<PAGE>
PRELIMINARY PROXY MATERIAL
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
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 Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
NATURAL MICROSYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of the 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:
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
100 CROSSING BOULEVARD
FRAMINGHAM, MASSACHUSETTS 01702
(508) 620-9300
March 26, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Natural MicroSystems Corporation (the "Company"), which will be held on April
28, 2000 at 1:00 p.m. at its corporate offices at 100 Crossing Boulevard,
Framingham, Massachusetts.
The following Notice of Annual Meeting of Stockholders and Proxy Statement
describe the items to be considered by the stockholders and contain certain
information about the Company and its directors and officers.
Please sign and return the enclosed proxy card as soon as possible in the
envelope provided so that your shares can be voted at the meeting in accordance
with your instructions. Even if you plan to attend the meeting, we urge you to
sign and promptly return the proxy card. You can revoke it at any time before
it is exercised at the meeting or vote your shares personally if you attend.
We look forward to seeing you.
Sincerely,
Robert P. Schechter
President and Chief Executive Officer
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
100 CROSSING BOULEVARD
FRAMINGHAM, MASSACHUSETTS 01702
(508) 620-9300
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 2000
The Annual Meeting of Stockholders of Natural MicroSystems Corporation (the
"Company") will be held at its corporate offices at 100 Crossing Boulevard,
Framingham, Massachusetts on April 28, 2000 at 1:00 p.m., for the following
purposes:
1. To elect two directors for a three-year term.
2. To vote upon an amendment to the certificate of incorporation of the
Company to increase the number of authorized shares of common stock from
45,000,000 to 125,000,000.
3. To approve the 2000 Equity Incentive Plan.
4. To ratify the Board of Directors' selection of PricewaterhouseCoopers
LLP as the Company's independent auditors for the year ending December
31, 2000.
5. To transact such other business as may properly come before the
meeting and any adjournments thereof.
Stockholders of record at the close of business on March 16, 2000 will be
entitled to notice of and to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors
Dianne L. Callan
Secretary
Dated: March 26, 2000
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES.
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
100 CROSSING BOULEVARD
FRAMINGHAM, MASSACHUSETTS 01702
(508) 620-9300
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished to the holders of common stock, $.01 par
value ("Common Stock"), of Natural MicroSystems Corporation, a Delaware
corporation (the "Company"), in connection with the solicitation of proxies for
use at the Annual Meeting of Stockholders to be held on April 28, 2000 and at
any adjournment of that meeting. The enclosed proxy is solicited on behalf of
the Board of Directors of the Company. Each properly signed proxy will be voted
in accordance with the instructions contained therein and, if no choice is
specified, the proxy will be voted in favor of the proposals set forth in the
Notice of Annual Meeting.
A person giving the enclosed proxy has the power to revoke it by written
notice to the Secretary of the Company, by giving a later-dated proxy, or by
revoking it in person at the meeting.
The approximate date on which this Proxy Statement and the enclosed proxy
will first be sent to stockholders is March 28, 2000. The Company's Annual
Report to Stockholders for 1999 is being mailed together with this Proxy
Statement.
Only holders of Common Stock of record on the stock transfer books of the
Company at the close of business on March 16, 2000 (the "record date") will be
entitled to vote at the meeting and at any adjournment thereof. There were
__________ shares of Common Stock outstanding at the close of business on the
record date.
Each share of Common Stock is entitled to one vote. The affirmative vote
of the holders of a plurality of the shares represented at the meeting, at which
a quorum is present, is required for the election of directors. The affirmative
vote of a majority of the outstanding shares of common stock is required for
approval of the amendment to the Company's certificate of incorporation.
Approval of the other matters which are before the meeting will require the
affirmative vote at the meeting, at which a quorum is present, of the holders of
a majority of votes cast with respect to such matters. Votes will be tabulated
by the Company's transfer agent, subject to the supervision of persons
designated by the Board of Directors as inspectors.
Under the Company's By-Laws, a quorum at the meeting will consist of a
majority of the outstanding shares of Common Stock as of the record date.
Shares voted to abstain or to withhold as to a particular matter (including
shares as to which a nominee, such as a broker holding shares in street name for
a beneficial owner, has no voting authority in respect of such matter) will be
deemed represented for quorum purposes but will not be deemed to be voting on
such matters and, therefore, will not be the equivalent of negative votes as to
such matters. It is the position of the Securities and Exchange Commission (the
"SEC"), however, that, for purposes of approval pursuant to Rule 16b-3 under the
Securities Exchange Act of 1934 (the "1934 Act") of the third proposal listed on
the Notice of Annual Meeting, abstentions will be deemed the equivalent of
negative votes.
<PAGE>
STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March __, 2000 by (a) each
director of the Company, (b) each of the executive officers named in the Summary
Compensation Table below, (c) all directors and executive officers as a group
and (d) each person known to the Company to own beneficially 5% or more of its
Common Stock. Except as otherwise indicated, each such person has sole
investment and voting power with respect to the shares shown as being
beneficially owned by such person, based on information provided to the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED(1) OUTSTANDING SHARES
- ---- --------------------- -------------------
<S> <C> <C>
Robert P. Schechter 516,041 3.1%
Zenas W. Hutcheson, III 77,312 *
W. Frank King PhD. 27,000 *
Pamela D. A. Reeve 19,900 *
Ronald W. White 30,970 *
Robert E. Hult 38,300 *
George D. Kontopodis, Ph.D 99,039 *
Dorothy A. Terrell 90,028 *
R. Brough Turner 199,551 1.2%
Allen P. Carney 80,712 *
All directors and executive officers as a
group (15 persons) 1,431,353 8.7%
FMR Corp.(2) 1,448,320 8.8%
82 Devonshire Street
Boston, MA 02109
</TABLE>
____________
* Less than 1%.
(1) Includes shares which may be acquired within sixty days after March __, 2000
by exercise of stock options by the directors and executive officers as
follows: Mr. White, 5,000; Mr. Kontopodis, 5,625; Mr. Hutcheson, 5,000; Ms.
Terrell, 8,047; Dr. King, 10,100; Mr. Turner, 4,375; Mr. Schechter, 12,500;
Mr. Carney, 9,687; Mr. Hult, 5,625; all directors and executive officers as
a group, 76,764.
(2) Consists of shares held by Fidelity Growth Company Fund (the "Fund") and
other registered investment companies which are advisory clients of FMR
Corp. ("FMR"). FMR may be deemed to have sole investment power as to all
such shares. The Fund has sole voting power as to 1,119,700 of such shares.
This information is based solely on a Schedule 13G filed with the SEC.
2
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 OF NOTICE)
There are currently five members of the Board of Directors, divided into
three classes with terms expiring respectively at the 2000, 2001 and 2002 annual
meetings of stockholders. The Board has fixed the number of directors for the
ensuing year at five and nominated Messrs. Schechter and White, whose terms are
expiring, for reelection. Directors elected at the meeting will serve a three-
year term expiring at the time of the annual meeting of stockholders in 2003 and
when their successors are elected and qualified. The shares represented by the
enclosed proxy will be voted to elect each nominee unless such authority is
withheld by marking the proxy to that effect. Each nominee has agreed to serve,
but in the event a nominee becomes unavailable for any reason, the proxy, unless
authority has been withheld as to such nominee, may be voted for the election of
a substitute.
The following information is furnished with respect to each nominee for
election as a director and for each director whose term of office will continue
after the meeting.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE DURING
NAME AND AGE DIRECTOR LAST FIVE YEARS;
AS OF MARCH 1, 2000 SINCE DIRECTORSHIPS OF PUBLIC COMPANIES
- ------------------- -------- ---------------------------------
NOMINEES FOR REELECTION FOR TERMS EXPIRING IN 2003
<S> <C> <C>
Robert P. Schechter, 51 1995 Mr. Schechter has served as a member of the Board,
President and Chief Executive Officer of the Company
since April 1995 and as Chairman of the Board since
March 1996. From 1987 to 1994, Mr. Schechter held
various senior executive positions with Lotus
Development Corporation and from 1980 to 1987 he was a
partner of Coopers and Lybrand LLP. Mr. Schechter is
also a director of Infinium Software, Inc., a developer of
enterprise-level business software applications.
Ronald W. White, 59 1988 Mr. White has been, since October 1997, a partner of Argo
Global Capital, formerly known as GSM Capital, a venture
capital fund focused on wireless technology. Since 1983,
Mr. White has been a partner of Advanced Technology
Development Fund, a venture capital firm.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 2001
<S> <C> <C>
W. Frank King, Ph. D., 60 1997 Dr. King has been, since November 1998, a private
investor. From 1992 to 1998, he was Chief Executive
Officer and a director of PSW Technologies, Inc.
(formerly a division of Pencom, Inc.), a provider of
software services. From 1988 to 1992, Dr. King was
Senior Vice President of Development of Lotus
Development Corporation, and for the previous 19 years
he served in various positions with IBM Corporation,
including his last position as Vice President of
Development for the entry system division. He is also a
director of Auspex Systems, Inc., a provider of
network-attached storage devices; eOn Communications
Corporation, formerly known as Cortelco Systems, Inc., a
provider of telecommunications applications; Excalibur
Technologies Corporation, a developer of document
management software; PSW Technologies, Inc.; Best
Software, Inc., a supplier of corporate resource
management software solutions; and Perficient, Inc., a
provider of virtual professional services organizations to
Internet software companies.
Pamela D. A. Reeve, 50 1997 Ms. Reeve has served, since September 1993, as Chief
Executive Officer and a director and, from 1989 to
September 1993, as President, Chief Operating Officer and
a director of Lightbridge, Inc., a provider of products and
services which enable wireless telecommunications
carriers to improve customer acquisition and retention
processes. From 1978 to 1989, she was with The Boston
Consulting Group, a management consulting firm. Ms.
Reeve is a director of WebLink Wireless, Inc., formerly
known as PageMart Wireless, Inc., a provider of wireless
messaging services.
<CAPTION>
DIRECTOR WHOSE TERM EXPIRES IN 2002
<S> <C> <C>
Zenas W. Hutcheson, III, 46 1989 Mr. Hutcheson has been, since September 1997, a general
partner of St. Paul Venture Capital, a venture capital firm.
From 1996 to 1998, Mr. Hutcheson was Chief Executive
Officer of Vivo Software, Inc., a developer of web-based
video and audio streaming applications. From 1981 to 1996,
Mr. Hutcheson was president of Hutcheson & Co., Inc., a
management consulting firm.
</TABLE>
4
<PAGE>
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Board of Directors has Audit and Compensation Committees. It does not
have a nominating or similar committee.
The Audit Committee reviews the internal accounting procedures of the
Company and consults with and reviews the services provided by the Company's
independent auditors. The directors currently serving on the Audit Committee
are Dr. King and Ms. Reeve. The Audit Committee held 4 meetings during 1999.
The Compensation Committee reviews and recommends to the Board the
compensation and benefits of all officers of the Company and reviews general
policy relating to compensation and benefits of employees of the Company. The
Compensation Committee also administers the issuance of stock options. The
directors currently serving on the Compensation Committee are Messrs. White and
Hutcheson. The Compensation Committee met twice during 1999.
During 1999, the Board of Directors of the Company held 9 meetings. Each
incumbent director attended at least 75% of the aggregate number of meetings of
the Board and the meetings of the committees of the Board on which he or she
served.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued for
services rendered in 1999, 1998 and 1997 by the chief executive officer and the
other four most highly compensated (in 1999) executive officers of the Company
(the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM OTHER
---------------------------- --------- -----
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION COMPENSATION
- --------------------------- ---- ---------- --------- ------------ ------------
SHARES UNDER ($)(1)
OPTION ---
AWARDS (#)
----------
<S> <C> <C> <C> <C> <C>
Robert P. Schechter 1999 275,000 275,002(5) 70,000 6,516
President and Chief Executive 1998 275,000 -- 40,000 4,999
Officer 1997 250,000 254,000 -- 5,371
Robert E. Hult 1999 200,000 110,000(5) 20,000 1,248
Senior Vice President of Finance 1998 48,844(2) -- 70,000 --
and Operations, Chief Financial Officer 1997 -- -- -- --
and Treasurer
George D. Kontopodis, Ph.D 1999 175,000 84,500(5) 40,000 5,493
Senior Vice President of Engineering 1998 175,000 -- 75,000 4,999
1997 155,000 100,000 -- 4,491
Dorothy A. Terrell 1999 225,000 292,500(5) 50,000 6,204
Senior Vice President of Worldwide 1998 201,635 (3) -- 105,000 100,199(4)
Sales and Services and President of the 1997 -- -- -- --
Services Group
Allen P. Carney 1999 175,000 96,250(5) 40,000 5,493
Vice President of Marketing 1998 175,000 -- 20,000 4,999
1997 175,000 107,750 -- 4,491
</TABLE>
5
<PAGE>
(1) Includes, for each of the Named Executive Officers, Company contributions
to the Company's 401(k) retirement plan and premiums paid by the Company for
term life insurance.
(2) Mr. Hult joined the Company in October 1998.
(3) Ms. Terrell joined the Company in February 1998.
(4) Includes $100,000 paid as compensation for joining the Company.
(5) Payment of 25% of the 1999 bonus award is contingent upon the achievement
by the Company of certain goals during the first two fiscal quarters of 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all stock option grants to the Named Executive
Officers during 1999:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTION EXERCISE EXPIRATION AT ASSUMED ANNUAL
NUMBER OF SHARES PRICE DATE RATES OF STOCK PRICE
SHARES GRANTED TO ----- ---- APPRECIATION
NAME UNDERLYING EMPLOYEES ($/SH) FOR OPTION TERM (1)
- ---- OPTIONS IN FISCAL ----- -------------------
GRANTED YEAR 5% 10%
------- -----
<S> <C> <C> <C> <C> <C> <C>
Robert P. Schechter 70,000 6.8 7.188 01/05/09 819,595 1,305,067
Robert E. Hult 20,000 2.0 7.188 01/05/09 234,170 372,876
George D. 40,000 3.9 7.188 01/05/09 468,340 745,753
Kontopodis, Ph.D
Dorothy A. Terrell 50,000 4.9 7.188 01/05/09 585,425 932,191
Allen P. Carney 40,000 3.9 7.188 01/05/09 468,340 745,753
</TABLE>
(1) As required by the rules of the Securities and Exchange Commission,
potential values are stated based on the prescribed assumption that Common
Stock will appreciate in value from the date of grant to the end of the
option term at the indicated rates (compounded annually) and therefore are
not intended to forecast possible future appreciation, if any, in the price
of Common Stock.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for the Named Executive Officers, the
number of shares for which stock options were exercised in 1999, the realized
value or spread (the difference between the exercise price and market value on
the date of exercise) and the number and unrealized spread of the unexercised
options held by each at fiscal year-end.
6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT FY-END AT FY-END
ON REALIZED (ALL EXERCISABLE) (ALL EXERCISABLE) ($)(2)
EXERCISE ------- ----------------------- ------------------------
NAME (1) ($) VESTED UNVESTED TOTAL VESTED UNVESTED TOTAL
- ---- --- ------ -------- ----- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert P. Schechter -- -- 372,625 111,875 484,500 13,307,529 3,564,377 16,871,906
Robert E. Hult -- -- 21,875 68,125 90,000 792,969 2,537,031 3,330,000
George D. Kontopodis, Ph.D -- -- 36,875 74,375 111,250 1,382,667 2,843,984 4,226,651
Dorothy A. Terrell -- -- 50,859 104,141 155,000 1,862,711 3,964,164 5,826,875
Allen P. Carney -- -- 35,937 119,063 155,000 1,316,193 4,480,682 5,796,875
</TABLE>
_____________
(1) Does not include 800 shares purchased by each of the Named Executive
Officers during 1999 under the Company's 1993 Employee Stock Purchase Plan.
(2) Based on the fiscal year end closing price of $46.813 per share.
DIRECTOR COMPENSATION
Each director of the Company who is not also an employee is paid $2,500 per
quarter and is reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings. Non-employee directors serving on committees of the Board
also receive $250 per committee meeting attended. In addition, non-employee
directors are entitled to certain option grants under the Company's 1993 Non-
Employee Directors Stock Option Plan. Under the Director Plan each non-employee
director currently receives (i) upon first being elected to the board an option
for 15,000 shares which vests over three years and (ii) annually at the time of
the annual meeting an option for 5,000 shares which vests at the time of the
next annual meeting. If approved by shareholders, the 2000 Equity Incentive
Plan will supersede the Director Plan. See "Approval of 2000 Equity Incentive
Plan."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors, which is comprised of two non-
employee directors. The Compensation Committee works with management to develop
compensation plans for the Company and is responsible for determining the
compensation of each executive officer and recommending such compensation to the
Board of Directors.
The Company's executive compensation program is designed to align executive
compensation with the Company's business objectives and the executive's
individual performance and to enable the Company to attract, retain and reward
executive officers who contribute, and are expected to continue to contribute,
to the Company's long-term success. In establishing executive compensation, the
Compensation Committee is guided by the following principles: (i) the total
compensation payable to executive officers should be sufficiently competitive
with the compensation paid by other companies in the telecommunications industry
for officers in comparable positions so that the Company can attract and retain
qualified executives and (ii) individual compensation should include components
that reflect the financial performance of the Company and the performance of the
individual, including leadership and the achievement of corporate objectives.
7
<PAGE>
The compensation of the Company's executive officers consists of a
combination of base salary, bonuses and equity-based compensation. The
Compensation Committee believes that executive compensation should be designed
to motivate executives to increase shareholder value and further believes that
executive officers can best increase shareholder value by managing the operating
profit of the Company and by conceiving, developing and positioning the best
products in the Company's chosen markets.
Compensation payments in excess of $1 million to the Chief Executive
Officer or other most highly compensated executive officers are subject to a
limitation of deductibility by the Company under Section 162(m) of the Internal
Revenue Code of 1986. Certain performance-based compensation is not subject to
the limitation on deductibility. It is the policy of the Committee to preserve
the deductibility of the compensation to the extent compatible with other
compensation objectives but, if required by such other objectives, to authorize
benefits and compensation which may exceed the deduction limitation. The
Compensation Committee does not expect compensation in 2000 to its Chief
Executive Officer or any other executive officer will exceed the deduction
limitation.
BASE SALARY
The Compensation Committee sets the base salary for executives by reviewing
the salaries for comparable positions within the Company's industry, the
historical compensation levels of the Company's executives and the individual
performance of the executives in the preceding year. The Compensation Committee
utilizes salary surveys for reference purposes but its salary determinations are
not subject to specific criteria. In addition, executive officers whose primary
responsibilities are in sales are entitled to receive commissions based
primarily on the Company's revenues or a specific portion of these revenues. In
1999, the base salaries of the executive officers were not increased.
MERIT BONUS PROGRAM
Each year the Compensation Committee adopts a management incentive plan
which reflects the Compensation Committee's belief that a significant portion of
each executive officer's compensation should be tied to the achievement by the
Company of its profit goals and by each executive officer of his or her
individual objectives as determined by the Compensation Committee. The 1999
Management Incentive Plan (the "1999 Incentive Plan") set operating profit goals
and merit bonus goals based on the 1999 operating plan approved by the Board of
Directors. In addition, the 1999 Incentive Plan prescribed both an increase and
a decrease in the merit bonus goals as a function of the Company's actual
operating profit and the fulfillment of the specific management objectives for
each executive. At the end of the year, the Compensation Committee allocated
bonuses to individual executives based on the executive's performance relative
to his or her performance objectives. Under the 1999 Incentive Plan, executive
officers were entitled to receive an average bonus of 55% of base salary if the
Company achieved its profit goals for 1999 and the individual executive met or
exceeded his or her objectives. Based on his individual performance with
respect to his objectives, Mr. Schechter received a bonus under the 1999
Incentive Plan equal to 75% of his base salary. Additionally, certain executive
officers are entitled to receive approximately 25% of their targeted annual
bonus pending the achievement by the Company of certain goals during the first
two fiscal quarters of 2000. This payment had previously been deferred. All
other executive officers received bonuses equal to approximately 40% of their
base salaries.
STOCK-BASED COMPENSATION
Awards of stock options under the Company's stock option plans are designed
to more closely tie the long-term interests of the Company's executives and its
shareholders and to assist in the retention of executives. The Compensation
Committee selects the executive officers, if any, to receive stock options and
determines the number of shares subject to each option. The Compensation
Committee's determination of the size of option grants is generally intended to
reflect an executive's position with the Company and his or her contributions to
the Company. Options generally have a four-year vesting period to encourage key
employees to continue in the
8
<PAGE>
employ of the Company. The Compensation Committee reviews the outstanding
unvested options of the key executives from time to time and may grant
additional options to encourage the retention of key executives. Options for an
aggregated 317,200 shares were granted to executive officers in 1999 to reward
the executive officers for their performance in 1999 and to establish
appropriate incentives.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer's compensation generally is based on the same
policies and criteria as the other executive officers. The Committee did not
increase Mr. Schechter's base salary. Mr. Schechter was granted an option for
70,000 shares in 1999 based upon his performance in 1999 and to establish
appropriate ongoing incentives.
Compensation Committee
Ronald W. White
Zenas W. Hutcheson, III
9
<PAGE>
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN
The following performance graph assumes an investment of $100 on February
17, 1994 (the effective date of the Company's initial public offering) and
compares the change to December 31, 1999 in the market price of the Common Stock
with a broad market index (S&P 500) and an industry index (S&P Communication
Equipment-Manufacturers). The Company paid no dividends during the periods
shown; the performance of the indexes is shown on a total return (dividend
reinvestment) basis. The graph lines merely connect the prices on the dates
indicated and do not reflect fluctuations between those dates.
[FINANCIAL PRINTER TO PROVIDE]
The Compensation Committee Report on Executive Compensation and the
Comparison of Cumulative Total Stockholder Return above shall not be deemed
"soliciting material" or incorporated by reference into any of the Company's
filings with the Securities and Exchange Commission.
Compensation Committee Interlocks And Insider Participation
No person serving on the Compensation Committee at any time during 1999 was
a present or former officer or employee of the Company or any of its
subsidiaries. During 1999, no executive officer of the Company served as a
member of the board of directors or compensation committee (or other board
committee performing equivalent functions) of another entity one of whose
executive officers served on the Company's Board of Directors or Compensation
Committee.
10
<PAGE>
SECTION 16 REPORTING
Section 16(a) of the 1934 Act requires the Company's directors and officers
and persons who own more than ten percent of the Common Stock to file reports
with the Securities and Exchange Commission disclosing their ownership of stock
in the Company and changes in such ownership. Copies of such reports are also
required to be furnished to the Company. Based solely on a review of the copies
of such reports received by it, or a written representation from certain
reporting persons that no Form 5 was required for such person, the Company
believes that all required filings were timely made during 1999 except that Alex
N. Braverman filed a late Form 3 in April, 1999 and Charles J. Walker filed a
late Form 3 in December, 1999.
LOAN TO OFFICER
The Company made loans during 1998 to R. Brough Turner, its senior vice
president of technology, in the aggregate amount of $483,690. As of March 16,
2000, the total principal and accrued interest outstanding was $553,811. Mr.
Turner's indebtedness to the Company is evidenced by a secured promissory note
which becomes due, together with interest at the rate of 9% per annum, on July
9, 2001.
AMENDMENT TO CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
(ITEM 2 OF NOTICE)
Article Four of the certificate of incorporation of the Company currently
authorizes the issuance of 45,000,000 shares of common stock and 3,000,000
shares of preferred stock.
As of March 16, 2000, there were __________ shares of common stock
outstanding. Therefore, __________ authorized shares of common stock remained
available for issuance without further action by the stockholders of the
Company, of which ____________ were reserved for issuance under the Company's
various stock option and stock purchase plans. No shares of preferred stock
were outstanding, although 15,000 were reserved for issuance under the Company's
rights plan.
On March 7, 2000, the board of directors of the Company proposed and
declared advisable an amendment to the certificate of incorporation increasing
the authorized shares of common stock from 45,000,000 to 125,000,000. The
proposed amendment would have no effect upon the terms of the common stock.
The board of directors believes that the proposed increase in authorized
shares of common stock is desirable to enhance the Company's flexibility in
connection with possible future actions, such as stock splits, financings,
acquisitions, or other corporate purposes. Having such authorized shares
available for issuance in the future would allow shares of common stock to be
issued for such purposes without the expense and delay of further stockholder
action. There is no current plan or proposal to issue any of the additional
shares proposed to be authorized.
The increased number of authorized shares could also be used to make more
difficult a change of control of the Company which the board of directors
determines not to be in the best interests of its stockholders. For instance,
such shares could be issued in public or private transactions to persons who
might side with the board of directors in opposing a takeover bid. The board of
directors is not currently aware of any efforts by any person to gain control of
the Company.
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The board of directors recommends a vote "FOR" the proposal. If the
enclosed proxy card is returned, the shares represented by the proxy will be
voted to approve the proposed amendment unless the proxy indicates to the
contrary and may be voted in favor of adjournment of the meeting in order to
permit further solicitation of proxies with respect to the proposed amendment if
sufficient votes in favor of the proposed amendment have not been received. The
affirmative vote of majority of the outstanding shares of common stock is
required for approval of the amendment.
APPROVAL OF 2000 EQUITY INCENTIVE PLAN
(ITEM 3 OF NOTICE)
General
On March 7, 2000, the Board of Directors of the Company adopted the 2000
Equity Incentive Plan (the "2000 Plan"). The 2000 Plan provides for the grant
of incentive stock options and stock appreciation rights to employees and
nonstatutory stock options, stock bonuses, rights to purchase restricted stock
and other awards based on the Company's common stock (collectively, "Stock
Awards") to employees, non-employee directors or consultants (approximately 392,
4, 26 respectively). The Company's 1993 Stock Option Plan and 1993 Non-Employee
Directors Stock Option Plan (collectively, the "1993 Plans") will be superseded
by the 2000 Plan and no further grants under the 1993 Plans will be made after
adoption of the 2000 Plan. Options granted previously under the 1993 Plans will
continue to be governed by the terms of the 1993 Plans. The Board of Directors
believes that approval of the 2000 Plan is in the best interests of the Company
because it will provide the Company with sufficient equity-based incentives to
attract and retain qualified employees, directors and consultants and to provide
incentives for such persons to exert maximum efforts for the success of the
Company. A copy of the 2000 Plan is attached as an exhibit at the end of this
Proxy Statement. The Board of Directors recommends a vote FOR the proposal to
approve the 2000 Plan.
Approval by stockholders of the adoption of the 2000 Plan is sought in order
to meet the stockholder approval requirements of (i) Section 422 of the Code,
which requires stockholder approval of an incentive stock option plan, (ii) Rule
16b-3 under the 1934 Act, which, in the case of certain option plans that have
been approved by stockholders, prevents the grant of options to directors,
executive officers and certain other affiliates from being deemed "purchases"
for purposes of the profit recapture provisions of Section 16(b) of that Act,
(iii) Section 162(m) of the Code, which among other qualifications requires
stockholder approval of any option plan to exempt the spread (the difference
between the exercise price and the market value at the time of exercise) of
options from the limitation on deductibility under that section, and (iv) the
rules applicable to companies whose shares are traded on the Nasdaq Stock
Market.
Administration
The 2000 Plan provides that it is to be administered by a committee (the
"Committee") composed of not fewer than two members, all of which will be "non-
employee directors" and "outside Directors" within the meanings of the
securities laws and Internal Revenue Code (the "Code"), respectively. Subject
to the provisions of the 2000 Plan, the Committee has the authority to determine
(i) which persons eligible under the 2000 Plan will be granted Stock Awards;
(ii) when and how the Stock Awards will be granted; (iii) whether the Stock
Award will be an incentive stock option, a nonstatutory stock option, a stock
bonus, a right to purchase restricted stock, a stock appreciation right, another
stock-based award or a combination of the foregoing; (iv) terms of the Stock
Award; (v) the number of shares; (vi) the exercise or purchase price; and (vii)
the type and duration of transfer or other restrictions.
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Shares Subject to the 2000 Plan
The aggregate number of shares of the Company's common stock reserved for
issuance under the 2000 plan is 2,500,000. Any shares of the Company's common
stock available for future awards under the 1993 Plans and any shares of the
Company's common stock represented by awards granted under the 1993 Plans which
are forfeited, expire or are canceled will again be available for issuance under
the 2000 Plan. On March 16, 2000 the closing sale price of the Company's common
stock on the NASDAQ National Market was $_____ per share.
If any Stock Award (other than stock appreciation rights) expires or is
terminated without having been exercised in full, the applicable shares will
again be available for issuance under the 2000 Plan. No more than 250,000
shares of common stock will be subject to stock bonuses, restricted stock
purchases, stock appreciation rights and any other awards other than options and
no person will be granted Stock Awards covering more than ____ shares of common
stock in any calendar year. No Stock Awards have been granted to date.
Stock Options
The exercise price per share of each incentive stock option granted under the
2000 Plan will be not less than the closing sale price of the Company's common
stock on the date of the grant of the option (the "Fair Market Value"). The
exercise price per share of each nonstatutory stock option granted will be not
less than 50% of Fair Market Value, however, no more than 500,000 nonstatutory
shares may have an exercise price of less than 100% of Fair Market Value.
Options granted under the 2000 Plan will vest (become exercisable) in periodic
installments (which may, but need not, be equal) as determined by the Committee.
No option will be exercisable after the expiration of ten years from the date it
was granted.
If there is any change in the shares of common stock subject to the 2000 Plan
through the declaration of stock dividends, subdivisions or combinations, the
Board of Directors is authorized to make appropriate adjustments to the number
of shares and price per share for each stock option and the number of common
shares available for stock options. If the Company is merged into another
corporation and is not the surviving entity or it liquidates or sells
substantially all of its assets while unexercised stock options remain
outstanding (i) each stock option holder will upon exercise of his or her stock
options, be entitled to such stock or other securities as holders of common
stock received pursuant to the transaction; (ii) all stock options granted to
non-employee directors will become exercisable in full; (iii) all outstanding
stock options may be canceled by the Board of Directors provided that each
option holder shall have the right to exercise all options (vested or unvested)
during the thirty day period preceding the merger, liquidation or sale; or (iv)
all outstanding options may be canceled by the Board of Directors provided that
each option holder shall have the right to exercise all vested options.
During the optionee's lifetime, an incentive stock option will be exercisable
only by the optionee and will not be transferable except by will or by the laws
of descent and distribution. A nonstatutory stock option may be transferred
upon such terms and conditions as the Committee will determine in its sole
discretion. The optionee may designate a third party who, in the event of the
death of the optionee, will be entitled to exercise the vested options, but only
within the period ending on the earlier of (i) twelve months following the date
of death or (ii) the expiration of the term of the option as set forth in the
specific option agreement. In the event an optionee's status as an employee,
director or consultant terminates as a result of disability, the optionee's
vested options must be exercised within the same time frame.
In the event an optionee is terminated as an employee, director or consultant
(other than by death, disability or retirement), the optionee may exercise his
or her vested options only within the period of time ending on the earlier of
(i) 30 days after termination or such longer or shorter period of time set forth
in the specific option agreement or (ii) expiration of the option's term. If
the optionee is terminated for "cause," all options will terminate immediately.
As used in the 2000 Plan, "cause" will mean (i) a material breach by the
optionee of any agreement to which the optionee and the Company are both
parties, (ii) any act or failure to act by the optionee which may materially and
adversely affect the
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Company's business or the optionee's ability to perform services for the
Company, or (iii) any material misconduct or neglect of duties by the optionee
in connection with the business or affairs of the Company.
In the event of retirement of an optionee pursuant to the Company's retirement
policy or if no policy is in effect then as determined by the Committee, he or
she may exercise any options vested on the retirement date within twelve months
of that date (or 90 days in the case of an incentive stock option).
The Committee may, but need not, provide to an optionee the right to exercise
his or her options prior to vesting of the options, provided, however, any
unvested options will be subject to a repurchase right by the Company at the
exercise price if the optionee is terminated. The Committee may also, but need
not, provide to an optionee a further option (a "Re-Load Option") in the event
the optionee exercise his or her options by surrendering shares of the Company's
common stock. The Re-Load Options will be equal to the number of shares
surrendered as part of the exercise price, will have the same expiration date as
the option exercised, and will have an exercise price equal to the Fair Market
Value of the common stock surrendered as part of the exercise.
Stock Bonuses and Restricted Stock
Grants of stock bonuses and restricted stock involve the issuance of shares to
the recipient subject to transfer restrictions, employment restrictions, vesting
restrictions, and the Company's right to repurchase the shares at a price
determined by the Committee if certain conditions (such as continuation of
employment) are not satisfied by the recipient. As the conditions are satisfied,
the repurchase restrictions lapse and the recipient is then free to hold or sell
the shares free of restrictions. Grants of unrestricted stock involve the
issuance of shares free of any transfer or repurchase restrictions. The
Committee will have discretion to determine the number of shares to be granted,
whether or not they will be restricted (and, if so, the terms of the
restrictions) and the amount and form of consideration to be paid for the shares
granted.
Stock Appreciation Rights
The grant of stock appreciation rights entitles the holder to a cash
distribution based on the increase in Fair Market Value per share of a
designated amount of the Company's common stock. The Committee will have the
authority to issue three types of stock appreciation rights under the 2000 Plan:
(a) Tandem Stock Appreciation Rights. These rights will be tied to either an
incentive or nonstatutory stock option and will be subject to the same terms and
conditions applicable to the particular option to which it pertains. Tandem
rights will require the holder to elect to exercise the underlying option for
shares of the Company's common stock or surrender the option for cash equal to
the excess of (i) the Fair Market Value (on the date of surrender) of shares of
the Company's common stock purchasable under the surrendered option over (ii)
the exercise price payable for such shares.
(b) Concurrent Stock Appreciation Rights. These rights will be granted in
connection with an incentive or nonstatutory stock option and will be subject to
the same terms and conditions applicable to the particular option to which it
pertains. Concurrent rights will be exercised automatically at the same time as
the underlying option is exercised. Upon exercise, the holder will be entitled
to a cash distribution in an amount equal to the excess of (i) the Fair Market
Value (on the date of exercise) of the Company's common stock purchased upon
exercise of the option over (ii) the exercise price paid for those shares.
(c) Independent Stock Appreciation Rights. These rights will be granted
independently of any stock option but will be denominated in share equivalents
and will be subject to the same terms and conditions as nonstatutory stock
options. Upon exercise of the independent rights, the holder will be entitled
to a cash distribution in an amount equal to the excess of (i) the Fair Market
Value (at date of exercise) of the number of shares of the Company's common
stock equal to the number of share equivalents exercised over (ii) the Fair
Market Value of such numbers of shares of the Company's common stock on the date
the independent rights are granted.
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Other Stock-Based Awards
The 2000 Plan authorizes the making of loans in connection with the purchase
of shares under an award. The Committee will have the full authority to decide
the terms of any such loan, provided that interest will be payable at least
annually and will be charged at the minimum rate of interest necessary to avoid
the treatment as an interest under any applicable provisions of the Code. In
addition, the 2000 Plan authorizes the grant of other types of awards that are
consistent with the terms of the 2000 Plan.
Amendment and Termination
The 2000 Plan authorizes the Board of Directors to discontinue, suspend or
amend the 2000 Plan, except that no amendment will be effective without
shareholders' approval if shareholder approval is required by the NASDAQ
National Market. No amendment, suspension or termination of the 2000 Plan or
amendment of a Stock Award by the Board of Directors may alter or impair a
grantee's rights under a Stock Award previously granted without the grantee's
written consent. The 2000 Plan will terminate on April 27, 2010.
Federal Income Tax Consequences under the 2000 Plan
Set forth below is a general summary of the federal income tax consequences
related to options awarded under the 2000 Plan. The following summary is not
intended to be exhaustive, does not address state, municipal or foreign tax
laws, and does not address the circumstances of special classes or individual
circumstances of participants, including, without limitation, foreign persons.
In addition, administrative and judicial interpretations of the application of
the federal income tax laws are subject to change.
Consequences to the Option holder. There are no federal income tax
---------------------------------
consequences to the option holder solely by reason of the grant of incentive
stock options or nonstatutory stock options under the 2000 Plan. The exercise
of an incentive stock option is not a taxable event for regular federal income
tax purposes if certain requirements are satisfied, including the restriction
providing that the option holder generally must exercise the option no later
than three months following termination of his employment. However, the
exercise of an incentive stock option may give rise to an alternative minimum
tax liability (see discussion below).
Upon the exercise of a nonstatutory stock option, the option holder will
generally recognize ordinary income in an amount equal to the excess of fair
market value of the shares at the time of exercise over the amount paid as the
exercise price. The ordinary income recognized in connection with the exercise
by an option holder of a nonstatutory stock option will be subject to both
income and employment tax withholding. The option holder's tax basis in the
shares acquired pursuant to the exercise of an option will be the amount paid
upon exercise plus, in the case of a nonstatutory stock option, the amount of
ordinary income recognized by the option holder upon exercise.
If any option holder disposes of shares acquired upon the exercise of an
incentive stock option in a taxable transaction, and such disposition occurs
more than two years from the date on which the option is granted and more than
one year after the date on which the shares are transferred to the option holder
pursuant to the exercise of the incentive stock option (a "qualifying
disposition"), the option holder will recognize long-term capital gain or loss
equal to the difference between the amount realized upon such disposition and
the option holder's adjusted basis in such shares (generally the exercise
price).
If the option holder disposes of shares acquired upon the exercise of an
incentive stock option (other than in certain tax-free transactions) within two
years from the date on which the incentive stock option is granted or within one
year after the transfer of the shares to the option holder pursuant to the
exercise of the incentive stock option (a "disqualifying disposition"), then at
the time of disposition the option holder will generally recognize ordinary
income equal to the lesser of (i) the excess of such shares' fair market value
on the date of exercise over the exercise price paid by the option holder or
(ii) the option holder's actual gain (i.e. the excess, if any, of the amount
realized on the disposition over the exercise price paid by the option holder).
If the total amount realized on a taxable disposition (including return of
capital and
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capital gain) exceeds the fair market value on the date of exercise,
then the option holder will recognize a capital gain in the amount of such
excess. If the option holder incurs a loss on the disposition (i.e., if the
total amount realized is less than the exercise price paid the option holder),
then the loss will be a capital loss.
If any option holder disposes of shares acquired upon exercise of a
nonstatutory stock option in a taxable transaction, the option holder will
recognize capital gain or loss in an amount equal to the difference between
his/her basis (as discussed above) in the shares sold and the total amount
realized upon disposition. Any such capital gain or loss (and any capital gain
or loss recognized on a disqualifying disposition of shares acquired upon
exercise of incentive stock options as discussed above) will be long-term
capital gain or loss if the shares were held for more than one year from the
date such shares were transferred to the option holder.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the option holder's regular income tax for the taxable year.
Generally, AMT is computed at the rate of 26% on the excess of a taxpayer's
alternative minimum taxable income ("AMTI") over the exemption amount, but only
if such excess amount does not exceed $175,000 ($87,500 in the case of married
individuals filing separate returns). The AMT tax rate is 28% of such excess
amount over the $175,000 ($87,500) amount. For these purposes, the exemption
amount is $45,000 for joint returns or returns of surviving spouses ($33,750 for
single taxpayers and $22,500 for married individuals filing separate returns),
reduced by 25% of the excess of AMTI over $150,000 for joint returns or returns
of surviving spouses ($112,500 for single taxpayers and $75,000 for married
individuals filing separate returns). A taxpayer's AMTI is essentially the
taxpayer's taxable income adjusted pursuant to the AMT provisions and increased
by items of tax preference.
The exercise of incentive stock options (but not nonstatutory stock options)
will generally result in an upward adjustment to the option holder's AMTI in the
year of exercise by an amount equal to the excess, if any, of the fair market
value of the stock on the date of exercise over the exercise price. The basis
of the stock acquired for AMT purposes, will equal the exercise price increased
by the prior upward adjustment of the taxpayer's AMTI due to the exercise of the
option. This will result in a corresponding downward adjustment to the option
holder's AMTI in the year of disposition of the stock. The AMT paid with
respect to the exercise of an incentive stock option is allowed as a credit
against the regular tax liability of the option holder in a subsequent year when
he disposes of the stock; therefore, imposition of the AMT at the time of
exercise of an incentive stock option may not increase the aggregate amount of
income tax paid by the option holder, but instead may only affect the timing of
such payments.
Consequences to the Company. There are no federal income tax consequences to
---------------------------
the Company by reason of the grant of incentive stock options or nonstatutory
stock options or the exercise of incentive stock options (other than
disqualifying dispositions). At the time the option holder recognizes ordinary
income from the exercise of a nonstatutory stock option, the Company will be
entitled to a federal income tax deduction in the amount of the ordinary income
so recognized (as described above), provided that the Company satisfies its tax
reporting obligations described below. To the extent the option holder
recognizes ordinary income by reason of a disqualifying disposition of the stock
acquired upon exercise of incentive stock options, the Company will be entitled
to a corresponding deduction in the year in which the disposition occurs,
provided that the Company satisfies a tax reporting obligation described below.
The Company will be required to report to the Internal Revenue Service any
ordinary income recognized by any option holder by reason of the exercise of a
nonstatutory stock option or the disqualifying disposition of stock acquired
upon exercise of incentive stock options. The Company will be required to
withhold income and employment taxes (and pay the employer's share of employment
taxes) with respect to ordinary income recognized by the option holder upon the
exercise of nonstatutory stock options.
Tax Treatment of Restricted Stock. An employee who receives a restricted
---------------------------------
stock award under the 2000 Plan generally will not recognize taxable income at
the time the award is received, but will recognize ordinary compensation income
when the transfer and forfeiture restrictions lapse in an amount equal to the
excess of the aggregate fair market value, as of the date the restrictions
lapse, over the amount, if any, paid by the employee for the restricted stock.
Alternatively, an employee receiving stock may elect, in accordance with Section
83(b) of the Code, to treat as ordinary income the excess of the fair market
value of the shares of restricted stock at the time of grant over the amount if
any, paid by the employee, notwithstanding the transfer and forfeiture
restrictions on the stock. All such taxable amounts are deductible by the
Company at the time and in the amount of the ordinary compensation income
recognized by the
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employee. The full amount of dividends or other distributions of property made
with respect to restricted stock prior to the lapse of the transfer and
forfeiture restrictions will constitute ordinary compensation income to the
employee and the Company will be entitled to a deduction at the same time and in
the same amount.
Tax Treatment of Unrestricted Stock. Upon receiving an award of unrestricted
-----------------------------------
stock under the 2000 Plan, the employee will realize ordinary income to the
extent of the fair market value (determined at the time of transfer to the
employee) of such shares, over the amount, if any paid by the employee for the
shares. Such taxable amounts will be deductible as compensation by the Company.
Tax Treatment of Cash Distributions Pursuant to Stock Appreciation Rights.
-------------------------------------------------------------------------
Employees receiving a cash distribution pursuant to stock appreciation rights
issued under the 2000 Plan will realize ordinary income in the amount of such
cash distribution. Such taxable amounts will be deductible as compensation by
the Company.
Limitation on Deduction Under Section 162(m) of the Code. Section 162(m) of
--------------------------------------------------------
the Code generally limits an employer's income tax deduction for compensation
paid to certain key executives of a public company to $1,000,000 per executive
per year. The deduction limitation of Section 162(m) does not apply, however,
to certain performance-based compensation arrangements, including plans
providing for stock options having an exercise price of not less than 100% of
fair market value (determined at the time the options are granted), which
establish specific performance goals and/or limits on awards, which are
administered by a committee composed exclusively of "outside" directors, and are
disclosed to and approved by the shareholders of the public company.
Other Tax Consequences. The 2000 Plan is not qualified under Section 401(a)
----------------------
of the Code, nor is it subject to any of the provisions of the Employment
Retirement Security Act of 1974, as amended.
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RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
(ITEM 4 OF NOTICE)
On the recommendation of the Audit Committee, the Board of Directors has
selected PricewaterhouseCoopers LLP, independent certified public accountants,
as auditors of the Company for the fiscal year ending December 31, 2000. This
firm has audited the accounts and records of the Company since 1997. A
representative of PricewaterhouseCoopers LLP will be present at the Annual
Meeting to answer questions from stockholders and will have an opportunity to
make a statement if desired.
The selection of independent auditors is not required to be submitted to
a vote of the stockholders. The Board believes, however, it is appropriate as a
matter of policy to request that the stockholders ratify the appointment. If
the stockholders do not ratify the appointment, the Board will reconsider its
selection.
STOCKHOLDER PROPOSALS FOR 2000 MEETING
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders must be received on or before___________, 2000 for
inclusion in the proxy materials relating to that meeting. Any such proposals
should be sent to the Company at its principal offices and addressed to the
Chief Financial Officer. Other requirements for inclusion are set forth in Rule
14a-8 under the 1934 Act. In addition, if the Company receives notice of a
stockholder proposal after [February 15], 2001, the persons named as proxies for
the 2001 Annual Meeting will have discretionary authority to vote on such
proposal.
OTHER MATTERS
The Company has no knowledge of any matters to be presented for action by
the stockholders at the Annual Meeting other than as set forth above. However,
the enclosed proxy gives discretionary authority to the persons named therein to
act in accordance with their best judgment in the event that any additional
matters should be presented.
The Company will bear the cost of the solicitation of proxies, including
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of Common Stock.
By order of the Board of Directors
Dianne L. Callan
Secretary
March 26, 2000
The Board of Directors hopes that stockholders will attend the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A prompt response will
greatly facilitate arrangements for the meeting, and your cooperation will be
appreciated. Stockholders who attend the meeting may vote their stock
personally even though they have sent in their proxies.
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NATURAL MICROSYSTEMS CORPORATION
2000 EQUITY INCENTIVE PLAN
1. INTRODUCTION AND PURPOSE
(a) This 2000 Equity Incentive Plan (the "2000 Plan" or "the Plan")
supersedes the Natural MicroSystems Corporation (the "Company") 1993 Stock
Option Plan (as amended and restated effective March 4, 1998) and the Company's
1993 Non-employee Directors Stock Option Plan (collectively the "1993 Plans").
The 2000 Plan shall govern all awards made under the 1993 Plans on or after the
date the 2000 Plan is adopted by the Board of Directors of the Company (the
"Board") and approved by the Company's stockholders. Options granted under the
1993 Plans prior to the approval of the 2000 Plan shall be governed by the terms
of the 1993 Plans as in effect immediately prior to the date of such approval.
(b) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) Stock Bonuses, (iv) rights to purchase
Restricted Stock, (v) Stock Appreciation Rights, and (vi) other awards based
upon the Company's Common Stock on such terms and conditions as the Board may
determine.
(c) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company and
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
(d) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c)
hereof, be either (i) Options granted pursuant to Section 6 hereof, including
Incentive Stock Options and Nonstatutory Stock Options, (ii) Stock Bonuses or
rights to purchase restricted stock granted pursuant to Section 7 hereof, (iii)
Stock Appreciation Rights granted pursuant to Section 8 hereof or (iv) other
stock based awards granted pursuant to Section 9 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and shall be in such form as required pursuant to Section 6
hereof.
2. DEFINITIONS AND RULES OF INTERPRETATION
(a) Definitions.
------------
For the purposes of the Plan, in addition to the definitions set forth
above, the following terms shall have the respective meanings set forth below,
unless something in the subject matter or context is inconsistent therewith:
(i) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(ii) "BOARD" means the Board of Directors of the Company.
(iii) "CODE" means the Internal Revenue Code of 1986, as amended.
(iv) "COMMITTEE" means the Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
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(v) "COMPANY" means Natural MicroSystems Corporation.
(vi) "COMPANY COMMON STOCK" means shares of the common stock of the
Company.
(vii) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT"
means a right granted pursuant to subsection 8(b)(ii) hereof.
(viii) "CONSULTANT" means any person, including an advisor, engaged
by the Company, or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(ix) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as an Employee, Director or Consultant is not
interrupted or terminated by the Company or any Affiliate. The Board, in its
sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant shall be considered interrupted in the case of any leave
of absence approved by the Board, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options and Stock Appreciation Rights appurtenant thereto, any such leave may
not exceed ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute.
(x) "DIRECTOR" means a member of the Board.
(xi) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(xii) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(xiii) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(xiv) "FAIR MARKET VALUE" means the closing price per share on the
date of grant of the option as reported by a nationally recognized stock
exchange, or, if the Common Stock is not listed on such an exchange, as reported
by the National Association of Securities Dealers Automated Quotation System,
Inc. ("NASDAQ"), or, if the Common Stock is not quoted on NASDAQ, the fair
market value as determined by the Committee.
(xv) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(xvi) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT"
means a right granted under subsection 8(b)(iii) hereof.
(xvii) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not
a current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or subsidiary for services rendered as a Consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K (or any successor regulation of
similar import) promulgated pursuant
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to the Securities Act ("Regulation S-K")), does not possess an interest in any
other transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K (or any successor regulation of similar import); or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3 of the
Exchange Act.
(xviii) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(xix) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(xx) "OPTION" means a stock option granted pursuant to the Plan.
(xxi) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(xxii) "OPTIONEE" means an Employee, Director or Consultant who holds
an outstanding Option.
(xxiii) "OUTSIDE DIRECTOR" means for any given date of grant a
Director who either (i) is not then a current employee of the Company or an
"affiliated corporation" (within the meaning of Treasury regulations promulgated
under Section 162(m) of the Code), is not a former employee of the Company or an
"affiliated corporation" receiving compensation for prior services (other than
benefits under a tax qualified pension plan) during the then current taxable
year, was not an officer of the Company or an "affiliated corporation" at any
time, and is not then currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, and (ii) is otherwise considered an "outside director" for
purposed of Section 162(m) of the Code.
(xxiv) "PLAN" or "2000 PLAN" means this 2000 Equity Incentive Plan,
as the same may be amended from time to time.
(xxv) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3.
(xxvi) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(xxvii) "STOCK APPRECIATION RIGHT" means any of the various types of
rights which may be granted under Section 8 hereof.
(xxviii) "STOCK AWARD" means any right granted under the Plan,
including any Option, any stock bonus, any right to purchase restricted stock,
and any Stock Appreciation Right.
(xxix) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
(xxx) "STOCK BONUS" means any stock bonus of the type which may be
granted under Section 7 hereof.
(xxxi) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a
right granted under subsection 8(b)(i) hereof.
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The foregoing terms are not the exclusive definitions as used in the
Plan and reference is made to other capitalized terms defined in the context of
their first use herein.
(b) Rules of Interpretation.
(i) The headings and subheadings used herein or in any Option or other
instrument evidencing a Stock Award are solely for convenience of reference and
shall not constitute a part of the Plan or such document or affect the meaning,
construction or effect of any provision thereof.
(ii) All definitions set forth herein shall apply to the singular as
well as the plural form of such defined term, and all references to the
masculine gender shall include reference to the feminine or neuter gender and
visa versa, as the context may require.
(iii) Reference to "including" means including without limiting the
generality of any description preceding such term.
(iv) Unless otherwise expressly stipulated, any reference in the Plan
to any statute, act, regulation or specific provision thereof shall also extend
to any amendment, restatement or other modification to such statute, act,
regulation or specific provision thereof or any successor statute, act,
regulation or provision of similar import.
(v) Unless otherwise expressly provided, any reference in the Plan to
any specific provision of any statute or act shall include any regulations
promulgated thereunder from time to time and interpretations thereof as may be
applicable to the Plan.
3. ADMINISTRATION
(a) The Plan shall be administered by the Committee.
(b) The Committee shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory
Stock Option, a Stock Bonus, a right to purchase restricted stock , a Stock
Appreciation Right, another stock-based award or a combination of the foregoing;
the provisions of each Stock Award granted (which need not be identical),
including the time or times when a person shall be permitted to receive stock
pursuant to a Stock Award; whether a person shall be permitted to receive stock
upon exercise of an Independent Stock Appreciation Right; and the number of
shares with respect to which Stock Awards shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Committee, in the exercise of this power, may correct any
defect, omission or inconsistency in any Stock Award Agreement, in a manner and
to the extent it shall deem necessary or expedient to make the Stock Award
Agreement fully effective.
(iii) Generally, to exercise such powers and to perform such acts as
the Committee deems necessary or expedient to promote the best interests of the
Company and which are not in conflict with the provisions of the Plan.
(c) Administration of the Plan shall be delegated to a committee composed
of not fewer than two (2) members (the "Committee"), all of the members of which
Committee shall be Non-Employee
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Directors and Outside Directors. The Committee shall have, in connection with
the administration of the Plan, the powers set forth in the Plan; subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
Notwithstanding anything in this Section 3 to the contrary, at any time the
Board or the Committee may delegate to a committee of one or more officers of
the Company the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act and to eligible persons with
respect to whom the Company does not wish to comply with Section 162(m) of the
Code.
(d) The Board shall have the authority to correct any defect, omission or
inconsistency in the Plan and to amend the Plan as provided in Section 16. The
Board shall have the authority to appoint the Committee and to fill any vacancy
created on the Committee by reason of the death, resignation or removal of any
member thereof by appointing an eligible successor.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 14 hereof relating to adjustments
upon changes in stock, the number of shares of stock that may be issued pursuant
to Stock Awards under the Plan shall be equal to 2,500,000 shares of Company
Common Stock. Any shares of Company Common Stock available for future awards
under the 1993 Plans and any shares of Company Common Stock represented by
awards granted under the 1993 Plans which are forfeited, expire or are canceled
without delivery of shares of stock, or which result in the forfeiture of shares
of stock back to the Company shall again be available for issuance under the
Plan. If any Stock Award shall for any reason expire or otherwise terminate
without having been exercised in full, the Company common Stock not purchased
shall again become available for issuance under the Plan. Notwithstanding the
foregoing, Shares of Company Common Stock subject to Stock Appreciation Rights
exercised in accordance with Section 8 hereof shall not be available for
subsequent issuance under the Plan.
(b) The Company Common Stock subject to the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares. Subject to
subsections 4(a), 4(c) and 4(d) hereof, not more than 250,000 shares of Company
Common Stock in the aggregate may be subject to Stock Bonuses and purchases of
restricted stock (provided for in Section 7), Stock Appreciation Rights
(provided for in Section 8), and other awards (provided for in Section 9).
(c) For each share of Company Common Stock subject to Stock Bonuses and
purchases of restricted stock (provided for in Section 7), Stock Appreciation
Rights (provided for in Section 8), and other awards (provided for in Section
9), the number of Shares of Company Common Stock which shall be subject to a
nonstatutory Stock Option granted under subsection 6(b) at an exercise price
less than one hundred percent (100%) of Fair Market Value shall be reduced by
two shares of Company Common Stock.
(d) For each two shares of Company Common Stock subject to a nonstatutory
Stock Option granted under subsection 6(b) at an exercise price less than one
hundred percent (100%) of Fair Market Value, the aggregate number of shares of
Company Common Stock subject to Stock Bonuses and purchases of restricted stock
(provided for in Section 7), Stock Appreciation Rights (provided for in Section
8), and other awards provided for in Section 9) shall be reduced by one share of
Company Common Stock.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation rights appurtenant
thereto may be granted only to Employees. Other Stock Awards may be granted to
Employees, Directors or Consultants.
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(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) Company Common Stock possessing more than ten
percent (10%) of the total combined voting power of all classes of capital stock
of the Company or of any of its Affiliates unless the exercise price of such
Incentive Stock Option is at least one hundred ten percent (110%) of the Fair
Market Value of such Company Common Stock at the date of grant and the Incentive
Stock Option is not exercisable after the expiration of five (5) years from the
date of grant.
(c) No person shall be eligible to be granted Stock Awards covering more
than 250,000 shares of Company Common Stock in any calendar year.
6. OPTION PROVISIONS
Each Option Agreement shall be in such form and shall contain such terms
and conditions as the Committee shall deem appropriate. The provisions of
separate Options need not be identical, but each Option Agreement shall include
(through incorporation of provisions hereof by reference in the Option or
otherwise) the substance of each of the following provisions except as otherwise
specifically provided elsewhere in the Plan.
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. Subject to subsection 5(b) hereof, the exercise price of each
Incentive Stock Option shall be not less than one hundred percent (100%) of the
Fair Market Value of the Company Common Stock subject to the Option on the date
the Option is granted. The exercise price of each Nonstatutory Stock Option
shall be set by the Committee at the time each Option is granted, but in no
event shall (i) any exercise price be less than fifty percent (50%) of such Fair
Market Value and (ii) subject to subsections 4(c) and 4(d), not more than
500,000 shares of Company Common Stock shall be subject to a Nonstatutory Stock
Option at an exercise price less than one hundred percent (100%) of such Fair
Market Value.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either: (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Committee, either at the time of the grant or exercise of
the Option, (A) by delivery to the Company of other Company Common Stock, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d) hereof, or (C) in any other form of
legal consideration that may be acceptable to the Committee including delivery
of a full recourse promissory note of the Optionee to the Company on terms
determined by the Committee.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
upon such terms and conditions as are set forth in the Option Agreement, as the
Committee shall determine in its sole discretion, including (without limitation)
pursuant to a "domestic relations order" within the meaning of such rules,
regulations or interpretation of the Securities and Exchange Commission as are
applicable for purposes of Section 16 of the Exchange Act, or to family members,
or to trusts or
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other entities maintained for the benefit of family members. Notwithstanding the
foregoing, the person to whom an Option is granted may, by delivering written
notice to the Company in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Committee may deem appropriate. During the remainder of
the term of the Option (if its term extends beyond the end of the installment
periods), the Option may be exercised from time to time with respect to any
shares then remaining subject to the Option. The provisions of this subsection
6(e) are subject to any Option provisions governing the minimum number of shares
as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death, Disability or
retirement), the Optionee may exercise his or her Option, but only within such
period of time ending on the earlier of (i) 90 days after termination of the
Optionee's Continuous Status as an Employee Director or Consultant or such
longer or shorter period of time specified in the Option Agreement, or (ii) the
expiration of the Option's term, and only to the extent that the Optionee was
entitled to exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the event of the retirement of an Optionee from the Company
pursuant to the Company's retirement policy then in effect, or if there be none,
then as determined by the Committee in its sole discretion, he or she may
exercise his or her Option during the period ending twelve (12) months after his
or her retirement date (or 90 days in the case of an Incentive Stock Option).
If, at the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise
of the Option following the termination of the Optionee's Continuous Status as
an Employee, Director or Consultant (other than upon the Optionee's death or
disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Act, then the
Option shall terminate on the earlier of (i) the expiration of the term of the
Option set forth in the first paragraph of this subsection 6(f), or (ii) the
expiration of a period of three (3) months after the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant during which
the exercise of the Option would not be in violation of such registration
requirements.
Notwithstanding the preceding, in the event an Optionee's employment
with (or services to) the Company is terminated by it for cause (as determined
by the Company), the Option shall terminate on the date of termination and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
As used herein, "cause" shall mean (x) any material breach by the
Optionee of any agreement to which the Optionee and the Company are both
parties, (y) any act or"omission to act by the
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Optionee which may have a material and adverse effect on the Company's business
or on the Optionee's ability to perform services for the Company, including,
without limitation, the commission of any crime (other than ordinary traffic
violations), or (z) any material misconduct or material neglect of duties by the
Optionee in connection with the business or affairs of the Company or any
affiliate of the Company.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period of time as
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement). If, at the date of termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of a death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised by the Optionee's estate, by a person who acquired the right to
exercise the Option by bequest or inheritance, or by a person designated to
exercise the option upon the Optionee's death pursuant to subsection 6(d)
hereof, but only within the period ending on the earlier of (i) the date twelve
(12) months following the date of death (or such longer or shorter period
specified in the Option Agreement) or (ii) the expiration of the term of such
Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option; provided, however, any
unvested shares shall be subject to a repurchase right in the Company at the
Exercise Price in the event of the Optionee's termination.
(j) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any minimum required rate of federal, state
or local tax withholding relating to the exercise of such Option by any of the
following means or by a combination of such means: (1) tendering a cash payment;
(2) authorizing the Company to withhold shares from the shares of the Common
Stock otherwise issuable to the Participant as a result of the exercise of the
Option; or (3) delivering to the Company owned and unencumbered shares of the
Common Stock of the Company.
(k) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Committee to make or not to make grants of Options hereunder, the Committee
shall have the authority (but not an obligation) to include as part of any
Option Agreement a provision entitling the Optionee to a further Option (a "Re-
Load Option") in the event the Optionee exercises the Option evidenced by the
Option agreement, in whole or in part, by surrendering other shares of Company
Common Stock in accordance with the Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option, (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option or, in the case of a
Re-Load Option which is an Incentive Stock Option and which is granted to a 10%
stockholder (as described in subsection 5(c)
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hereof), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the Company Common Stock subject to the Re-
Load Option on the date of exercise of the original Option and shall have a term
which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Option or a Nonstatutory Stock
Option, as the Committee may designate at the time of the grant of the original
Option; provided, however, that the designation of any Re-Load Option as an
incentive Stock Option shall be subject to the one hundred thousand dollar
($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 13(d) hereof and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) hereof
and shall be subject to such other terms and conditions as the Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of the Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each Stock Bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Committee shall deem
appropriate. The terms and conditions of Stock Bonus or restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate agreements need not be identical, but each Stock Bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
herein by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Committee shall determine and
designate in such agreement. Notwithstanding the foregoing, the Committee may
determine that eligible participants in the Plan may be granted a Stock Award
pursuant to a Stock Bonus agreement in consideration for past services actually
rendered to the Company for its benefit.
(b) TRANSFERABILITY. Except as otherwise provided elsewhere in the Plan,
no rights under a Stock Bonus or restricted stock purchase agreement shall be
assignable by any participant under the Plan, either voluntarily or by operation
of law, except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the rights are granted
only by such person. The person to whom the Stock Award is granted, may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of such person, shall
thereafter be entitled to exercise the rights held by such person under the
Stock Bonus or restricted stock purchase agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
Stock Award in the form of a stock purchase agreement shall be paid either: (i)
in cash at the time of purchase; (ii) at the discretion of the Committee,
according to a deferred payment or other arrangement with the person to whom the
stock is sold; or (iii) in any other form of legal consideration that may be
acceptable to the Committee in its discretion; including delivery of a full
recourse promissory note of the Optionee to the Company on terms determined by
the Committee. Notwithstanding the foregoing, the Committee may grant a Stock
Award pursuant to a Stock Bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(d) VESTING. Shares of Company Common Stock sold or awarded under the Plan
may, but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire any or
all of the shares of Company
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Common Stock held by that person which have not vested as of the date of
termination under the terms of the Stock Bonus or restricted stock purchase
agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS
(a) The Committee shall have full power and authority, exercisable in its
sole discretion, to grant Stock Appreciation Rights to Employees or Directors of
or Consultants to, the Company or its Affiliates under the Plan. Each such
right shall entitle the holder to a distribution based on the appreciation in
the Fair Market Value per share of a designated amount of Company Common Stock.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem rights will be granted
appurtenant to an Option and will require the holder to elect between the
exercise of the underlying Option for shares of Company Common Stock and the
surrender, in whole or in part, of such Option for an appreciation distribution
equal to the excess of (A) the Fair Market Value (on the date of Option
surrender) of vested shares of Company Common Stock purchasable under the
surrendered Option over (B) the aggregate exercise price payable for such
shares.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of Company Common Stock subject to the underlying Option and will be
exercised automatically at the same time the Option is exercised for those
shares. The appreciation distribution to which the holder of such concurrent
right shall be entitled upon exercise of the underlying Option shall be in an
amount equal to the excess of (A) the aggregate Fair Market Value (at date of
exercise) of the vested shares purchased under the underlying Option with such
concurrent rights over (B) the aggregate exercise price paid for those shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights may
be granted independently of any Option and will entitle the holder upon exercise
to an appreciation distribution equal in amount to the excess of (A) the
aggregate Fair Market Value (at date of exercise) of a number of shares of
Company Common Stock equal to the number of vested share equivalents exercised
at such time (as described in subsection 7(c)(iii)) hereof over (B) the
aggregate Fair Market Value of such number of shares of Company Common Stock at
the date of grant.
(c) The terms and conditions applicable to each Tandem Right, concurrent
Right and Independent Right shall be as follows:
(i) TANDEM RIGHTS:
A. Tandem rights may be tied to either Incentive Stock Options or
Nonstatutory Stock Options. Each such right shall, except as specifically set
forth below, be subject to the same terms and conditions applicable to the
particular Option to which it pertains. If Tandem Rights are granted
appurtenant to an Incentive Stock Option, they shall satisfy any applicable
Treasury Regulations so as not to disqualify such Option as an Incentive Stock
Option under the Code.
B. The appreciation distribution payable on the exercised Tandem Right
shall be in cash in an amount equal to the excess of (i) the Fair Market Value
(on the date of the Option surrender) of the number of shares of Company Common
Stock covered by that portion of the surrender Option in which the optionee is
vested over (ii) the aggregate exercise price payable for such vested shares.
(ii) CONCURRENT RIGHTS:
A. Concurrent Rights may be tied to any or all of the shares of Company
Common Stock subject to any Incentive Stock Option or Nonstatutory Stock Option
grant made under the Plan. A
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Concurrent Right shall, except as specifically set forth below, be subject to
the same terms and conditions applicable to the particular option grant to which
it pertains.
B. A Concurrent Right shall be automatically exercised at the same time as
the underlying Option is exercised with respect to the particular shares of
Company Common Stock to which the Concurrent Right pertains.
C. The appreciation distribution payable on an exercised Concurrent Right
shall be in cash in an amount equal to such portion as shall be determined by
the Board or the Committee at the time of the grant of the excess of (i) the
aggregate Fair Market Value (on the date the Option is exercised) of the vested
shares of Company Common Stock purchased under the underlying Option which have
Concurrent Rights appurtenant to them over (ii) the aggregate exercise price
paid for such shares.
(iii) INDEPENDENT RIGHTS:
A. Independent Rights shall, except as specifically set forth below, be
subject to the same terms and conditions applicable to Nonstatutory Stock
Options as set forth in Section 6 hereof. They shall be denominated in share
equivalents.
B. The appreciation distribution payable on the exercised Independent
Right shall be in cash in an amount equal to the excess of (I) the aggregate
Fair Market Value (on the date of the exercise of the Independent Right) of a
number of shares of Company Common Stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (II) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company Common Stock.
(iv) TERMS APPLICABLE TO TANDEM RIGHTS, CONCURRENT RIGHTS AND
INDEPENDENT RIGHTS:
A. To exercise any outstanding Tandem, Concurrent or Independent Right,
the holder must provide written notice of exercise to the Company in compliance
with the provisions of the instrument evidencing such right.
B. If a Tandem, Concurrent or Independent Right is granted to an
individual who is at the time subject to Section 16(b) of the Exchange Act (a
'Section 16(b) Insider"), then the instrument of grant shall incorporate all the
terms and conditions at the time necessary to assure that the subsequent
exercise of such right shall qualify for the safe-harbor exemption from short-
swing profit liability provided by Rule 16b-3.
C. Except as otherwise provided in this Section 8, no limitation shall
exist on the aggregate amount of cash payments the Company may make under the
Plan in connection with the exercise of Tandem, Concurrent or Independent
Rights.
9. OTHER STOCK-BASED AWARDS.
The Committee shall have the right to grant other Awards based upon Company
Common Stock having such terms and conditions as the Committee may determine,
including the grant of shares based upon certain conditions and grant of
securities convertible into Company Common Stock.
10. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) Subject to prior approval by the Company's stockholders, the Board or
the Committee
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shall have the authority to effect, at any time and from time to time , with the
consent of the affected holders of Options and/or Stock Appreciation Rights, (i)
the repricing of any outstanding Options and/or Stock Appreciation Rights under
the Plan and the grant in substitution therefor of new Options and/or Stock
Appreciation Rights under the Plan covering the same or different numbers of
shares of Company Common Stock, but having an exercise price per share not less
than eighty five percent (85%) of the Fair Market Value (one hundred percent
(100%) of the Fair Market Value in the case of an Incentive Stock Option) or, in
the case of an Incentive Stock Option granted to a 10% stockholder (as described
in subsection 5(c) hereof, not less than one hundred ten percent (110%) of the
Fair Market Value) per share of Company Common Stock on the new grant date.
Notwithstanding the foregoing, the Committee may grant an Option and/or Stock
Appreciation Right with an exercise price lower than that set forth above if
such Option and/or Stock Appreciation Right is granted as part of a transaction
to which section 424(a) of the Code applies.
(b) Shares of Company Common Stock subject to an Option or Stock
Appreciation Right canceled under this Section 10 shall continue to be counted
against the maximum award of Options and Stock Appreciation Rights permitted to
be granted to a person pursuant to subsection 5(c) hereof. The repricing of an
Option and/or Stock Appreciation Right under this Section 10, resulting in a
reduction of the exercise price, shall be deemed to be a cancellation of the
original Option and/or Stock Appreciation Right and the grant of a substitute
Option and/or Stock Appreciation Right; in the event of such repricing, both the
original and the substituted Options and Stock Appreciation rights shall be
counted against the maximum awards of Options and Stock Appreciation Rights
permitted to be granted to a person pursuant to subsection 5(c) hereof. The
provisions of this subsection 10(b) shall be applicable only to the extent
required by Section 162(m) of the Code.
11. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of Company Common Stock required to satisfy
such Stock Awards up to the number of shares of Company Common Stock authorized
under the Plan.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of Company Common Stock under the Stock Awards; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of Company Common Stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell Company Common Stock under such
Stock Awards unless and until such authority is obtained.
12. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Company Common Stock pursuant to Stock Awards
shall constitute general funds of the Company.
13. MISCELLANEOUS.
(a) The Committee shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) hereof shall be deemed to be the holder of, or to have any
of the rights of a holder with respect to,
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any shares of Company Common Stock subject to such Option unless and until such
person has satisfied all requirements for exercise of the Option pursuant to its
terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant, Optionee,
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment or relationship as a Director or Consultant of any Employee,
Director, Consultant or Optionee, with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of Company Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year under all plans of the Company and its Affiliates exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof which exceed such
limit (according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) The Committee shall be authorized to establish procedures pursuant to
which Participants may elect to defer the gain realized upon exercise of a stock
option, or such gain derived from other stock based awards granted under the
Plan.
14. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN.
(a) In the event there is any change in the shares of Common Stock of the
Company through the declaration of stock dividends or through recapitalizations
resulting in stock subdivisions or combinations or exchanges of shares or
otherwise, the number of shares available for Option, the exercise price of
outstanding Options, and the number of shares subject to any Option shall be
appropriately adjusted by the Board.
(b) If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated or sells or otherwise disposes of substantially all of
its assets to another corporation while unexercised Options remain outstanding,
(i) subject to the provisions of clauses (iii) and (iv) below, after the
effective date of such merger, consolidation or sale, as the case may be, each
holder of an outstanding Option shall be entitled, upon exercise of such Option,
to receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of the merger, consolidation or sale; or (ii) the Board may waive any
discretionary limitations imposed pursuant to Section 6 hereof so that all
Options from and after a date prior to the effective date of such merger,
consolidation, liquidation or sale, as the case may be, specified by the Board,
shall be exercisable in full; or (iii) all outstanding Options may be cancelled
by the Board as of the effective date of any such merger, consolidation,
liquidation or sale provided that notice of such cancellation shall be given to
each holder of an Option, and each holder of an Option shall have the right to
exercise such Option in full (without regard to any discretionary limitations
imposed pursuant to Section 6 hereof) during the 30-day period preceding the
effective date of such merger, consolidation, liquidation or sale; or (iv) all
outstanding Options may be cancelled by the Board as of the date of any such
merger, consolidation, liquidation or sale provided that notice of such
cancellation shall be given to each holder of an Option, and each holder of an
Option shall have right to exercise such Option but only to the extent
exercisable in accordance with any discretionary limitations imposed pursuant to
Section 6 prior to the effective date of such merger, consolidation, liquidation
or sale.
15. GRANT OF OPTIONS IN CONNECTION WITH CERTAIN ACQUISITIONS.
The Board may grant Options under the Plan in substitution for incentive
stock options or non-statutory stock options granted under plans of other
employers, if such grant occurs by reason of a corporate merger, consolidation,
separation, reorganization, or liquidation to which the Company is a party, or
by reason of the acquisition of property or stock of another corporation by the
Company; provided
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that, with respect to any Incentive Stock Option, such transaction is a
transaction to which Section 424(a) of the Code applies. The Board may impose
such terms and conditions upon the grant of any Incentive Stock Options under
this Section 15 as are necessary to ensure that the substitution will not
constitute a modification of the Option under Section 424(h) of the Code, even
though any such term or condition would otherwise be inconsistent with the
provisions of this Plan. Options granted under the provisions of this Section 15
may be granted at a price less than the Fair Market Value of the Common Stock on
the date such Option is granted, so long as the ratio of the Option price to the
Fair Market Value of the Common Stock is no more favorable to the Optionee than
the ratio of the Option price to the Fair Market Value of the stock subject to
the old option immediately before such substitution. Except as otherwise
specifically provided in the agreement setting forth the terms and conditions of
such Option, the provisions of this Plan shall govern any Options granted under
this Section 15. Nothing in this Section 15 shall be deemed to authorize the
grant of Options under the Plan for a number of shares in excess of the number
set forth in Section 4, nor to limit in any way the authority of the Board to
grant substituted Options in connection with such transactions other than under
the Plan.
16. AMENDMENT OF THE PLAN AND STOCK AWARDS
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 14 hereof relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of the Nasdaq National Market or any
similar organization or of any national securities exchange upon which shares of
Company Common Stock are listed or eligible for trading.
(b) The Board may in its sole discretion submit any other amendments to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provision of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the persons to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Committee at any time, and from time to time, may amend the terms
of any one or more Stock Awards; provided, however, that the rights and
obligations under any Stock Award shall not be altered or impaired by any such
amendment unless (i) the Company requests the consent of the person to whom the
Stock Award was granted and (ii) such person consents in writing.
17. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on April 27, 2010. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with consent of the person to whom the Stock Award was granted.
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18. GOVERNING LAW.
The provisions of the Plan and all Stock Awards made hereunder shall be
governed by and interpreted in accordance with the internal laws of the
Commonwealth of Massachusetts without regard to any applicable conflicts of law
principles thereof.
*******
Adopted by the Board of Directors on March 7, 2000.
Approved by the Company's Stockholders on
_________________________________
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NATURAL MICROSYSTEMS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING ON APRIL 28, 2000
The undersigned stockholder of Natural MicroSystems Corporation hereby
acknowledges receipt of the Notice of Annual Meeting and related Proxy Statement
and appoints Robert P. Schechter, Dianne L. Callan and Richard N. Hoehn, or any
one or more of them, attorneys and proxies for the undersigned with power of
substitution in each to act for and to vote, as designated on the reverse side,
with the same force and effect as the undersigned, all shares of Natural
MicroSystems Corporation common stock standing in the name of the undersigned at
the Annual Meeting of Stockholders of Natural MicroSystems Corporation to be
held at its corporate offices, 100 Crossing Boulevard, Framingham, Massachusetts
on April 28, 2000 at 1:00 p.m., local time and any adjournments thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE NOMINEES FOR DIRECTOR AND "FOR" ALL OTHER PROPOSALS. THE PROXY
WILL BE VOTED IN ACCORDANCE WITH THE HOLDERS' BEST JUDGMENT AS TO ANY OTHER
MATTER.
SEE REVERSE SIDE. If you wish to vote in accordance with the Board of Directors'
recommendations, just sign on the reverse side. You need not mark any boxes.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) on the books of the Corporation.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation or partnership, this signature should be
that of an authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
Dear Stockholder:
Please mark the boxes on the proxy card to indicate how your shares should be
voted, then sign and date the card, detach it and return it in the enclosed
postage paid envelope.
Sincerely,
NATURAL MICROSYSTEMS CORPORATION
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------------------------------------------------------------
NATURAL MICROSYSTEMS CORPORATION
- --------------------------------------------------------------------------------
Mark box at right if an address change or comment has been [_]
noted on the reverse side of this card.
1. Elect a Director:
Nominee:
With-
For hold
Robert P. Schechter [_] [_]
Ronald W. White [_] [_]
2. Approve an amendment to the Company's Certificate of Incorporation increasing
the authorized number of shares of common stock issuable thereunder.
For Against Abstain
[_] [_] [_]
3. Approve the adoption of the Company's 2000 Equity Incentive Plan.
For Against Abstain
[_] [_] [_]
4. Ratify the Board of Directors' selection of PricewaterhouseCoopers LLP as
independent auditors.
For Against Abstain
[_] [_] [_]
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
Please be sure to sign and date this Proxy.
- ------------------Stockholder sign here --------- Co-Owner sign here--
DETACH CARD DETACH CARD
