
NOMINEES TO BECOME CLASS I DIRECTORS (TERMS TO EXPIRE IN 2002)
RICHARD YALEN, age 54, has been a Director since April, 1999. Mr. Yalen
is the Chief Executive Officer of Dynamic Telcom Engineering LLC, a
telecommunications company. From 1992 to 1998, prior to joining Dynamic Telcom
Engineering LLC, Mr. Yalen served in various positions at Cable & Wireless USA,
including that of Chief Executive Officer.
GREGORY C. MCNULTY, age __, is a nominee for Class I Director. Mr.
McNulty is Senior Group Manager, Business Development at Microsoft Corporation,
where he has held that position since 1997. Mr. McNulty also served as Major
Accounts Executive for Microsoft. From 1996 to 1997, Mr. McNulty was Vice
President of Sales at CIDCO, Inc., a manufacturer of intelligent network
terminal devices. From 1993 to 1996, Mr. McNulty served as Director of Major
Accounts for Wind River Systems, Inc., the leading supplier of real time
operating systems software and related software development tools. From 1992 to
1993, Mr. McNulty was Western Regional Sales Director for Lynx Real Time
Systems. Mr. McNulty was cofounder of Rugged Digital Systems, Inc., the leading
manufacturer of military standard, ruggedized computer systems and served in
various high-level executive positions from 1982 to 1992. Prior to that, Mr.
McNulty was employed by ROLM Corporation and by FMC Corporation.
CLASS II DIRECTORS (TERMS EXPIRING IN 2000)
STEVEN T. FRANCESCO, age 42, has been a Director, Chairman of the
Board and Chief Executive Officer since March 1999. He became Chief Executive
Officer in May, 1999. Mr. Francesco is founder and President of Darien
Corporation, and was founder and former President and Chief Operating Officer of
SmartServ Online, Inc. From 1989 to 1991, he was the Senior Vice President of
Strategic Planning and Operations for a division of Caantor-Fitzgerald
Securities. Mr. Francesco has served as a senior strategic advisor to GTE
Advanced Network Services, KeyTrade and e-Tel. Mr. Francesco serves as an
advisor to several financial firms, including Vantage Point Partners, Acorn
Investments and Renwick Corporate Finance, Inc. Mr. Francesco has served as a
consultant to numerous companies, including AT&T, GTE, Citibank, Chemical Bank,
Chase Manhattan Bank, J.J. Kenny, ADP, Telerate and the Chicago Mercantile
Exchange. Mr. Francesco founded the Market Technology Group, a computer and
technology service company providing financial systems and market data retrieval
to the financial services industry.
6
<PAGE>
JOHN M. FACCIBENE, age 53, has been a Director since March 1999. Since
January 1999, Mr. Faccibene has been Managing Director, Americas for IXnet, a
subsidiary of IPC Information Systems, Inc. From 1997 to 1998, he was Executive
Director of CIBC/Oppenheimer & Co. From 1973 to 1998, he was a senior member of
the Security Industry Association (SIA) and for two years served as Chairman of
the SIA Technology Management Committee. For 22 years, Mr. Faccibene has been a
senior member of the Wall Street Telecommunications Association (WSTA) Executive
Committee, and for three years served as President of the WSTA. He has
previously served as Chairman of the NYNEX Executive Forum, Newbridge Worldwide
User Group, Ascom/Timeplex User Group and is a director of the New York
Technical College. Mr. Faccibene also serves as a Director of ADVESTA, a
software company, Bridgewater Systems, a software company and Timestep, a
software security company.
CLASS III DIRECTORS (TERMS EXPIRING IN 2001)
LYNN C. CHAPMAN, age 45, is President and Chief Operating Officer of
Netrix and has been a Director since 1997. Mr. Chapman joined Netrix in December
1992 and was named Vice President in February 1993. During 1996, Mr. Chapman
assumed additional responsibility as Vice President, Network Products and was
named President and Chief Executive Officer in February 1997. In May, 1999, Mr.
Francesco succeeded him as Chief Executive Officer. Prior to joining Netrix, Mr.
Chapman served in various management positions at Data General Corporation from
1989 to 1992.
DOUGLAS J. MELLO, age 56, has been a Director since April, 1999. Mr.
Mello was employed by Bell Atlantic and its predecessor corporations from 1965
until March, 1999. From 1997 to 1999, he served as President, Large Business
Sales-North for Bell Atlantic. From 1996 to 1997, he was NYNEX Vice
President-Business Marketing & Amp Sales, responsible for all business customers
in the New York and New England areas. From 1994 to 1996, he served as Vice
President-Sales for NYNEX Corporation. Prior to 1994, Mr. Mello was the Group
Vice President-Manhattan Market Area for New York Telephone, where he was
responsible for the provisioning of telecommunications technology. From 1985 to
1991, he was President of Business Information Systems Corp. Mr. Mello is a
director of IXnet, Inc. and of Telexis Co.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR ELECTION
OF THE NOMINEES NAMED ABOVE.
7
<PAGE>
GENERAL INFORMATION RELATING TO THE BOARD OF DIRECTORS
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
MEETINGS OF THE BOARD. During the fiscal year ended December 31, 1998,
the Board of Directors met 11 times in person or by telephonic conference
meeting. Each Director listed above who was then serving attended all of the
meetings of the Board of Directors and the meetings of the committees of the
Board of Directors of which he was a member.
COMMITTEES OF THE BOARD. We have an Audit Committee of the Board of
Directors to facilitate direct contact between our independent accountants and
the Board of Directors. During 1998, the Audit Committee met one time to review
the effectiveness of the accountants during the annual audit, to discuss our
internal accounting policies and procedures and to consider and recommend the
selection of our independent accountants. The current members of the Audit
Committee are Messrs. Rooker and Yalen.
We have a Compensation Committee of the Board of Directors that
recommends executive and employee compensation programs to the Board of
Directors and administers our stock option and other employee stock plans.
During 1998, the Compensation Committee met one time. The current members of the
Compensation Committee are Messrs. Faccibene and Mello.
We have a standing Nominating Committee of the Board of Directors that
recommends qualified candidates for nomination to the Board. The Nominating
Committee also considers nominees recommended by stockholders if such
recommendations are submitted in writing prior to the time stockholder proposals
are due to be submitted for inclusion in proxy materials. During 1998, the
Nominating Committee did not meet. The members of the Nominating Committee for
1999 have not yet been appointed.
COMPENSATION OF DIRECTORS
In 1998, each member of the Board of Directors who was not an employee
of Netrix was paid a retainer of $12,000 plus $250 for each day of attendance at
a meeting of the full Board or any committee thereof other than the Executive
Committee and $500 for each day of attendance of a meeting of the Executive
Committee. In 1999, we are eliminating the cash payments and providing equity
compensation to our non-employee Directors. Although the Board compensation for
1999 has not been fixed, we anticipate that each non-employee Director will
receive a one time grant of 50,000 stock options with an exercise price equal to
the fair market value on the grant date, and an additional 25,000 stock options
for 2000 and each subsequent year with an exercise price equal to the fair
market value on the grant date. In addition, we reimburse Directors for all
reasonable expenses incurred by them in connection with their attendance at
Board or Committee meetings.
8
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE. The following Summary Compensation Table
sets forth the compensation received by Mr. Chapman, who was the Chief Executive
Officer in 1998, and each of the other executive officers who had more than
$100,000 of compensation in 1998. Information is provided for the fiscal years
ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
POSITION(S) YEAR SALARY BONUS COMPENSATION* AWARDS OPTIONS PAYOUTS COMPENSATION
<S> <C> <C> <C> <C> <C>
Lynn C. Chapman 1998 $160,000 $ 6,583 $ 2,400 100,000
President and Chief 1997 156,546 21,750 2,375 29,000
Executive Officer 1996 140,578 -- 1,125 75,000
G. Brent Wilson 1998 126,000 6,583 -- 45,000
Vice President, 1997 114,815 14,500 -- 12,000
Engineering Services 1996 109,701 -- 25,000
Karl W. Finkelnburg 1998 163,658 900 10,000
Vice President, Sales & 1997 197,230 1,544 13,000
American Operations 1996 219,180 750 13,000
</TABLE>
* Represents matching 401(k) plan contributions by Netrix.
STOCK OPTION GRANTS. The following table summarizes stock option
grants during 1998 to the named executive officers:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE AT
GRANTED TO MARKET ASSUMED RATES OF STOCK PRICE
OPTIONS EMPLOYEES EXERCISE PRICE APPRECIATION FOR OPTION TERM
GRANTED IN FISCAL PRICE ($/SHARE) EXPIRATION (C)
NAME (#)(A) YEAR ($/SHARE) (B) DATE 0%($) 5%($) 10%($)
- ------------------------- ------------ ------------ ---------- ----------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lynn C. Chapman 100,000(D) 15% $3.13 $3.13 5/7/08 -- 197,000 499,000
G. Brent Wilson 45,000(D) 7 2.33 2.33 5/7/08 -- 66,000 167,000
Karl W. Finkelnburg 10,000(D) 2 3.13 3.13 3/12/07 -- 20,000 50,000
</TABLE>
(A) Under the terms of Netrix's incentive stock option plan, the Board of
Directors retains discretion, subject to plan limits, to modify the terms
of the outstanding options and to reprice the options. The options were
granted for a term of 10 years, subject to earlier termination in the
event of termination of employment. The options were granted with tandem
tax withholding rights.
(B) Equals fair market value of the common stock on the date of grant.
(C) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 0%, 5% and 10%
compounded annually from the date of grant to their expiration date.
Actual gains, if any, on stock option exercises will depend upon the
future performance of our common stock and the date on which the options
are exercised.
(D) Identified options were granted May 8, 1998, and 20% of the options become
exercisable at the end of one year and the balance becomes exercisable in
equal monthly installments on the 30th day of each calendar month
following the date of grant, with full vesting occurring on the fourth
anniversary date.
9
<PAGE>
STOCK OPTION EXERCISES AND FISCAL YEAR-END STOCK OPTION VALUES. The
following table summarizes option exercises during 1998 by the named executive
officers and the value of the options held by such persons at the end of 1998:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR END FISCAL YEAR END ($)(A)
---------------------------------------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lynn C. Chapman -- -- 66,996 74,004 143,539 158,554
G. Brent Wilson -- -- 31,247 36,779 66,947 78,799
Karl W. Finkelnburg -- -- 9,592 20,908 23,282 55,783
</TABLE>
EMPLOYMENT AGREEMENTS. Netrix entered into an agreement with each of
the named executive officers on February 1, 1999, to provide him with severance
benefits if their employment is terminated without cause (as defined in the
agreement) or that he resigns for good reason (as defined in the agreement).
Under either of these circumstances, the executive be entitled to receive his
base salary as determined by a formula specified in the agreement for a period
ranging from six to twelve months after his termination, and also continue to
receive health, disability and similar benefits during this period. The
agreements also contain a non-competition covenant that coincides with the term
of the agreements. The term of the agreements extends until December 31, 2000,
and automatically renews for additional one-year periods unless notice of
termination is provided ninety days prior to the expiration of the term.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None.
10
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The following chart compares cumulative total stockholder return on our
common stock during the period from December 31, 1993, through December 31,
1998, with the cumulative return over the same period of (1) the Russell 2000
Index and (2) a peer group* of publicly-traded companies selected by us for
purposes of this comparison. The chart assumes the investment of $100 at the
close of trading on December 31, 1993 in our common stock, the Russell 2000
Index and the specified peer group and assumes reinvestment of dividends.
Measurement points are at December 31, 1993, December 31, 1994, December 31,
1995, December 31, 1996, December 31, 1997 and December 31, 1998.
COMPARATIVE STOCKHOLDER RETURNS
NETRIX CORPORATION, RUSSELL 2000 INDEX AND PEER GROUP*
(PERFORMANCE RESULTS FROM 12/31/93 THROUGH 12/31/98)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------------ ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NETRIX CORPORATION $100.00 $180.49 $90.24 $92.68 $20.72 $46.34
RUSSELL 2000 INDEX $100.00 $101.82 $130.78 $152.35 $186.41 $181.68
CURRENT PEER GROUP $100.00 $142.89 $243.78 $273.94 $189.35 $92.95
</TABLE>
* The peer group includes the following companies: Coyote Network Systems
Inc. (CYOE), E Net Inc. (ETEL), Hypercom Corp. (HYC), Olicom AS (OLCMF),
Openroute Networks Inc. (OPEN), Network Equipment Technologies Inc. (NWK),
Pairgain Technologies Inc. (PAIR), Sync Research, Inc. (SYNX), Verilink
Corp. (VRLK), Vocaltec Communications Ltd. (VOCL). The stockholder returns
of each company have been weighted to reflect relative market
capitalization.
Cisco Systems, Inc. (CSCO), CrossComm Corporation (XCOM), Newbridge
Networks Corporation (NNCXF), Northern Telecom, Inc. (NT), Proteon, Inc.
(PTON), StrataCom, Inc. (STRM), Telematics International, Inc. (TMAX), Bay
Networks, Inc. (BNET) and 3Com Corporation (COMS) were removed from the
peer group either because they were acquired or have ceased to be
comparable to Netrix Corporation as a result of their large size.
11
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REPORT ON EXECUTIVE COMPENSATION
BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Policies pertaining to the compensation of Netrix's executive
officers are established and administered by the Compensation Committee of the
Board of Directors (the "Committee"). Pursuant to Netrix's By-Laws, the
Committee is composed of two non-employee directors. Presently, the members of
the Committee are Messrs. Faccibene and Mello. All decisions made by the
Committee relating to compensation of the Company's executive officers are
reviewed by the full Board of Directors. This report, submitted by the
Committee, addresses Netrix's policies during 1998 as applied to Netrix's
President and Chief Executive Officer and the two next most highly compensated
executive officers of Netrix.
OBJECTIVES. Netrix's executive compensation program was designed to
promote the following objectives:
(1) to provide competitive compensation that would help attract, retain and
reward highly qualified executives who contribute to the long-term success
of Netrix;
(2) to align management's interests with the success of Netrix by placing a
portion of each executive's compensation at risk in relation to Netrix's
performance; and
(3) to align management's interests with stockholders' interests by including
long-term equity incentives to management.
The Committee believes that Netrix's executive compensation program
provides an overall level of compensation that is competitive within its
industry and among companies of comparable size and complexity. To ensure that
compensation is competitive, Netrix regularly compares its compensation
practices with those of other similar companies and sets its compensation
guidelines based on this review. The Committee also seeks to achieve an
appropriate balance of the compensation paid to a particular individual and the
compensation paid to other executives both inside Netrix and at comparable
companies and attempts to maintain an appropriate mix of salary and incentive
compensation. While compensation data are useful guides for comparative
purposes, Netrix believes that a successful compensation program also requires
the application of judgment and subjective determinations of individual
performance.
COMPOSITION OF THE PROGRAM. Netrix's executive compensation program
typically consists of base salary, annual incentive compensation and long-term
equity incentives in the form of stock options. Executive officers also are
eligible to participate in certain benefit programs that generally are available
to all employees of Netrix, such as life insurance benefits programs, Netrix's
Employee Stock Purchase Plan and medical and 401(k) savings plans.
BASE SALARY. At the beginning of each fiscal year, the Committee
establishes an annual salary plan for senior executive officers based upon
recommendations from the Chief Executive Officer. The Committee attempts to set
base salary compensation within the range of salaries of executive officers with
comparable qualifications, experience and responsibilities at other companies in
the same or similar businesses and of comparable size and success. In addition
to external market data, salary determinations depend upon both Netrix's
financial performance and an individual's performance as measured by certain
subjective non-financial criteria. These non-financial criteria include the
individual's contributions to Netrix as a whole, including the ability to
motivate others, the individual's capacity to develop new skills as Netrix
matures, ability to recognize and pursue new business opportunities and ability
to initiate programs to enhance the present and future growth and success of
Netrix.
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ANNUAL INCENTIVE COMPENSATION. Netrix's bonus program is designed
to provide its key employees with cash incentives to achieve Netrix's financial
goals. At the beginning of each year, the Committee typically establishes target
annual bonuses for each executive officer to be awarded if Netrix achieves its
target net income for the year. Cash bonuses are then paid monthly based upon
Netrix's ongoing financial performance on a monthly and year-to-date basis. In
addition, Netrix's sales personnel receive monthly commissions based upon sales
bookings for the month and their relationship to targeted annual bookings. The
Committee established cash bonus targets for 1998 and payments were made to
executive officers based on revenues and net income for Netrix for 1998.
LONG-TERM INCENTIVE COMPENSATION. Netrix's stock option plan is
designed to promote an identity of long-term interests between Netrix's
employees and its stockholders as well as to assist in the retention of key
executives. The size of option grants under the plan generally is intended to
reflect the recipient's position with Netrix and his or her contributions to the
company. Stock options typically vest over a five year period in order to
encourage recipients to continue their employment with Netrix.
OTHER BENEFITS. Netrix's executive officers are entitled to
receive medical and life insurance benefits and to participate in Netrix's
401(k) Retirement Savings Plan on the same basis as other full-time employees of
Netrix. Netrix's 1992 Employee Stock Purchase Plan, which is available to
virtually all employees including executive officers, allows participants to
purchase shares at a discount of approximately 15% from the fair market value at
the beginning or end of a purchase period. The amount of perquisites, as
determined in accordance with the rules of the Securities and Exchange
Commission relating to executive compensation, did not exceed 10% of salary and
bonus for 1998 for any of Netrix's executive officers.
SUMMARY OF COMPENSATION OF CHIEF EXECUTIVE OFFICER. In 1998, Mr.
Chapman, who served as Netrix's chief executive officer during the year,
received salary compensation of $160,000, approximately the same as in 1997. In
1998, Mr. Chapman received bonus compensation of $6,583 (4% of salary), as
compared to bonus compensation of $21,750 (14% of salary) in 1997.
EMPLOYMENT AGREEMENT. Netrix persuaded Steven T. Francesco to become
the Chairman of the Board in March 1999 and Chief Executive Officer in May 1999.
The Committee is currently negotiating the terms of an employment agreement with
Mr. Francesco. The Committee believes that it is in Netrix's best interest to
enter into such an agreement with Mr. Francesco, thereby formalizing the
expectations of both parties with respect to the employment relationship. As a
result of Netrix's current cash requirements and the largely illiquid form of
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most of its assets, we expect the agreement will primarily provide Mr. Francesco
with the opportunity to earn additional equity-based compensation in the form of
stock options for continuing his employment with Netrix. We are confident we
will reach an agreement on terms and enter into the employment contract with Mr.
Francesco in the very near future.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of
the Internal Revenue Code of 1986, as amended, generally disallows a tax
deduction to public companies for compensation over $1,000,000 paid to its chief
executive officer and four next most highly compensated executive officers.
Qualifying performance-based compensation will not be subject to the deduction
limit if certain requirements are satisfied. Consequently, Netrix has limited
the number of shares subject to stock options that may be granted to its
employees in a manner that complies with the performance-based requirements of
Section 162(m). In light of the compensation awarded to Netrix's executive
officers in recent years, it does not appear that the Section 162(m) limitation
will have a significant impact on Netrix in the near term. While the Committee
currently has no intention of qualifying its incentive awards pursuant to a
performance-based plan, it will continue to monitor the impact of Section 162(m)
on Netrix.
COMPENSATION COMMITTEE
John M. Faccibene
Douglas J. Mello
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ITEM 2: INCREASE OF AUTHORIZED CAPITAL STOCK
Stockholders are being asked to consider and approve an increase in the
number of authorized shares of our capital stock.
Specifically, the Board has approved and recommends that the
stockholders adopt an amendment to Article Fourth of our Certificate of
Incorporation which increases the number of authorized shares of common stock
from 15,000,000 to 40,000,000 and the number of authorized shares of preferred
stock from 1,000,000 to 5,000,000. The provisions of Article Fourth of our
Certificate of Incorporation, as proposed to be amended by this proposal, are
set forth in Exhibit B.
As of May 28, 1999, in addition to the 11,493,009 Common Shares issued
and outstanding, we have 2,950,000 Common Shares reserved for issuance under the
Company's existing benefit plans, of which options for 1,457,888 shares are
outstanding. An additional approximately 1,640,000 shares of common stock are
issuable upon conversion of outstanding preferred stock and exercise of
outstanding warrants. If the proposed 1999 Plan is adopted by stockholders at
the annual meeting, an additional 6,500,000 shares of common stock will be
issuable thereunder. Unless the shares of authorized capital stock is increased,
we will not be able to grant any additional shares of stock under our employee
benefit plans, even if the 1999 Plan is adopted.
As of May 28, 1999, approximately 300,000 shares of preferred stock
were issued and outstanding, with no further shares of preferred stock reserved
for subsequent issuance. This leaves us currently with 700,000 shares available
for issuance. The rights, preferences and privileges of the preferred stock can
fixed by the Board of Directors at the time of issuance. These rights, terms and
preferences may include dividend rates, conversion prices, voting rights,
redemption prices, maturity dates and similar matters.
The Board believes that the increased number of authorized shares is
desirable to make additional unreserved common shares available for issuance or
reservation without further shareholder authorization, except as may be required
by law or by the rules of the Nasdaq Stock Market. In particular, we believe
that we require the ability to issue additional equity incentive awards to our
employees and potential employees in order to attract and retain the high
caliber of employees we seek. Also, in light of our current cash requirements
and financial position and prospects, a number of vendors are amenable to
receiving common stock or warrants in lieu of cash payments. The Board believes
that in the right circumstances paying vendors in stock may be beneficial. We
also believe that having additional shares authorized and available for issuance
will allow us to have greater flexibility in considering potential future
actions involving the issuance of stock. Currently, however, we have no plans to
effect such potential actions. We also believe, that authorizing the issue of
more shares will not affect materially any substantive rights, powers or
privileges of holders of our common stock or preferred stock. Other than with
respect to the reservation of common shares in connection with (1) our current
employee benefit plans, (2) the 1999 Plan, if approved, and (3) the expectation
that we will increase the emphasis on stock options in compensating our
employees and Directors, we have no other plans or other existing or proposed
agreements or understandings to issue, or reserve for future issuance, any of
the additional common shares or preferred shares which would be authorized by
the amendment to our Certificate of Incorporation.
15
<PAGE>
We do not view the proposed amendment of our Certificate of
Incorporation as part of an "anti-takeover" strategy. The amendment is not being
advanced as a result of any known effort by any party to accumulate common stock
or to obtain control of Netrix. See "Stock Ownership of Management and Others."
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENT TO OUR CERTIFICATE OF INCORPORATION.
ITEM 3: 1999 LONG-TERM INCENTIVE PLAN PROPOSAL
The Board of Directors approved, subject to stockholder approval,
Netrix Corporation's 1999 Long-Term Incentive Plan. The Plan is an incentive and
non-qualified stock-based award plan that authorizes the issuance of up to
6,500,000 shares of common stock to our employees, officers, directors and
consultants through the granting of incentive and non-qualified stock options,
stock appreciation rights, restricted stock, deferred stock, bonus stock,
dividend equivalents and other stock-based awards. A complete copy of the Plan
is attached to this proxy statement as Exhibit B.
PURPOSE OF THE PLAN. The purpose of the Plan is to advance the
interests of Netrix and its stockholders by providing a means to attract, retain
and reward directors, officers and other key employees and consultants and to
enable those persons to acquire or increase a proprietary interest in Netrix,
thereby promoting a closer identity of interests between them and our
stockholders.
PLAN ADMINISTRATION. The Plan will be administered by the Compensation
Committee of the Board of Directors. The Committee currently is comprised of
Messrs. Faccibene and Mello.
TYPES OF AWARDS AVAILABLE UNDER THE PLAN. The Committee may issue up to
6,500,000 shares of the common stock to our employees, officers, directors or
consultants.
STOCK OPTIONS. The Committee may grant nonqualified stock options and
incentive stock options with the exercise price, timing and method of exercise
to be determined by the Committee. The terms of any incentive stock option must
comply with Section 422 of the Internal Revenue Code. Unless otherwise
determined by the Committee, stock options must be exercised within three months
after a termination of employment. However, if a participant is terminated for
cause, his options shall terminate as of the date of such termination.
STOCK APPRECIATION RIGHTS. A stock appreciation right ("SAR") gives the
recipient the right to receive, upon exercise, the excess of the fair market
value of one share of stock on the date of exercise over the grant price of the
SAR on the date of the grant (which will not be less than the fair market value
of one share of Common Stock on the date of the grant). The Committee shall
determine the times at which such SARs may be exercised, the method for such
exercise, and all other terms and conditions applicable to SARs.
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RESTRICTED STOCK. Restricted stock is granted subject to restrictions
on transferability which lapse after a specified period of time. The Committee
shall determine the restrictions applicable to restricted stock and the method
in which any dividends on such restricted stock will be paid. Unless otherwise
provided in the award agreement, restricted stock will be forfeited if the
participant terminates his employment during the applicable restriction period.
DEFERRED STOCK. Deferred stock is delivered to participants after the
expiration of the deferral period specified in the award agreement, subject to
any restrictions imposed by the Committee. Unless otherwise provided in the
award agreement, deferred stock will be forfeited if the Participant terminates
his employment during the applicable restriction period.
BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Committee may
grant stock as a bonus, or grant stock and other awards in lieu of Company
obligations to pay cash under other plans or compensatory arrangements.
DIVIDEND EQUIVALENTS. The Committee may grant dividend equivalents,
which entitle the recipient to receive cash, Common Stock, other awards, or
other property equal in value to dividends paid with respect to a specified
number of shares of Common Stock.
OTHER AWARDS. Finally, the Committee may grant other stock-based awards
that may be denominated in, payable in or valued in whole or in part by
reference to or relation to the Company's Common Stock. Such awards may include,
but are not limited to, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Common Stock, purchase rights for Common
Stock, awards with value and payment contingent upon performance of the Company
or any other factors designated by the Committee and awards valued by reference
to the book value of the Common Stock or the value of the securities of
specified subsidiaries of the Company or the performance of specified
subsidiaries.
OTHER INFORMATION. The Committee shall determine the term of each award
granted under the Plan, provided, however, that in no event shall the term of
any incentive stock option or SAR granted in tandem therewith exceed a period of
ten years from the date of grant. The Board of Directors has a limited right to
modify or amend the proposed plan.
As promptly as practical after the 1999 Plan is approved, we will file
a registration with the Securities and Exchange Commission to permit the resale
of common stock issuable under the 1999 Plan (subject to vesting and other
requirements) to the public. During the term of the proposed 1999 Plan, our
eligible Directors, officers, employees and consultants will receive, upon
exercise, the opportunity to profit from any rise in the market value of our
common stock. Consequently, the equity interest of other stockholders of Netrix
will be diluted. The grant and exercise of options also may affect our ability
to obtain additional capital during the term of any options.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE 1999 LONG-TERM INCENTIVE PLAN.
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ITEM 4: SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been recommended by the Audit Committee and
selected by the Board of Directors to audit our books and accounts for 1999.
Arthur Andersen LLP has advised us that neither it nor any of its
members has any direct financial interest in Netrix as a promoter, underwriter,
voting trustee, director, officer or employee.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANT.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors, officers and
holders of more than 10% of the outstanding shares of our common stock to file
with the SEC initial reports of ownership and reports of changes in ownership of
common stock and other of our equity securities. We believe that, during 1998,
our directors, officers and 10% or greater stockholders complied with all
reporting requirements under Section 16(a).
STOCKHOLDER PROPOSALS FOR THE ANNUAL MEETING OF STOCKHOLDERS
Proposals which stockholders wish to have considered for inclusion in
the proxy statement for the 2000 Annual Meeting of Stockholders must be received
at our principal executive offices on or before February 11, 2000. The address
of our principal executive office is: Netrix Corporation, 13595 Dulles
Technology Drive, Herndon, Virginia, 20171.
18
<PAGE>
EXHIBIT A
PROPOSED AMENDMENT TO THE
ARTICLES OF INCORPORATION
We will amend the first sentence of Article Fourth to our
Certificate of Incorporation if the amendment is approved by stockholders at the
Annual Meeting. Set forth below is the proposed amendment. The proposed new text
is in italics and the proposed deletions are indicated by overstriking. [EDGAR
DOCUMENT ONLY: New text is underscored, and the proposed deletions are in
brackets.]
ARTICLE FOURTH
[Authorized Shares]
FOURTH: I. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 45,000,000
----------
[30,249,599] shares, consisting of (i) 40,000,000 [15,000,000] shares
----------
of Common Stock, $.05 par value (the "Common Stock") and [(i)]
5,000,000 [15,249,500] shares of Preferred Stock, $.05 par value (the
---------
"Preferred Stock"). [consisting of (A) 2,499,946 share that are
designated Class A Convertible Preferred Stock ("Class A Preferred
Stock"); (B) 3,639,333 shares that are designated Class B Convertible
Preferred Stock ("Class B Preferred Stock"); (C) 4,686,026 shares that
are designated Class C Convertible Preferred Stock ("Class C Preferred
Stock"); (D) 3,424, 294 shares that are designated Class D Convertible
Preferred Stock ("Class D Preferred Stock"); and (E) 1,000,000 shares
that are initially undesignated.]
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EXHIBIT B
NETRIX CORPORATION
1999 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this 1999 Long-Term Incentive Plan (the "Plan")
of Netrix Corporation, a Delaware corporation (the "Company"), is to advance the
interests of the Company and its stockholders by providing a means to attract,
retain, and reward directors, officers and other key employees and consultants
of the Company and its subsidiaries (including consultants providing services of
substantial value) and to enable such persons to acquire or increase a
proprietary interest in the Company, thereby promoting a closer identity of
interests between such persons and the Company's stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents, and Other
Stock-Based Awards, are set forth in Section 6 of the Plan. Such awards,
together with any other right or interest granted to a Participant under the
Plan, are termed "Awards." For purposes of the Plan, the following additional
terms shall be defined as set forth below:
(a) "AWARD AGREEMENT" means any written agreement, contract, or other
instrument or document evidencing an Award.
(b) "BENEFICIARY" shall mean the person, persons, trust, or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under this Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust, or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "BOARD" means the Board of Directors of the Company.
(d) A "CHANGE IN CONTROL" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the Beneficial Ownership
(as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended)
of any voting security of the Company and immediately after such acquisition
such Person is, directly or indirectly, the Beneficial Owner of voting
securities representing 50% or more of the total voting power of all of the
then-outstanding voting securities of the Company;
(ii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not sought or obtained, other than any
such transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least 75% of
the holders of outstanding voting securities of the Company immediately prior to
the transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the transaction;
or
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(iii) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e.,
50% or more of the total assets of the Company).
(e) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(f) "COMMITTEE" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
PROVIDED, HOWEVER, that to the extent necessary to comply with Rule 16b-3, the
Committee shall consist of two or more directors, each of whom is a
"disinterested person" within the meaning of Rule 16b-3.
(g)`"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act shall
be deemed to include rules thereunder and successor provisions and rules
thereto.
(h) "FAIR MARKET VALUE" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, provided, however, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading or
quotation) as provided by one of such organizations, (ii) the "fair market
value" of Stock on the date on which shares of Stock are first issued and sold
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission shall be the Initial Public Offering price of
the shares so issued and sold, as set forth in the first final prospectus used
in such offering and (iii) the "fair market value" of Stock prior to the date of
the Initial Public Offering shall be as determined by the Board of Directors.
(i) "INITIAL PUBLIC OFFERING" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the 1933 Act.
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(j) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(k) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board who is not
otherwise an employee of the Company or any subsidiary.
(l) "PARTICIPANT" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(m) "RULE 16B-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(n) "STOCK" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to
each Participant;
(iii) to determine the number of Awards to be granted, the
number of shares of Stock to which an Award will relate, the terms and
conditions of any Award granted under the Plan (including, but not limited to,
any exercise price, grant price, or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability, or settlement of an Award, and
waivers or accelerations thereof, and waivers of or modifications to performance
conditions relating to an Award, based in each case on such considerations as
the Committee shall determine), and all other matters to be determined in
connection with an Award;
(iv) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award may be
paid, in cash, Stock, other Awards, or other property, or an Award may be
cancelled, forfeited, or surrendered;
(v) to determine whether, to what extent, and under what
circumstances cash, Stock, other Awards, or other property payable with respect
to an Award will be deferred either automatically, at the election of the
Committee, or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need
not be identical for each Participant;
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(vii) to adopt, amend, suspend, waive, and rescind such rules
and regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile
any inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument hereunder;
and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, subsidiaries of the Company, Participants,
any person claiming any rights under the Plan from or through any Participant,
and stockholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may delegate to officers
or managers of the Company or any subsidiary of the Company the authority,
subject to such terms as the Committee shall determine, to perform
administrative functions and, with respect to Participants not subject to
Section 16 of the Exchange Act, to perform such other functions as the Committee
may determine, to the extent permitted under Rule 16b-3, if applicable, and
other applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination, or
interpretation.
4. STOCK SUBJECT TO PLAN.
(a) AMOUNT OF STOCK RESERVED. The total amount of Stock that may be
subject to outstanding Awards, determined immediately after the grant of any
Award, shall not exceed 6,500,000 shares of the total number of shares of Stock
outstanding. Shares subject to ISOs, Restricted Stock or Deferred Stock Awards
shall not be deemed delivered if such Awards are forfeited, expire or otherwise
terminate without delivery of shares to the Participant. If an Award valued by
reference to Stock may only be settled in cash, the number of shares to which
such Award relates shall be deemed to be Stock subject to such Award for
purposes of this Section 4(a). Any shares of Stock delivered pursuant to an
Award may consist, in whole or in part, of authorized and unissued shares or
treasury shares.
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(b) ADJUSTMENTS. In the event of any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event, affects the Stock such that an adjustment is appropriate
in order to prevent dilution or enlargement of the rights of Participants under
the Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock deemed to be
available thereafter for grants of Awards under Section 4(a) (including with
respect to the limitations relating to ISOs and to Restricted and Deferred
Stock), (ii) the number and kind of shares of Stock that may be delivered or
deliverable in respect of outstanding Awards, and (iii) the exercise price,
grant price, or purchase price relating to any Award (or, if deemed appropriate,
the Committee may make provision for a cash payment with respect to any
outstanding Award). In addition, the Committee is authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards (including,
without limitation, cash payments in exchange for an Award or substitution of
Awards using stock of a successor or other entity) in recognition of unusual or
nonrecurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any subsidiary or the financial
statements of the Company or any subsidiary, or in response to changes in
applicable laws, regulations, or accounting principles. The foregoing
notwithstanding, no adjustments shall be authorized under this Section 4(c) with
respect to ISOs or SARs in tandem therewith to the extent that such authority
would cause the Plan to violate Section 422(b)(1) of the Code, and no such
adjustment shall be authorized with respect to Options or other Awards granted
in accordance with Section 7(f) hereof to the extent that such authority would
cause such Options or other Awards to fail to qualify as "performance-based
compensation" under Section 162(m)(4)(C) of the Code and regulations thereunder
(including Regulation 1.162-27(e)(2)).
5. ELIGIBILITY. Executive officers and other key employees of the Company
and its subsidiaries, including any director and persons who provide consulting
or other services to the Company deemed by the Committee to be of substantial
value to the Company, are eligible to be granted Awards under the Plan. In
addition, a person who has been offered employment by the Company or its
subsidiaries is eligible to be granted an Award under the Plan, provided that
such Award shall be cancelled if such person fails to commence such employment,
and no payment of value may be made in connection with such Award until such
person has commenced such employment. The foregoing notwithstanding,
Non-Employee Directors who are members of the Committee shall not be eligible to
be granted Awards under the Plan.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
8(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Sections 6(f), 6(h), or 7(a),
or to the extent required to comply with requirements of the Delaware General
Corporation Law that lawful consideration be paid for Stock, only services may
be required as consideration for the grant (but not the exercise) of any Award.
B-5
<PAGE>
(b) OPTIONS. The Committee is authorized to grant Options to
Participants (including "reload" options automatically granted to offset
specified exercises of options) on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine
the time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the form
of such payment, including, without limitation, cash, Stock, other Awards or
awards granted under other Company plans, or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered or deemed
to be delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that no ISO shall be granted more than ten
years after the effective date of the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall not be interpreted,
amended, or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify either the Plan or any ISO under Section
422 of the Code.
(iv) TERMINATION OF EMPLOYMENT. Unless otherwise determined by
the Committee, upon termination of a Participant's employment with the Company
and its subsidiaries, such Participant may exercise any Options during the three
month period following such termination of employment, but only to the extent
such Option was exercisable immediately prior to such termination of employment.
Notwithstanding the foregoing, if the Committee determines that such termination
is for cause, all Options held by the Participant shall immediately terminate.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
SARs to Participants on the following terms and conditions:
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of Stock on the date of exercise (or, if the
Committee shall so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any time during a
specified period before or after the date of exercise), over (B) the grant price
of the SAR as determined by the Committee as of the date of grant of the SAR,
which, except as provided in Section 7(a), shall be not less than the Fair
Market Value of one share of Stock on the date of grant.
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<PAGE>
(ii) OTHER TERMS. The Committee shall determine the time or
times at which an SAR may be exercised in whole or in part, the method of
exercise, method of settlement, form of consideration payable in settlement,
method by which Stock will be delivered or deemed to be delivered to
Participants, whether or not an SAR shall be in tandem with any other Award, and
any other terms and conditions of any SAR. Limited SARs that may only be
exercised upon the occurrence of a Change in Control may be granted on such
terms, not inconsistent with this Section 6(c), as the Committee may determine.
Limited SARs may be either freestanding or in tandem with other Awards.
(d) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in combination
at such times, under such circumstances, in such installments, or otherwise, as
the Committee may determine. Except to the extent restricted under the terms of
the Plan and any Award Agreement relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock or the right
to receive dividends thereon.
(ii) FORFEITURE. Except as otherwise determined by the
Committee, upon termination of employment or service (as determined under
criteria established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be forfeited
and reacquired by the Company; PROVIDED, HOWEVER, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of termination
resulting from specified causes. Notwithstanding anything contained herein to
the contrary (other than Section 7(g)), all Restricted Stock Awards, other than
an Award granted pursuant to Section 7(f), shall be forfeited upon a
Participant's termination of employment or other service with the Company and
its subsidiaries within three years of the date the award is granted, provided,
however, that the Committee may make exceptions in the event such termination is
by reason of the Participant's death or disability.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock, the
Company shall retain physical possession of the certificate, and the Participant
shall have delivered a stock power to the Company, endorsed in blank, relating
to the Restricted Stock.
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<PAGE>
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall be
either paid at the dividend payment date in cash or in shares of unrestricted
Stock having a Fair Market Value equal to the amount of such dividends, or the
payment of such dividends shall be deferred and/or the amount or value thereof
automatically reinvested in additional Restricted Stock, other Awards, or other
investment vehicles, as the Committee shall determine or permit the Participant
to elect. Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed.
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred Stock
to Participants, subject to the following terms and conditions:
(i) AWARD AND RESTRICTIONS. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock by
the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such restrictions
as the Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times, separately or
in combination, in installments, or otherwise, as the Committee may determine.
(ii) FORFEITURE. Except as otherwise determined by the
Committee, upon termination of employment or service (as determined under
criteria established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the Award
Agreement evidencing the Deferred Stock), all Deferred Stock that is at that
time subject to deferral (other than a deferral at the election of the
Participant) shall be forfeited; PROVIDED, HOWEVER, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Deferred Stock will be waived in whole or in part in the event of termination
resulting from specified causes. Notwithstanding anything contained herein to
the contrary (other than Section 7(g)), all Deferred Stock Awards, other than an
Award granted pursuant to Section 7(f), shall be forfeited upon a Participant's
termination of employment or other service with the Company and its subsidiaries
within three years of the date the award is granted, provided, however, that the
Committee may make exceptions in the event such termination is by reason of the
Participant's death or disability.
(f) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Committee
is authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash under other plans or compensatory
arrangements, provided that, in the case of Participants subject to Section 16
of the Exchange Act, such cash amounts are determined under such other plans in
a manner that complies with applicable requirements of Rule 16b-3 so that the
acquisition of Stock or Awards hereunder shall be exempt from Section 16(b)
liability. Stock or Awards granted hereunder shall be subject to such other
terms as shall be determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Stock,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of shares of Stock, or other periodic payments. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents shall be paid
or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards, or other investment vehicles as the Committee may
specify.
B-8
<PAGE>
(h) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Stock, purchase rights for Stock, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Committee, and Awards valued by reference to the book value of
Stock or the value of securities of or the performance of specified
subsidiaries. The Committee shall determine the terms and conditions of such
Awards. Stock delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(h) shall be purchased for such consideration, paid
for at such times, by such methods, and in such forms, including, without
limitation, cash, Stock, other Awards, or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, shall also be authorized pursuant to this Section 6(h).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or any award granted under any other plan of
the Company, any subsidiary, or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive payment
from the Company or any subsidiary. Awards granted in addition to or in tandem
with other Awards or awards may be granted either as of the same time as or a
different time from the grant of such other Awards or awards.
(b) TERM OF AWARDS. The term of each Award shall be for such period as
may be determined by the Committee; PROVIDED, HOWEVER, that in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
subsidiary upon the grant or exercise of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards, or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
B-9
<PAGE>
(d) RULE 16B-3 COMPLIANCE.
(i) SIX-MONTH HOLDING PERIOD. Unless a Participant could
otherwise exercise a derivative security or dispose of Stock delivered upon
exercise of a derivative security granted under the Plan without incurring
liability under Section 16(b) of the Exchange Act, (i) Stock delivered under the
Plan other than upon exercise or conversion of a derivative security granted
under the Plan shall be held for at least six months from the date of
acquisition, and (ii), with respect to a derivative security granted under the
Plan, at least six months shall elapse from the date of acquisition of the
derivative security to the date of disposition of the derivative security (other
than upon exercise or conversion) or its underlying equity security.
(ii) TRANSFERABILITY. Except as otherwise provided by the
Committee, Awards under the Plan are not transferable except as designated by
the Participant by will or by the laws of descent and distribution (or pursuant
to a Beneficiary designation).
(iii) REFORMATION TO COMPLY WITH EXCHANGE ACT RULES. It is the
intent of the Company that this Plan comply in all respects with applicable
provisions of Rule 16b-3 or Rule 16a-1(c)(3) under the Exchange Act in
connection with any grant of Awards to or other transaction by a Participant who
is subject to Section 16 of the Exchange Act (except for transactions exempted
under alternative Exchange Act Rules or acknowledged in writing to be non-exempt
by such Participant). Accordingly, if any provision of this Plan or any Award
Agreement relating to an Award does not comply with the requirements of Rule
16b-3 or Rule 16a-1(c)(3) as then applicable to any such transaction, such
provision will be construed or deemed amended to the extent necessary to conform
to the applicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such
Participant shall avoid liability under Section 16(b). In addition, other
provisions of the Plan notwithstanding, the exercise price of any Award carrying
a right to exercise granted to a Participant subject to Section 16 of the
Exchange Act shall be not less than 50% of the Fair Market Value of Stock as of
the date such Award is granted if such pricing limitation is required under Rule
16b-3 at the time of such grant.
(e) LOAN PROVISIONS. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, and in accordance with, laws and
regulations and other binding obligations or provisions applicable to the
Company, the Company may make, guarantee, or arrange for a loan or loans to a
Participant with respect to the exercise of any Option or other payment in
connection with any Award, including the payment by a Participant of any or all
federal, state, or local income or other taxes due in connection with any Award.
Subject to such limitations, the Committee shall have full authority to decide
whether to make a loan or loans hereunder and to determine the amount, terms,
and provisions of any such loan or loans, including the interest rate to be
charged in respect of any such loan or loans, whether the loan or loans are to
be with or without recourse against the borrower, the terms on which the loan is
to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
B-10
<PAGE>
(f) PERFORMANCE-BASED AWARDS TO "COVERED EMPLOYEES". Other provisions
of the Plan notwithstanding, the provisions of this Section 7(f) shall apply to
any Award the exercisability or settlement of which is subject to the
achievement of performance conditions (other than an Option or SAR granted with
an exercise or base price at least equal to 100% of Fair Market Value of Stock
on the date of grant) if such Award is granted to a person who, at the time of
grant, is a "covered employee." The definition of "covered employee," and other
terms used in this Section 7(f), shall be interpreted in a manner consistent
with Section 162(m) of the Code and regulations thereunder (including Regulation
1.162-27). The performance objectives for an Award subject to this Section 7(f)
shall consist of one or more business criteria and a targeted level or levels of
performance with respect to such criteria, as specified by the Committee but
subject to this Section 7(f). Performance objectives shall be objective and
shall otherwise meet the requirements (including the shareholder approval
requirements) of Section 162(m)(4)(C) of the Code and regulations thereunder
(including Regulation 1.162-27(e)(2)). The following business criteria shall be
used by the Committee in connection with a performance objective:
(1) Annual earnings before payment of taxes and interest;
(2) Annual earnings per share; and/or
(3) Annual return on common equity.
Achievement of performance objectives shall be measured over a period of one,
two, three, or four years, as specified by the Committee. No business criteria
other than those named above may be used in establishing the performance
objective for an Award to a covered employee. For each such Award relating to a
covered employee, the Committee shall establish the targeted level or levels of
performance for each business criteria. Performance objectives may differ for
Awards under this Section 7(f) to different covered employees. The Committee may
determine that an Award under this Section 7(f) shall be payable upon
achievement of any one of the performance objectives or may require that two or
more of the performance objectives must be achieved in order for an Award to be
payable. The Committee may, in its discretion, reduce the amount of a payout
otherwise to be made in connection with an Award under this Section 7(f), but
may not exercise discretion to increase such amount, and the Committee may
consider other performance criteria in exercising such discretion. All
determinations by the Committee as to the achievement of performance objectives
shall be made in writing. The Committee may not delegate any responsibility
under this Section 7(f).
(g) ACCELERATION UPON A CHANGE OF CONTROL. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and/or restrictions relating to the continued
performance of services and/or the achievement of performance objectives with
respect to the exercisability or full enjoyment of an Award shall immediately
lapse upon a Change in Control.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND EXCHANGE REQUIREMENTS. The Company shall
not be obligated to deliver Stock upon the exercise or settlement of any Award
or take other actions under the Plan until the Company shall have determined
that applicable federal and state laws, rules, and regulations have been
complied with and such approvals of any regulatory or governmental agency have
been obtained and contractual obligations to which the Award may be subject have
been satisfied. The Company, in its discretion, may postpone the issuance or
delivery of Stock under any Award until completion of such stock exchange
listing or registration or qualification of such Stock or other required action
under any federal or state law, rule, or regulation as the Company may consider
appropriate, and may require any Participant to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of Stock under the Plan.
B-11
<PAGE>
(b) TRANSFERABILITY. Except as otherwise set forth in Section 7(d)(ii),
Awards and other rights of Participants under the Plan may not be transferred to
third parties, pledged, mortgaged, hypothecated, or otherwise encumbered, and
shall not be subject to claims of creditors.
(c) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee or person
providing consulting or other services the right to be retained in the employ or
service of the Company or any of its subsidiaries, nor shall it interfere in any
way with the right of the Company or any of its subsidiaries to terminate any
employee's employment or terminate any contract with a person providing
consulting or other services at any time.
(d) TAXES. The Company or any subsidiary is authorized to withhold from
any Award granted or to be settled, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of stockholders or Participants,
except that any such action shall be subject to the approval of the Company's
stockholders at or before the next annual meeting of stockholders for which the
record date is after such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; PROVIDED, HOWEVER, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
B-12
<PAGE>
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant,
employee, or other person shall have any claim to be granted any Award under the
Plan, and there is no obligation for uniformity of treatment of Participants,
employees, and other persons. No Award shall confer on any Participant any of
the rights of a stockholder of the Company unless and until Stock is duly issued
or transferred and delivered to the Participant in accordance with the terms of
the Award.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
PROVIDED, HOWEVER, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the
Company that Options and other Awards subject to the performance objectives
specified under Section 7(f) granted under the Plan to persons who are "covered
employees" within the meaning of Code Section 162(m) and regulations thereunder
(including Regulation 1.162-27(c)(2)) shall constitute "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder (including Regulation 1.162-27(e), and subject to the
transition rules under Regulation 1.162-27(h)(2)) thereunder. Accordingly, if
any provision of the Plan or any Award Agreement relating to such an Award
granted to a "covered employee" does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the Committee or
any other person discretion to increase the amount of compensation otherwise
payable to a "covered employee" in connection with any such Award upon
attainment of the performance objectives.
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<PAGE>
(k) GOVERNING LAW. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the Delaware General Corporation Law, without
giving effect to principles of conflicts of laws, and applicable federal law.
(l) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective
as of the date of its adoption by the Board and shall continue in effect until
terminated by the Board.
B-14
<PAGE>
NETRIX CORPORATION
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND
WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION,
THIS PROXY WILL BE VOTED "FOR" EACH PROPOSAL.
The undersigned hereby appoints Steven T. Francesco and Lynn C. Chapman as
Proxies, with the full power of substitution, and hereby authorizes them to
represent and vote, as designated herein, all shares of common stock of Netrix
Corporation held of record by the undersigned on May 28, 1999, at the Annual
Meeting of Stockholders to be held on July __, 1999, or any adjournment thereof,
upon all such matters as may properly come before the Meeting.
|X| Please mark your votes as in If you plan to attend the Annual
this example. Meeting, place an X in this box. |_|
1. ELECTION OF DIRECTORS.
FOR the nominees listed below |_| WITHHOLD AUTHORITY for the |_|
nominee(s) listed below
Nominees: Nominee(s): ______________________
Mr. Richard Yalen ______________________
Mr. Gregory C. McNulty
FOR AGAINST ABSTAIN
|_| |_| |_|
2. PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK OF
NETRIX CORPORATION.
FOR AGAINST ABSTAIN
|_| |_| |_|
* * * CONTINUED AND MUST BE SIGNED ON THE REVERSE SIDE * * *
<PAGE>
3. PROPOSAL TO APPROVE THE NETRIX CORPORATION 1999 LONG-TERM INCENTIVE PLAN.
FOR AGAINST ABSTAIN
|_| |_| |_|
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP TO SERVE AS
NETRIX'S INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL YEAR ENDING
DECEMBER 31, 1999.
FOR AGAINST ABSTAIN
|_| |_| |_|
IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
SIGNATURE:_________________________________ DATE:______________________
SIGNATURE:_________________________________ DATE:______________________
(SECOND SIGNATURE IF HELD JOINTLY)
NOTE: Please sign exactly as name or names appear on stock
certificate as indicated hereon. Joint owners should
each sign. When signing as attorney, executor, administrator
or guardian, please give full title as such.
- --------------------------------------------------------------------------------
STOCKHOLDERS ARE URGED TO DATE, MARK, SIGN AND RETURN THIS PROXY STATEMENT
PROMPTLY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN
THE UNITED STATES.
- --------------------------------------------------------------------------------
