<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use of the
|_| Definitive Proxy Statement Commission Only (as permitted by
|_| Definitive Additional Materials Rule 14a-6(e)(2))
|_| Soliciting Material Pursuant to
Rule 14a-12
NX NETWORKS, INC.
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
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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.
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<PAGE>
January __, 2001
Dear Fellow Stockholder:
At a special meeting of stockholders to be held on Wednesday, February
28, 2001, the stockholders of Nx Networks, Inc. will be asked to approve a
number of proposals. These include:
1. An amendment to our restated certificate of incorporation to increase
our authorized number of shares of common stock from 55 million to 85
million.
2. An amendment to the 1999 Long Term Incentive Plan to increase the
number of shares covered by the Plan from 7,250,000 to 11,250,000.
3. Authorization to sell common stock to raise capital in one or more
private offerings in compliance with Nasdaq Stock Market listing
requirements.
4. Authorization to issue shares of common stock to the former
shareholders of AetherWorks Corporation in compliance with Nasdaq
Stock Market listing requirements.
Proposals 1, 3 and 4 all impact the Company's financial condition, as
described in the accompanying proxy statement, and it is very important that you
take the time to vote. We request that you vote at your earliest convenience, so
that we can proceed to finalize our plans to obtain additional financing for the
Company and proceed with our efforts to recruit additional high quality
employees.
Our board of directors has approved each of the proposals, and the
board of directors unanimously recommends that you vote FOR each of the
proposals set forth in the accompanying Notice of Special Meeting of
Stockholders.
It is important that your shares be represented and voted at the
Special Meeting. Whether or not you plan to attend the Special Meeting, we
request that you complete and promptly return the enclosed proxy card in the
envelope provided. Please note that a failure to vote in effect constitutes a
vote against some of the proposals set forth in the attached Notice of Special
Meeting of Stockholders. Accordingly, we urge you to promptly sign, date and
return the enclosed proxy.
On behalf of the board of directors, thank you for your cooperation and
continued support.
Sincerely,
John DuBois
Chief Executive Officer
<PAGE>
NX NETWORKS, INC.
13595 DULLES TECHNOLOGY DRIVE,
HERNDON, VIRGINIA 20171
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, FEBRUARY 28, 2001
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Nx
Networks, Inc., a Delaware corporation, will be held on Wednesday, February 28,
2001 at [10:00 a.m.] at [_______________________________________, Virginia
______] to consider and vote upon the following:
1. An amendment to our restated certificate of incorporation to increase
our authorized number of shares of common stock from 55 million to 85
million.
2. An amendment to the 1999 Long Term Incentive Plan to increase the
number of shares covered by the Plan from 7,250,000 to 11,250,000.
3. Authorization to sell common stock to raise capital in one or more
private offerings in compliance with Nasdaq Stock Market listing
requirements.
4. Authorization to issue shares of common stock to the former
shareholders of AetherWorks Corporation in compliance with Nasdaq
Stock Market listing requirements.
We will also 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 Special Meeting.
Stockholders of record at the close of business on January 12, 2001
will be entitled to notice of and to vote at the meeting or any adjournment
thereof. Our 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,
Jay R. Schifferli
Secretary
Herndon, Virginia
______, 2001
<PAGE>
NX NETWORKS, INC.
13595 DULLES TECHNOLOGY DRIVE
HERNDON, VIRGINIA 20171
PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 2001
This proxy statement and the enclosed proxy card are being furnished to
you in connection with the upcoming Special Meeting of Stockholders of Nx
Networks, Inc. The meeting will be held on Wednesday, February 28, 2001. 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 Special Meeting, whether or not the stockholder will
be attending the meeting in person.
We mailed The Notice of Meeting, this proxy statement and the enclosed
proxy card to our stockholders on or about January __, 2001.
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 Special Meeting are:
1. An amendment to our restated certificate of incorporation to increase
our authorized number of shares of common stock from 55 million to 85
million.
2. An amendment to the 1999 Long Term Incentive Plan to increase the
number of shares covered by the Plan from 7,250,000 to 11,250,000.
3. Authorization to sell common stock to raise capital in one or more
private offerings in compliance with Nasdaq Stock Market listing
requirements.
4. Authorization to issue shares of common stock to the former
shareholders of AetherWorks Corporation in compliance with Nasdaq
Stock Market listing requirements.
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 the Company Networks or by casting a ballot in person at the
Special Meeting. Your attendance at the Special Meeting alone, however, will not
in and of itself be deemed to revoke a proxy unless you give affirmative notice
at the Special Meeting that you revoke the proxy and vote in person by ballot at
the meeting. Your voting by ballot will cancel any proxy that 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 Special 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 January 12, 2001 are entitled to notice of and to vote at the Special
Meeting. Each share of our common stock is entitled to one vote. As of January
12, 2001, we had approximately 41,721,000 shares of common stock 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:
INCREASE IN OUR AUTHORIZED COMMON STOCK: To be adopted, the
amendment to our restated certificate of incorporation to increase our
authorized common stock must receive the affirmative vote of the majority of the
shares entitled to vote. Brokers do not generally have discretion to vote shares
2
<PAGE>
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.
ALL OTHER PROPOSALS: To be adopted, the proposals to amend the 1999
Long Term Incentive Plan, to authorize the sale of common stock to raise capital
in compliance with Nasdaq Stock Market listing requirements and to authorize the
issuance of common stock to the former owners of AetherWorks Corporation in
compliance with Nasdaq Stock Market listing requirements each 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.
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 Special 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 our executive offices. Our offices are
located at 13595 Dulles Technology Drive, Herndon, Virginia 20171.
3
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth certain information, as of January 12,
2001, with respect to the beneficial ownership of our common stock by:
o each of our directors;
o our chief executive officer and each of our other most
highly compensated executive officers who earned at least
$100,000 in salary and bonuses for fiscal 2000; and
o all of our directors and executive officers as a group.
As of January 12, 2001, we believe that except as shown in the
following table no person beneficially owned more than 5% of the outstanding
shares of our common stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF
BENEFICIALLY COMMON STOCK
BENEFICIAL OWNER OWNED(1) OUTSTANDING (2)
---------------- ------------ ---------------
<S> <C> <C>
Steven Francesco...................................................... 4,300,000(3) 9.8%
John DuBois........................................................... 2,900,000(4) 6.7%
Douglas J. Mello...................................................... 130,000 *
John M. Faccibene..................................................... 100,000 *
Richard Yalen......................................................... 100,000 *
Thomas Liebermann..................................................... 50,000 *
Robert Glorioso....................................................... 88,125(5) *
William Yundt......................................................... 55,000(6) *
Jay R. Schifferli..................................................... -- *
Peter J. Kendrick..................................................... -- *
Greg McNulty.......................................................... -- *
Jonathan Sachs........................................................ 2,007,324(7) 4.8
Jerry Carter.......................................................... -- *
All Directors and executive officers as a group
(14 persons)......................................................... 9,730,449 20.3%
---------
* Less than 1%
</TABLE>
4
<PAGE>
(1) 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 that the individual
has the right to acquire within 60 days after January 12, 2001 through the
pursuant to outstanding preferred stock, warrants, options or other rights.
The inclusion 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. The address of each beneficial owner is care of
the Company. Except as otherwise indicated, all shares shown in this column
represent shares underlying stock options.
(2) Number of shares deemed outstanding includes approximately 41,721,000
shares outstanding as of January 12, 2001, plus any shares subject to
preferred stock, warrants of options held by the person in question that
are currently convertible or exercisable for common stock or will become
convertible or exercisable within 60 days after January 12, 2001.
(3) Includes 1.0 million shares owned, 666,667shares issuable upon the
conversion of preferred stock, 133,333 shares issuable upon the exercise of
warrants and 2.5 million shares issuable upon the exercise of options. The
shares issuable upon conversion of the preferred stock and the warrants
will not be issued unless our number of authorized shares of common stock
is increased. Stockholders are being asked to approve this increase at the
Special Meeting of Stockholders.
(4) Includes 500,000 shares owned, 2.0 million shares issuable upon the
conversion of preferred stock and 400,000 shares issuable upon the exercise
of warrants. The shares issuable upon conversion of the preferred stock and
the warrants will not be issued unless our number of authorized shares of
common stock is increased. Stockholders are being asked to approve this
increase at the Special Meeting of Stockholders.
(5) Includes 5,625 shares owned and 82,500 shares issuable upon the exercise of
options.
(6) Includes 5,000 shares owned and 50,000 shares issuable upon the exercise of
options.
(7) Includes 2,007,324 shares owned. Approximately 240,000 of these shares
will only be owned if the stockholders approve the proposal described at
Item 4 below.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table sets forth information concerning the compensation
for the last three fiscal years of the persons who served as chief executive
officer of the Company in 2000 and the four other most highly compensated
executive officers in 2000 (together, the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------------------- UNDERLYING ALL OTHER
NAME/POSITION YEAR SALARY($) BONUS($) OTHER OPTIONS(#) COMPENSATION
------------------ ---- --------- -------- ----- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven T. Francesco(1) 2000 279,800(2) -- 31,730(3) 900,000 --
Chairman of the Board 1999 126,201 -- 15,000 1,600,000 1,000,000 shares(4)
of Directors 1998 -- -- -- -- --
Jay R. Schifferli (4) 2000 136,365 -- 7,826 200,000 --
General Counsel and 1999 -- -- -- -- --
Exec.VP - Strategic 1998 -- -- -- -- --
Business Development
Peter J. Kendrick 2000 135,565 - 5,950 25,000 --
Chief Financial Officer 1999 42,214 - -- 100,000 --
and Vice President 1998 -- - -- -- --
Gregory McNulty 2000 195,184 50,000 9,134 250,000 --
Exec.Vice President - 1999 -- - -- -- --
Sales and Marketing 1998 -- - -- -- --
Jonathan Sachs 2000 177,692 - -- 504,742 --
Exec.Vice President - 1999 -- - -- -- --
Technology and Chief 1998 -- - -- -- --
Technology Officer
Jerry Carter 2000 128,211 - 3,400 75,000 --
Vice President 1999 -- - -- -- --
Operations 1998 -- - -- -- --
</TABLE>
(1) Mr. Francesco resigned as the Chief Executive Officer in November 2000.
(2) Includes $4,800 of retroactive pay relating to 1999.
(3) For 2000, represents payment of accrued vacation time in connection with
Mr. Francesco's resignation. For 1999, represents reimbursement of moving
expenses.
(4) Upon the merger with Open ROUTE, Mr. Francesco became entitled to 1,00,000
shares of common stock pursuant to the change of control provisions of his
employment contract. Mr. Francesco deferred receipt of such payment until
January 5, 2001. The income attributed to Mr. Francesco was $382,800.
(5) Mr. Schifferli became interim Chief Executive Officer in November 2000.
He ceased to serve in this capacity on January 7, 2001.
6
<PAGE>
OPTION GRANTS
The following table summarizes option grants during 2000 to the Named
Executive Officers:
<TABLE>
<CAPTION>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
--------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION
------------------------------------------------------------------------------------------------------------------------------------
% OF TOTAL
OPTIONS OPTIONS EXERCISE MARKET EXPIRA-
GRANTED GRANTED TO PRICE($/ PRICE($) TION 0%($) 5%($) 10%($)
NAME (#)(A) EMPLOYEES SHARE) (B) DATE (C)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven T. Francesco 400,000 8.06 8.06 4/17/10 -- 2,027,000 5,138,000
500,000(E) 9.3 1.00 1.00 11/22/00 -- 314,000 796,000
Jay R. Schifferli 200,000(D) 2.1 8.06 8.06 4/17/10 -- 1,013,000 2,569,000
Peter J. Kendrick 25,000 * 7.25 7.25 5/25/10 -- 114,000 289,000
Gregory McNulty 250,000(D) 2.6 6.00 14.93 1/4/10 2,232,000 4,579,000 8,181,000
Jonathan Sachs 242,250(F) 6.81 22.91 1/1/10 3,904,000 7,398,000 12,758,000
34,427 5.23 22.91 3/16/10 608,000 1,104,000 1,856,000
78,065 1.60 0.62 12/29/10 -- -- --
150,000 5.2 0.75 0.62 12/29/05 -- 71,000 179,000
Jerry Carter 75,000 * 7.25 7.25 5/25/10 -- 342,000 685,000
-----
* less than 1 percent of total options granted to employees.
</TABLE>
(A) Under the terms of the Company'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
generally were granted for a term of 10 years, subject to earlier
termination in the event of termination of employment.
(B) Equals fair market value of 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 the Common Stock and the date on which the options
are exercised.
(D) Identified options were granted based on terms of an employment contract.
(E) Identified options were granted based on terms of a severance contract.
(F) 150,000 of the identified options were granted based on terms of an
employment contract. 34,427 of the identified options were issued in the
conversion of options originally granted by AetherWorks Corporation,
pursuant to the agreement by which we acquired AetherWorks. 78,065 of the
identified options were issued as an adjustment to the 34,427 options, in
accordance with the AetherWorks acquisition agreement.
7
<PAGE>
OPTION EXERCISES AND YEAR-END VALUES
The following table summarizes option exercises during 2000 by the Named
Executive Officers and the value of the options held by such persons at the end
of 2000:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
SHARES
ACQUIRED NUMBER OF VALUE OF UNEXERCISED
ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
EXERCISE REALIZED AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
-------------------------- ------------------------
NAME (#) ($) EXERCISABLE\ UNEXERCISABLE EXERCISABLE\UNEXERCISABLE
------ ----- ----- -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Steven Francesco -- -- 2,125,000 375,000 -- --
Jay R. Schifferli -- -- 0 200,000 -- --
Peter J. Kendrick -- -- 0 125,000 -- --
Gregory McNulty -- -- 0 250,000 -- --
Jonathan Sachs -- -- 0 504,742 -- --
Jerry Carter -- -- 0 137,917 -- --
</TABLE>
TEN YEAR OPTION REPRICINGS
On December 23, 2000, the Board of Directors repriced all options of
employees and directors of the Company. The following table summarizes the
effect of this repricing on the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION REPRICING IN LAST FISCAL YEAR
LENGTH OF
MARKET ORIGINAL
PRICE EXERCISE OPTION TERM
NUMBER OF OF STOCK PRICE NEW REMAINING
OPTIONS AT TIME OF AT TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING($) REPRICING($) PRICE($) OF REPRICING
------ ------ ---------- ------------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven Francesco 12/23/00 400,000 0.75 1.50 0.75 8 years
12/23/00 1,200,000 0.75 2.75 0.75 8 years
12/23/00 400,000 0.75 8.06 0.75 9 years
Jay R. Schifferli 12/23/00 200,000 0.75 8.06 0.75 9 years
Peter J. Kendrick 12/23/00 100,000 0.75 2.50 0.75 8 years
12/23/00 25,000 0.75 7.25 0.75 9 years
Gregory McNulty 12/23/00 50,000 0.75 12.43 0.75 8 years
12/23/00 50,000 0.75 2.50 0.75 8 years
12/23/00 250,000 0.75 6.00 0.75 9 years
Jonathan Sachs 12/23/00 242,250 0.75 6.81 0.75 9 years
12/23/00 34,427 0.75 5.23 0.75 9 years
12/29/00 78,065 0.62 1.60 0.75 10 years
Jerry Carter 12/23/00 75,000 0.75 7.25 0.75 9 years
12/23/00 50,000 0.75 2.50 0.75 8 years
12/23/00 7,667 0.75 1.69 0,75 8 years
12/23/00 5,250 0.75 3.13 0.75 7 years
</TABLE>
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON OPTION REPRICING
On December 23, 2000, at the recommendation of the compensation
committee, the board of directors repriced all options outstanding to employees
and directors. The new exercise price was fixed at $0.75 per share, which was in
excess of the last reported sales price of the common stock on the Nasdaq Stock
Market on the preceding trading day. The last reported sales price on December
22, 2000 was $0.62 per share.
In order to benefit from the repricing, an employee must elect to
participate in the option repricing program . In order to participate, each
employee must surrender all of his current options. The employee will then be
issued a number of new options equal to the number of the employee's options
surrendered. The new options will have a new vesting period. The new options
will vest as follows:
o With respect to any options vested at the time they are
surrendered or any options scheduled to vest on or before
March 31, 2001, the replacement options will vest in three
installments. The first installment will equal 25% of the
employee's total options covered by this clause, and this
installment will vest on March 31, 2001. The next installment
will equal 25% of the employee's total options covered by this
clause, and this installment will vest on June 30, 2001. The
remaining 50% of the surrendered options covered by this
clause will vest on September 30, 2001.
o With respect to any options surrendered by an employee that
were scheduled to vest after March 31, 2001 but on or before
June 30, 2001, the replacement options will vest in two
installments. The first installment will equal 50% of the
employee's total options covered by this clause, and this
installment will vest on June 30, 2001. The remaining 50% of
the surrendered options covered by this clause will vest on
September 30, 2001.
o With respect to any options surrendered by an employee that
were scheduled to vest after June 30, 2001 but on or before
September 30, 2001, the replacement options will vest on
September 30, 2001.
o With respect to any surrendered option that was scheduled to
vest after September 30, 2001, the replacement option will
maintain the same vesting schedule.
If we terminate an employee without cause prior to September 30, 2001
or the employment relationship is terminated due to death or disability, then at
the time of termination the employee will become vested in all options that the
employee would have been vested if the employee had not participated in the
option repricing program. Except as described in this report, the replacement
options will be governed by the stock option plan under which they were issued.
The board of directors is evaluating a comparable vesting program with respect
to the repriced options held by directors.
9
<PAGE>
The compensation committee recommended this repricing program to the
board of directors because of the need to retain the employees of the Company.
During the past year, we have emphasized equity participation as a significant
component of our employee compensation program. Given the decline of the
Company's stock price during 2000, all employee options were out of the money,
and for most of the options the discrepancy was so great that our employees
placed little or no value in their options. In light of this, we believed that
we would lose employees if we did not re-establish value in their equity
compensation. We believe the new option exercise price has the desired incentive
for our employees to maximize the value of the Company for all stockholders. In
order to realize our goal of ensuring employee retention, we also added a
vesting period, so only employees who stay with us during this period will fully
benefit from the repricing. We recognize there is a non-cash accounting charge
that results from the repricing program, but we considered the benefits of the
program to outweigh the accounting charge.
Submitted by the Compensation Committee:
Robert Glorioso
John Faccibene
COMPENSATION OF DIRECTORS
In 2000, each member of the board of directors who joined the board in
2000 and who was not an employee of the Company was paid a one time grant of
50,000 stock options with an exercise price equal to the fair market value on
the grant date. On December 23, 2000, the Company repriced the options issued to
the board of directors to $0.75 per share, the then market value. In addition,
directors are reimbursed for all reasonable expenses incurred by them in
connection with their attendance at board or committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the cmpensation committee are Messrs. Glorioso and
Faccibene. Mr. Mello served on the Committee until he became a consultant to the
Company in December 2000. None of the executive officers of the Company
currently serves on the compensation committee of another entity or any other
committee of the board of directors of another entity performing functions
similar to the compensation committee. No interlocking relationships exist
between our board of directors or our compensation committee and the board of
directors of compensation committee of any other company.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
Each of the Named Executive Officers has an employment contract or severance
arrangement with us.
Steven T. Francesco, our Chairman and former Chief Executive Officer,
entered into an employment agreement effective as of March 22, 1999. In
connection with Mr. Francesco's resignation as Chief Executive Officer in
November 2000, we entered into a Severance Agreement with him. Pursuant to his
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Employment Agreement, upon his resignation Mr. Francesco became entitled to: (1)
continued base salary of $275,000 per year for a period of three years, (2)
accelerated vesting of 400,000 stock options that had not previously vested and
(3) continued participation in the Company's benefit plans for up to three
years. Mr. Francesco is also subject to a non-compete provision that extends for
three years.
Pursuant to the terms of the Severance Agreement with Mr. Francesco, he
agreed to continue as a consultant to the Company through October 31, 2001,
providing services up to 20 hours per month, in exchange for a payment of
$12,500 per month. Mr. Francesco was also granted an additional 500,000 options
that vested immediately but that only become eligible for sale in equal
quarterly installments of 125,000 shares. In addition, the Severance Agreement
provides mutual releases by each of the Company and Mr. Francesco with respect
to any claims related to actions during his employment period.
Jay Schifferli, our General Counsel and Executive Vice President -
Strategic Business Development, entered into an employment agreement effective
as of March 8, 2000. The term of Mr. Schifferli's agreement is through March 8,
2003. Under the agreement, Mr. Schifferli is paid a base salary of $200,000 per
annum, and he is eligible for an annual bonus to be established in the sole
discretion of the compensation committee. In addition, Mr. Schifferli has been
issued options to purchase 200,000 shares of common stock, and the options vest
over the term of his employment contract. Mr. Schifferli will become eligible
for up to an additional 50,000 options if certain performance criteria are met.
Mr. Schifferli's employment agreement also provides that, in the event of a
change in control of the Company, he will be issued 100,000 shares of common
stock. In the event Mr. Schifferli's employment is terminated by the Company
without cause or by Mr. Schifferli for good reason, as these terms are described
in the employment agreement, he will be entitled to: (1) receive an amount equal
to 12 months base salary, (2) accelerated vesting of all of his stock options
and (3) participation in the Company's benefit plans for up to 12 months. Mr.
Schifferli's employment agreement also contains non-compete provisions for up to
one year after termination of his employment, that relate to the manner in which
his employment is terminated. If the payment to Mr. Schifferli upon termination
or change of control results in the imposition of an excise tax pursuant to
Section 280G of the Internal Revenue Code, the Company will pay to Mr.
Schifferli a tax "gross-up" payment equal to the amount of his resulting tax
liability.
Greg McNulty, our Executive Vice President -Worldwide Sales and
Marketing, entered into an employment agreement effective as of January 4, 2000.
The term of Mr. McNulty's agreement is through January 4, 2003. Under the
agreement, Mr. McNulty is paid a base salary of $200,000 per annum, and he is
eligible for an annual bonus to be established in the sole discretion of the
compensation committee. In addition, Mr. McNulty has been issued options to
purchase 250,000 shares of common stock, and the options vest over the terms of
his employment contract. He is eligible for additional stock options if certain
performance criteria are met. Mr. McNulty's employment agreement also provides
that, in the event of a change in control of the Company, he will be issued
200,000 shares of common stock. In the event Mr. McNulty's employment is
terminated by the Company without cause or by Mr. McNulty for good reason, as
these terms are described in the employment agreement, he will be entitled to:
(1) receive an amount equal to 12
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months base salary, (2) accelerated vesting of all of his stock options and (3)
participation in the Company's benefit plans for up to 12 months. Mr. McNulty's
employment agreement also contains non-compete provisions for up to one year
after termination of this employment, that relate to the manner in which his
employment is terminated.
Jonathan Sachs, our Executive Vice President - Technology and Chief
Technology Officer, entered into an employment agreement effective as of
December 29, 2000. The term of Mr. Sachs' agreement is through December 29,
2002. Under the agreement, Mr. Sachs is paid a base salary of $220,000 per
annum, and he is eligible for an annual bonus to be established in the sole
discretion of the compensation committee and a quarterly bonus to be established
in the discretion of the chief executive officer. In addition, Mr. Sachs has
been issued options to purchase 150,000 shares of common stock, and the options
vest over the term of his employment contract. In the event Mr. Sachs'
employment is terminated by the Company without cause or by Mr. Sachs for good
reason, as these terms are described in the employment agreement, he will be
entitled to: (1) continued payment of his base salary for the lesser of 12
months or the remaining term of his agreement, (2) accelerated vesting of all of
his stock options and (3) participation in the Company's benefit plans for up to
12 months. Mr. Sachs' employment agreement also contains non-compete provisions
for up to one year after termination of his employment, that relate to the
manner in which his employment is terminated.
Peter Kendrick, our Vice President and Chief Financial Officer, entered
into an employment agreement effective as of August 2, 1999. The term of Mr.
Kendrick's agreement is through August 2, 2001. Under the agreement, Mr.
Kendrick is paid a base salary of $150,000 per annum, and he is eligible for an
annual bonus to be established in the sole discretion of the compensation
committee. In addition, Mr. Kendrick was issued options to purchase 75,000
shares of common stock pursuant to the agreement, and these options vested at
the time of the Company's acquisition of OpenRoute Networks, Inc. in December
1999. In the event Mr. Kendrick's employment is terminated by the Company
without cause or by Mr. Kendrick for good reason, as these terms are described
in the employment agreement, he will be entitled to: (1) receive an amount equal
to six months base salary, (2) accelerated vesting of all of his stock options
and (3) participation in the Company's benefit plans for up to six months. Mr.
Kendrick's employment agreement also contains non-compete provisions for up to
one year after termination of his employment, that relate to the manner in which
his employment is terminated.
Jerry Carter, our Vice President - Operations, entered into an
executive retention agreement effective as of February 1, 1999. In the event
Mr.Carter's employment is terminated by the Company without cause or by Mr.
Carter for good reason, as these terms are described in the retention agreement,
he will be entitled to: (1) receive an amount equal to six months base salary
and (2) continue to receive health, disability and similar benefits during this
period. The retention agreement also contains a six-month non-complete
provision. The term of the agreement extents until December 31, 2001, and
automatically renews for additional one-year periods unless notice of
termination is provided at least ninety days prior to the end of the term.
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ITEM 1: INCREASE OF AUTHORIZED CAPITAL STOCK
Stockholders are being asked to consider and approve an increase in the
number of authorized shares of our common stock.
Specifically, the Board has approved and recommends that the
stockholders adopt an amendment to Article Fourth of our restated certificate of
incorporation that increases the number of authorized shares of common stock
from 55,000,000 to 85,000,000. The provisions of Article Fourth of our restated
certificate of incorporation, as proposed to be amended by this proposal, are
set forth in Exhibit A.
Unless the number of shares of authorized common stock is increased,
we will not be able to sell any shares of common stock to raise capital and we
will not be able to grant any additional shares of stock under our employee
benefit plans, even if stockholders authorize us to proceed with the financing
contemplated by Item 3 below and approve the amendment to the 1999 Long Term
Incentive Plan contemplated by Item 2 below. Based upon our need for additional
capital to continue to finance our operations, the failure to make additional
common stock available for issuance will have an immediate, materially adverse
effect upon the Company.
As of January 12, 2001, we had approximately 41,721,000 shares of
common stock issued and outstanding. In addition, we have approximately
14,102,000 shares of common stock reserved for issuance under the Company's
existing benefit plans, of which options for approximately 11,873,000 shares are
outstanding. An additional approximately 4,544,000 shares of common stock are
issuable upon conversion of outstanding preferred stock and the exercise of
outstanding warrants, subject to the limitations described below in this
proposal. If the amendment to the 1999 Long Term Incentive Plan is approved by
the stockholders at the Special Meeting, an additional 4,000,000 shares of
common stock will be issuable thereunder, although we will not proceed with the
amendment of the Plan if this proposal is not approved. Finally, we are
requesting authorization from the stockholders to issue approximately 1,725,000
shares of common stock to the former owners of AetherWorks Corporation in lieu
of paying them the cash value of those shares, as described in Item 4 below. If
all these proposals are approved, then we will have approximately 64.4 million
shares issued or reserved for issuance. Based on these share commitments, we
currently have no common stock available to sell in order to finance our
operations.
In December 2000, we sold 333,333,000 shares of preferred stock and
667,000 warrants for an aggregate purchase price of $2.5 million, which, subject
to the limitations described in the next paragraph, will become convertible into
common stock upon approval of the amendment to the restated certificate of
incorporation. This capital, together with our currently available funds, is not
sufficient to finance our operations until we reach a position that we can fund
operations from revenues. We have explored debt financing opportunities, but the
amount of debt financing available to us is limited until we improve the
financial condition of the Company and the debt financing that is available to
us is generally on onerous terms.
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The preferred stock we sold in December 2000 will become convertible
into 3,333,333 shares of common stock and the warrants will become exercisable
for 666,667 shares of common stock, when the amendment to our restated
certificate of incorporation is approved by the stockholders. If the amendment
to our restated certificate of incorporation is not approved, the dividend rate
on the preferred stock will increase by 1% per month and the exercise price of
the warrants will decrease by 1% per month until this amendment is approved,
commencing April 1, 2001. We further agreed with the purchasers of the preferred
stock that if we have not increased our authorized capital stock to at least
65.0 million shares by September 30, 2001, then we will offer to repurchase all
of the preferred stock for a purchase price equal to the liquidation amount plus
110% of the amount, if any, by which the market price of the common stock on
that date exceeds the conversion price of the common stock, and we will redeem
the warrants at a purchase price equal to 110% of the amount, if any, by which
the exercise price of the warrants exceeds the market price of the common stock
on that date. If the amendment to the restated certificate of incorporation is
not approved by the stockholders, we will not have common stock to sell to fund
this repurchase obligation, and, accordingly, we would have difficulty funding
the repurchase obligation. In the event we were unable to fund the repurchase
obligation and are forced to liquidate, the holders of preferred stock have a
liquidation preference over the holders of common stock.
The Board believes that the increase in the number of authorized shares
is necessary in order to provide shares 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, in light of our current cash
requirements and financial position, we need shares available for sale in order
to raise capital. In addition, as described in the next proposal, 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.
We 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. Other than with respect to the
reservation of common stock in connection with (1) our current financing needs,
(2) our stock option plans and (3) converting the preferred stock and warrants,
we have no other plans or other existing or proposed agreements or
understandings to issue, or reserve for future issuance, any of the additional
shares of common stock which would be authorized by the amendment to our
restated certificate of incorporation. 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.
We do not view the proposed amendment of our restated 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 the Company.
THE BOARD UNANIMOUSLY RECOMMEND THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENT TO INCREASE OUR AUTHORIZED COMMON STOCK.
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ITEM 2: AMENDMENT OF THE 1999 LONG-TERM INCENTIVE PLAN
The board of directors approved, subject to stockholder approval, an
amendment to our 1999 Long-Term Incentive Plan to increase by 4,000,000 shares
the number of shares of common stock subject to the Plan. The Plan is an
incentive and non-qualified stock-based award plan that currently authorizes the
issuance of up to 7,325,000 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 copy of the
proposed amendment to the Plan is attached to this proxy statement as Exhibit B.
Under our stock option plans currently in effect, including those we
assumed in connection with the acquisitions of OpenRoute Networks, Inc. and
AetherWorks Corporation, as of January 12, 2001, we had approximately 11,872,000
options outstanding, including approximately 5.1 million under the plan. This
leaves us with approximately 2,225,000 shares available for grant. Of the
outstanding options:
o 2.7 million are held by our Chief Executive Officer,
o 2.5 million are held by our Chairman of the Board,
o approximately 500,000 are held by our Chief Technology Officer, and
o approximately 1.5 million were issued to the former employees of
AetherWorks Corporation (other than our Chief Technology Officer)
pursuant to the terms of our agreement to acquire AetherWorks, as
more fully described in Item 4 below.
All of our other current and former directors, officers and employees hold a
total of approximately 4.4 million options.
The board of directors deems it advisable to increase the number of
shares covered by the Plan to ensure that there are sufficient shares available
to grant to new employees of the Company and to retain our current employees. In
particular, our new Chief Executive Officer requested this increase in the
number of shares under the Plan to ensure that there will be sufficient shares
available to attract the high quality engineering, sales and administrative
employees he will recruit to join the Company. The Board has determined that it
is in the best interest of the Company to increase the number of shares
available under the Plan to ensure that the new Chief Executive Officer is able
to fulfill his plans for the Company. A summary of the Plan follows.
PURPOSE OF THE PLAN. The purpose of the Plan 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 and to enable those
persons to acquire or increase a proprietary interest in the Company, thereby
promoting a closer identity of interests between them and our stockholders.
PLAN ADMINISTRATION. The Plan is administered by the compensation committee of
the board of directors. The committee currently is comprised of
Messrs. Faccibene and Glorioso.
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TYPES OF AWARDS AVAILABLE UNDER THE PLAN. The committee may issue up to
7,325,000 (11,325,000 if the amendment to the Plan is approved) 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.
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 our 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
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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 Plan.
As promptly as practical after the amendment to the Plan is
approved, we will file a registration with the Securities and Exchange
Commission to permit the resale of the additional common stock issuable under
the Plan (subject to vesting and other requirements) to the public. During the
term of the 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 the Company 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
AMENDMENT TO THE 1999 LONG TERM INCENTIVE PLAN.
ITEM 3: AUTHORIZATION TO SELL COMMON STOCK IN PRIVATE OFFERINGS
Stockholders are being asked to authorize us to sell shares of common
stock in one or more related private offerings. We would use the proceeds of
these transactions to fund our continued operations, and we believe that failure
to approve this proposal would have a material adverse effect on the Company. If
approved at the Special Meeting, this authorization will expire on December 31,
2001.
We are requesting this authorization to ensure compliance with the
listing requirements of the Nasdaq Stock Market, on which the common stock is
listed. The listing requirements obligate us to obtain stockholder approval for
any sale of common stock, other than an underwritten public offering, if the
sale will involve more than 20% of the outstanding common stock and the sales
price is not at least equal to the greater of the market price of the common
stock or the book value of the common stock. In this Item 3, we refer to this
listing requirement as the 20% Financing Rule. For purposes of applying the 20%
Financing Rule, we must treat all sales of common stock that are part of a
single plan of financing as a single sale of common stock. If we do not comply
with the 20% Financing Rule, then we expect we will be delisted from the Nasdaq
Stock Market.
We must raise additional capital in order to fund our operations, and
we expect to raise this capital primarily through the sale of common stock or
securities that can be converted into or exercised for common stock. During the
30 days preceding January 12, 2001, the market price of our common stock
fluctuated between $0.50 and $2.43 per share, and our book value was
approximately $2.66 per share at November 30, 2000.
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In December 2000, we raised $2.5 million through the sale of preferred
stock, which is convertible into 3,333,000 shares of common stock, and warrants,
which are exercisable for 667,000 shares of common stock. If we count these
sales towards the 20% Financing Rule, we can sell approximately an additional
4.4 million shares without stockholder approval under the 20% Financing Rule.
Over the next several months, we would like to raise up to an
additional $12.0 million of financing to fund our operations. The specific
amount we will raise, and the amount of common stock we will sell to raise this
amount, will depend upon our stock price, our short term capital needs, our
expectation of revenues from operations, the state of the capital markets
generally, our ability to obtain debt-based financing as opposed to equity-based
financing, and the specific financing terms that may be offered to us. Assuming
our capital raising transactions will be considered part of a single plan of
financing, and assuming we sell common stock in private transactions at a price
less than the greater of book value or market value per share, we expect that we
may have to sell more than 4.4 million shares to finance our operations.
Accordingly, we are seeking authorization to sell shares of common stock under
the 20% Financing Rule in order to ensure compliance with the Nasdaq listing
requirements.
We do not believe that it is feasible to structure a financing
transaction and then seek stockholder approval of the specific transaction due
to the time necessary to organize, call and hold a meeting of stockholders.
Accordingly, we are requesting the stockholders to approve this proposal, which
allows us broad discretion to structure and close a private financing
transaction without obtaining stockholder approval of the particular transacion.
If stockholders authorize us to sell additional common stock under the
20% Financing Rule, this authorization will expire on December 31, 2001. Also,
we would not be obligated to sell any shares of common stock, and if we did sell
shares we would not have to sell them in transactions that would count against
the 20% Financing Rule. However, we expect that we will sell shares of common
stock and that the financing transactions will count against the 20% Financing
Rule. At this time, we do not have commitments for any specific transaction
obligating us to issue common stock, although we expect that we will have
commitments for such transactions on or before the time of the Special Meeting
of Stockholders.
Any sales of common stock we make will be on terms negotiated by us,
and these terms may be dilutive to our current stockholders. For example, most
of the financing proposals that have been presented to us recently either
involve a purchase price that is discounted from the market price of our common
stock or contain a price reset feature tied to our stock value on a future date
in order to protect the investor against a decline in our share price. Although
we have not accepted any of these types of financing proposals to date, we
cannot assure you that we will be able to obtain terms that are more favorable
to the Company and its current stockholders.
If stockholders do not authorize us to sell additional common stock
under the 20% Financing Rule, then we would either have to violate the 20%
Financing Rule or we would have to raise the capital necessary for our
operations in transactions that do not fall within the 20% Financing Rule.
Unless our stock price increases significantly, we believe it is very unlikely
that we will be able to raise the necessary capital in transactions that do not
fall within the 20% Financing Rule. Accordingly, we expect that if this proposal
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is not adopted we would raise the necessary funds and then be delisted from the
Nasdaq Stock Market. Delisting from the Nasdaq Stock Market would have a
material adverse effect on the trading market for our common stock, and we
believe it would have a material adverse effect on the price of our common
stock.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
AUTHORIZATION TO SELL MORE THAN 20% OF THE COMPANY'S COMMON STOCK IN PRIVATE
OFFERINGS.
ITEM 4: ISSUANCE OF SHARES TO THE FORMER OWNERS OF AETHERWORKS
Stockholders are being asked to authorize us to issue shares of common
stock to the former owners of AetherWorks Corporation pursuant to an agreement
we have entered into with representatives of the former owners of AetherWorks.
We are requesting this authorization to ensure compliance with the
listing requirements of the Nasdaq Stock Market, on which our common stock is
listed. These listing requirements obligate us to obtain stockholder approval
for any issuance of common stock in an acquisition transaction if the issuance
will involve more than 20% of the outstanding common stock. In this Item 4, we
refer to this listing requirement as the 20% Merger Rule. If we do not comply
with the 20% Merger Rule, then we expect we will be delisted from the Nasdaq
Stock Market.
In March 2000, we acquired all of the securities of AetherWorks
Corporation in exchange for shares of our common stock. At that time, we issued
2,301,436 shares of common stock and options and warrants exercisable for an
additional 867,687 shares, of which approximately 579,000 were compensation
related options issued to employees. The acquisition agreement also provided for
an increase in the number of shares we would have to issue if the average
closing price of our common stock on the Nasdaq National Market for the fifteen
trading day period ending October 31, 2000 did not equal or exceed $22.50 per
share. In this event, the acquisition agreement required us to issue additional
shares of our common stock to cause the consideration per share of AetherWorks
common stock to equal $22.50 per share based upon that average closing price,
provided that the total number of shares of our common stock issued in the
merger would not exceed 19.9% of our then total outstanding shares.
Our common stock had an average closing price of $2.96 during the 15
day trading period, and the 19.9% cap became a limit on the number of shares we
would have to issue to the former owners of AetherWorks. Based upon our
interpretation of the acquisition agreement, we announced that we would issue
approximately 3.5 million additional shares of our common stock as the full
adjustment, including actual shares and shares underlying warrants and
non-compensatory options, but excluding options issued as compensation to
employees. Based on our interpretation of the agreement, we also announced that
we expected to issue approximately 750,000 additional options as compensation to
our employees who had been AetherWorks employees. The options we grant that are
related to compensation for our employees do not count against the limitation
imposed by the 20% Merger Rule.
In November 2000, we were contacted by the representatives of the
former AetherWorks owners, and they informed us that they disagreed with our
calculation of the adjustment. After discussion and negotiations, we reached an
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agreement with the former AetherWorks owners pursuant to which we agreed to
issue as the adjustment 4,777,973 shares of our common stock and options and
warrants to acquire an additional approximately 654,000 shares of our common
stock, excluding options issued as compensation to our employees, in each case
subject to compliance with the 20% Merger Rule. In addition, we agreed to issue
options to acquire an additional 1,311,000 shares as compensation to our
employees who had been AetherWorks employees. Pursuant to our agreement with the
former owners of AetherWorks, we also agreed to reprice all of the options and
warrants to have an exercise price of $1.60 per share, except for one warrant
for approximately 70,000 shares that we repriced to $1.33.
Accordingly, the total number of shares we will issue to the owners of
AetherWorks in exchange for their ownership interests, including all shares
underlying warrants and options, will be approximately 9.9 million, of which
approximately 8.0 million count towards the 20% Merger Rule. The 20% Merger Rule
permits us to issue only approximately 6.25 million shares of common stock
without stockholder approval. We will not issue shares in violation of the 20%
Merger Rule in this transaction, and accordingly, we will issue only
approximately 6.25 million shares against our obligation to issue approximately
8.0 shares if this proposal is not approved by the stockholders.
If this proposal is not approved, then in lieu of issuing the shares
that would cause us to violate the 20% Merger Rule, we will pay to the former
AetherWorks owners the cash value of those shares. The cash value of the shares
will be the greater of $2.93 or the average closing price of the common stock
for the five trading days preceding the Special Meeting. Using the $2.93 amount,
we would require at least $5.1 million to fund this obligation. Given the cash
position of the Company and our need to raise capital to fund operations, as
described in Item 1 and Item 3 above, we believe it is in the best interests of
the Company to issue common stock instead of making a cash payment to the former
AetherWorks owners. If this proposal is not approved, we believe the effect will
be to make it very difficult for us to obtain sufficient financing to pay the
AetherWorks obligation and also fund our operations.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
AUTHORIZATION TO ISSUE MORE THAN 20% OF THE COMMON STOCK TO THE FORMER
AETHERWORKS OWNERS.
OTHER MATTERS
We know of no other matters to be submitted to the Special Meeting. If
any other matters properly come before the Special Meeting, it is the intention
of the persons named in the enclosed proxy to vote the shares represented by
such proxy in the manner which the board of directors may recommend.
By Order of the Board of Directors
/s/ John DuBois
January__, 2001 John Dubois
Herndon, Virginia Chief Executive Officer
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EXHIBIT A
PROPOSED AMENDMENT TO THE
ARTICLES OF INCORPORATION
We will amend the first sentence of Article Fourth to our
restated certificate of incorporation if the amendment is approved by
stockholders at the Special Meeting. Set forth below is the proposed amendment.
The proposed new text is in italics and the proposed deletions are indicated by
overstriking.
[NOTE: IN THE EDGAR VERSION OF THIS DOCUMENT, WITH RESPECT TO THE
FOLLOWING PARAGRAPH, NEW TEXT IS BRACKETED AND PROPOSED DELETIONS
ARE UNDERSCORED]
FOURTH: I. The total number of shares of all classes
of stock that the corporation shall have authority to
issue is [86,000,000] 56,000,000 consisting of (i) [85,000,000]
----------
55,000,000 shares of Common Stock, $.05 par value (the "Common
----------
Stock"); and (ii) 1,000,000 shares of Preferred Stock, $.05 par
value ("Preferred Stock").
A-1
<PAGE>
EXHIBIT B
PROPOSED AMENDMENT TO THE
1999 LONG TERM INCENTIVE PLAN
We will amend Section 4(a) of the 1999 Long Term Incentive
Plan if the amendment is approved by stockholders at the Special Meeting. Set
forth below is the proposed amendment. The proposed new text is in italics and
the proposed deletions are indicated by overstriking.
[NOTE: IN THE EDGAR VERSION OF THIS DOCUMENT, WITH RESPECT TO THE
FOLLOWING PARAGRAPH, NEW TEXT IS BRACKETED AND PROPOSED DELETIONS
ARE UNDERSCORED]
(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 [11,325,000] 7,325,000 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 be 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.
B-1
<PAGE>
NX NETWORKS, INC.
PROXY FOR THE SPECIAL 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" THE PROPOSAL.
The undersigned hereby appoints John DuBois and Jay Schifferli 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 Nx Networks, Inc. held
of record by the undersigned on January 12, 2001, at the Special Meeting of
Stockholders to be held on February 28, 2001, 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 Special
this example. Meeting, place an X in this box. |_|
1. PROPOSAL TO AMEND OUR RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED COMMON STOCK FROM 55 MILLION TO 100 MILLION.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. PROPOSAL TO AMEND THE 1999 LONG TERM INCENTIVE PLAN TO INCREASE THE
NUMBER OF SHARES ISSUABLE THEREUNDER BY 4.0 MILLION SHARES.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. PROPOSAL TO AUTHORIZE THE SALE OF MORE THAN 20% OF OUR COMMON STOCK
IN PRIVATE SALES IN COMPLIANCE WITH THE NASDAQ STOCK MARKET LISTING
REQUIREMENTS.
FOR AGAINST ABSTAIN
|_| |_| |_|
4. PROPOSAL TO AUTHORIZE THE ISSUANCE OF MORE THAN 20% OF OUR COMMON
STOCK TO THE FORMER OWNERS OF AETHERWORKS CORPORATION.
FOR AGAINST ABSTAIN
|_| |_| |_|
* * * CONTINUED AND MUST BE SIGNED ON THE REVERSE SIDE * * *
<PAGE>
IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
SPECIAL 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 PROMPTLY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED STATES.
--------------------------------------------------------------------------------
