<PAGE>
SCHEDULE 14A
(Rule 14-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[_]Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Concentric Network Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
-----------------------------
(2) Aggregate number of securities to which transaction applies: N/A
-----------------------------
(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): N/A
-------
(4) Proposed maximum aggregate value of transaction: N/A
-----------------------------------
(5) Total fee paid: N/A
--------------------------------------------------------------
[_]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: N/A
------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: N/A
---------------------------------------
(3) Filing Party: N/A
---------------------------------------------------------------
(4) Date Filed: N/A
----------------------------------------------------------------
<PAGE>
CONCENTRIC NETWORK CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 5, 1999
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Concentric
Network Corporation, a Delaware corporation (the "Company"), will be held on
May 5, 1999 at 10:00 a.m., local time, at the offices of the Company located
at 1400 Parkmoor Avenue, San Jose, California 95126, for the following
purposes:
1. To elect one Class I director to serve for a term of two years and
until his successor is duly elected and qualified and to elect one Class II
director to serve for a term of three years and until his successor is duly
elected and qualified.
2. To amend the Company's 1997 Stock Plan to increase the number of
shares available for issuance thereunder by 1,000,000 shares to an
aggregate of 3,250,000 shares.
3. To amend the Company's 1997 Stock Plan to provide for an annual
increase, effective January 1, 2000, in the number of shares available for
grant thereunder by the lesser of: (i) 1,000,000 shares, (ii) 4% of the
outstanding shares of Common Stock of the Company, or (iii) a number of
shares determined by the Board of Directors.
4. To ratify the appointment of Ernst & Young LLP as independent auditors
for the Company for the fiscal year ending December 31, 1999.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 31, 1999 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy.
Peter J. Bergeron
Secretary
San Jose, California
April 5, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE
AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE>
CONCENTRIC NETWORK CORPORATION
----------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
----------------
PROCEDURAL MATTERS
General
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Concentric Network Corporation (the
"Company") for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on May 5, 1999 at 10:00 a.m., local time, and at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders.
The Annual Meeting will be held at the offices of the Company located at
1400 Parkmoor Avenue, San Jose, California 95126. The Company's telephone
number is (408) 817-2800.
These proxy solicitation materials were mailed on or about April 5, 1999,
together with the Company's 1999 Annual Report to Stockholders, to all
stockholders entitled to vote at the Annual Meeting.
Voting at the Annual Meeting; Record Date
Only stockholders of record of the Company's Common Stock at the close of
business on March 31, 1999 (the "Record Date") are entitled to notice of and
to vote at the Annual Meeting. Such stockholders are entitled to cast one vote
for each share of Common Stock held as of the Record Date and to vote on all
matters properly submitted for the vote of stockholders at the Annual Meeting.
As of the Record Date, 20,109,319 shares of the Company's common stock, $.001
par value (the "Common Stock"), were issued and outstanding and 165,247 shares
of the Company's Series B Preferred Stock were issued and outstanding (the
shares of Series B Preferred Stock have no voting rights). For information
regarding security ownership by management and by the beneficial owners of
more than 5% of the Company's Common Stock, see "Beneficial Security Ownership
of Management and Certain Beneficial Owners."
Quorum; Abstentions; Broker Non-Votes; Vote Required
The presence, in person or by proxy, of the holders of a majority of the
shares entitled to be voted generally at the Annual Meeting is necessary to
constitute a quorum at the Annual Meeting. The affirmative vote of a plurality
of shares present in person or represented by proxy at the Annual Meeting is
required for the election of each director in Proposal One described below.
The affirmative vote of a majority of shares present in person or represented
by proxy at the Annual Meeting is required for approval of the proposed
amendment of the Company's 1997 Stock Plan in Proposal Two and Proposal Three
and to ratify the appointment of auditors in Proposal Four described below.
Under the General Corporation Law of the State of Delaware, an abstaining
vote and a broker "non-vote" are counted as present and entitled to vote and
are, therefore, included for purposes of determining whether a quorum of
shares is present at a meeting; however, such votes are not deemed to be
"votes cast." As a result, abstentions and broker "non-votes" are not included
in the tabulation of the voting results on the election of directors or issues
requiring approval of a majority of the votes cast and, therefore, do not have
the effect of votes in opposition in such tabulations. A broker "non-vote"
occurs when a nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting
power with respect to that item and has not received instructions from the
beneficial owner.
Revocability of Proxies
All shares entitled to vote and represented by properly executed proxies
received prior to the Annual Meeting, and not revoked, will be voted at the
Annual Meeting in accordance with the instructions indicated on
<PAGE>
those proxies. If no instructions are indicated on a properly executed proxy,
the shares represented by that proxy will be voted as recommended by the Board
of Directors. If any other matters are properly presented for consideration at
the Annual Meeting, including, among other things, consideration of a motion
to adjourn the Annual Meeting to another time or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the enclosed proxy and acting thereunder will have discretion to vote
on those matters in accordance with their best judgment. The Company does not
currently anticipate that any other matters will be raised at the Annual
Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. A proxy may be revoked (i) by filing
with the Secretary of the Company, at or before the taking of the vote at the
Annual Meeting, a written notice of revocation or a duly executed proxy, in
either case later dated than the prior proxy relating to the same shares or
(ii) by attending the Annual Meeting and voting in person (although attendance
at the Annual Meeting will not of itself revoke a proxy). Any written notice
of revocation or subsequent proxy must be received by the Secretary of the
Company prior to the taking of the vote at the Annual Meeting. Such written
notice of revocation or subsequent proxy should be hand delivered to the
Secretary of the Company or should be sent so as to be delivered to Concentric
Network Corporation, 1400 Parkmoor Avenue, San Jose, California, 95126,
Attention: Secretary.
Expenses of Solicitation
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. The Company may
reimburse brokerage firms, custodians, nominees, fiduciaries and other persons
representing beneficial owners of Common Stock for their reasonable expenses
in forwarding solicitation material to such beneficial owners. Directors,
officers and employees of the Company may also solicit proxies in person or by
telephone, telegram, letter, facsimile or other means of communication. Such
directors, officers and employees will not be additionally compensated, but
they may be reimbursed for reasonable out-of-pocket expenses in connection
with such solicitation.
In addition, the Company has retained ChaseMellon Shareholder Services, LLC
at an estimated cost of $10,500 plus reimbursement of expenses, to assist in
the solicitation of proxies from brokers, nominees, institutions and
individuals.
Procedure for Submitting Stockholder Proposals
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders of the Company (i) must be received by the Company at
1400 Parkmoor Avenue, San Jose, California 95126 no later than September 6,
1999 and (ii) must satisfy the conditions established by the Securities and
Exchange Commission for stockholder proposals to be included in the Company's
Proxy Statement for that meeting. If a stockholder intends to submit a
proposal at the Company's 1999 Annual Meeting of Stockholders which is not
submitted in time to be eligible for inclusion in the proxy statement relating
to that meeting, the stockholder must give notice to the company not less than
60 days nor more than 90 days prior to the meeting in accordance with the
requirements set forth in the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") and the Company's bylaws. If such a stockholder fails to
comply with the foregoing notice provisions, the proposal may not be brought
before the meeting.
2
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
General
The Company's Board of Directors is currently comprised of four members who
are divided into three classes with overlapping three-year terms. A director
serves in office until his or her respective successor is duly elected and
qualified or until his or her earlier death or resignation. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of an equal number of directors. Gary E. Rieschel, currently a
Class I director, will stand for re-election at the Annual Meeting for a two-
year term ending on the date of the annual stockholder's meeting in 2001.
Vinod Khosla, currently a Class II director, will stand for re-election at the
Annual Meeting for a three-year term ending on the date of the annual
stockholder's meeting in 2002.
Nominee for Class I Director
The Board of Directors has nominated GARY E. RIESCHEL for re-election as the
Class I director. Unless otherwise instructed, the person named in the
enclosed proxy intend to vote proxies received by them for the election of Mr.
Rieschel. The Company expects that Mr. Rieschel will accept such nomination;
however, in the event that Mr. Rieschel is unable or declines to serve as
director at the time of the Annual Meeting, proxies will be voted for
substitute nominee designated by the present Board of Directors to fill the
vacancy. The term of office of the person elected as director will continue
until such director's term expires in 2001 or until such director's successor
has been elected and qualified.
Nominee for Class II Director
The Board of Directors has nominated VINOD KHOSLA for re-election as the
Class II director. Unless otherwise instructed, the person named in the
enclosed proxy intend to vote proxies received by them for the election of Mr.
Khosla. The Company expects that Mr. Khosla will accept such nomination;
however, in the event that Mr. Khosla is unable or declines to serve as
director at the time of the Annual Meeting, proxies will be voted for
substitute nominee designated by the present Board of Directors to fill the
vacancy. The term of office of the person elected as director will continue
until such director's term expires in 2002 or until such director's successor
has been elected and qualified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE.
Information Regarding Nominees and Other Directors
Set forth below is certain information regarding the nominees for Class I
director, Class II director and each other director of the Company whose term
of office continues after the Annual Meeting.
Nominee for Class I Director for Term Expiring in 2001
<TABLE>
<CAPTION>
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
<C> <C> <S>
Gary E. 42 Mr. Rieschel has been a Director of the Company since
Rieschel....... October 1996. Mr. Rieschel is a Senior Vice President at
SOFTBANK Holdings, having joined that company in January
1996. Mr. Rieschel was Vice President for N-Cube
Corporation from August 1994 through December 1995. He
was Sales Director at Cisco Systems, Inc. from July 1993
through October 1994. Prior to this, Mr. Rieschel was a
General Manager and Sales Director at Sequent Computer
for over nine years. Mr. Rieschel has an M.B.A. from
Harvard Graduate School of Business and a B.A. in
biology from Reed College.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
<C> <C> <S>
Nominee for Class II Director for Term Expiring in 2002
Vinod Khosla....... 44 Mr. Khosla has been a Director of the Company since
April 1995. Mr. Khosla has been a General Partner
with the venture capital firm of Kleiner Perkins
Caufield & Byers from February 1986 to the present.
Mr. Khosla was a co-founder of Daisy Systems and the
founding Chief Executive Officer of Sun Microsystems,
Inc. Mr. Khosla also serves on the boards of Excite,
Inc., and Qwest Communications International, Inc. He
has a B.S.E. from the Indian Institute of Technology
in New Delhi, an M.S.E. from Carnegie Mellon
University, and an M.B.A. from the Stanford Graduate
School of Business.
Incumbent Class III Directors Whose Terms Expire in 2000
Franco Regis....... 43 Mr. Regis has been a Director of the Company since
October 1996. Since 1994, Mr. Regis has been a
Director of Business Development and Strategic
Planning at Telecom Italia, S.p.A, the telephone
operating company of Italy. From 1992 to 1994, Mr.
Regis was a Director of Budget and Control for the
business division of Telecom Italia. Mr. Regis has
an engineering degree from the Rome State
University.
Henry R. Nothhaft.. 54 Mr. Nothhaft joined the Company as President and
Chief Executive Officer in May 1995 and became a
Director of the Company in August 1995 and was
appointed chairman of the Board in January 1998.
From 1989 to August 1994, Mr. Nothhaft was
President, Chief Executive Officer and a Director of
David Systems, Inc., a networking company. From 1983
to 1989, Mr. Nothhaft held various positions with
DSC Communications Corporation, including President
of the Business Network Systems Group, President of
the Digital Switch Corporation subsidiary, Senior
Vice President of Marketing and a Corporate Director
of DSC. From 1979 to 1983, Mr. Nothhaft was Vice
President of Domestic Marketing and Vice President
of Sales for GTE Telenet Communications Corporation
(now Sprint). Mr. Nothhaft has an M.B.A. in
Information Systems Technology from George
Washington University and a B.S. degree from the
U.S. Naval Academy, and is a former officer in the
U.S. Marine Corps.
</TABLE>
Board Meetings and Committees
The Board of Directors held a total of ten meetings (including regularly
scheduled and special meetings) during fiscal 1998. No incumbent director
during the last fiscal year, while a member of the Board of Directors,
attended fewer than 75% of the aggregate of (i) the total number of meetings
of the Board of Directors and (ii) the total number of meetings held by all
committees on which such director served.
The Board of Directors of the Company has two standing committees: an Audit
Committee and a Compensation Committee. It does not have a nominating
committee or a committee performing the functions of a nominating committee.
The Audit Committee, which currently consists of Mr. Regis, is responsible
for monitoring the corporate financial reporting and the external audits of
the Company, reviewing and approving material accounting policy changes,
monitoring internal accounting controls, recommending engagement of
independent auditors, reviewing related-party transactions and performing
other duties as prescribed by the Board of Directors. The Audit Committee did
not meet during fiscal 1998.
4
<PAGE>
The Compensation Committee, which currently consists of Messrs. Khosla and
Rieschel is responsible for reviewing and approving the compensation and
benefits for the Company's officers, directors, consultants, and other
employees, administering the Company's stock purchase and stock option plans,
and making recommendations to the Board of Directors regarding such matters.
The Compensation Committee held six meetings during fiscal 1998.
Compensation of Directors
Directors received no cash remuneration for serving on the Board. All
directors are reimbursed for expenses incurred in attending any Board of
Director and committee meetings.
Vote Required
The nominees receiving the highest number of affirmative votes of the shares
present or represented and entitled to be voted for them shall be elected as
directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of
business, but they have no legal effect under Delaware law.
PROPOSAL TWO
APPROVAL OF AMENDMENT TO 1997 STOCK PLAN
The Company's Board of Directors and stockholders have previously adopted
and approved the Company's 1997 Stock Plan (the "Stock Plan"). A total of
2,250,000 shares of Common Stock are presently reserved for issuance under the
Stock Plan. In March 1999, the Board of Directors approved an amendment to the
Stock Plan, subject to stockholder approval, to increase the shares reserved
for issuance thereunder by 1,000,000 shares, bringing the total number of
shares issuable under the Stock Plan to 3,250,000.
As of March 31, 1999, no shares were available for future grants under the
Stock Plan. Additionally, the Board of Directors has previously adopted and
approved the Company's 1999 Nonstatutory Stock Option Plan (the "NSO Plan"). A
total of 550,000 shares are presently reserved for issuance under the NSO
Plan, and no shares were available for future issuance under the NSO Plan as
of April 1, 1999.
At the Annual Meeting, the stockholders are being asked to approve an
amendment to the Stock Plan to increase the number of shares of Common Stock
reserved for issuance thereunder by 1,000,000 shares, bringing the total
number of shares issuable under the Stock Plan to 3,250,000. The Company
believes that grants of stock options motivate high levels of performance and
provide an effective means of recognizing employee contributions to the
success of the Company. At present, most newly hired full-time employees are
granted options. The Company believes that this policy will continue to be of
great value in recruiting and retaining highly qualified technical and other
key personnel. The Board of Directors believes that the ability to grant
options will be important to the future success of the Company by allowing it
to remain competitive in attracting and retaining such key personnel.
Vote Required; Recommendation of Board of Directors
The approval of the amendment to the Stock Plan requires the affirmative
vote of a majority of shares present in person or represented by Proxy and
entitled to vote on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENT
OF THE STOCK PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER.
5
<PAGE>
PROPOSAL THREE
APPROVAL OF SECOND AMENDMENT TO 1997 STOCK PLAN
Proposal
In March 1999, the Board of Directors approved a second amendment to the
1997 Plan to provide for annual increases, to occur automatically on January 1
of each year, for the duration of the 1997 Plan, in the number of shares
reserved for issuance thereunder by the lesser of (i) 1,000,000 shares, (ii)
4% of the outstanding shares of Common Stock of the Company or (iii) a number
of shares determined by the Board of Directors (the "Evergreen Amendment"). At
the Annual Meeting, the stockholders are being requested to approve the
Evergreen Amendment. This Evergreen Amendment is proposed in order to ensure
enough options are available, in the long term, to provide for continued
growth of the Company. The Company believes that grants of stock options
motivate high levels of performance and provide an effective means of
recognizing employee contributions to the success of the Company. At present,
all newly hired full-time employees are granted options. The Company believes
that this policy will continue to be of great value in recruiting and
retaining highly qualified technical and other key personnel. The Board of
Directors believes that the ability to grant options will be important to the
future success of the Company by allowing it to remain competitive in
attracting and retaining such key personnel.
As of March 31, 1999, no shares were available for future grants under the
Stock Plan. Additionally, the Board of Directors has previously adopted and
approved the Company's 1999 Nonstatutory Stock Option Plan. A total of 550,000
shares are presently reserved for issuance under the NSO Plan, and no shares
were available for future issuance under the NSO Plan as of April 1, 1999.
Vote Required; Recommendation of the Board of Directors
The approval of the Evergreen Amendment to the 1997 Plan requires the
affirmative vote of a majority of shares present in person or represented by
proxy and entitled to vote on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE EVERGREEN
AMENDMENT TO THE 1997 PLAN.
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent auditors,
to audit the financial statements of the Company for the fiscal year ending
December 31, 1999. Ernst & Young LLP has audited the Company's financial
statements since 1993. A representative of Ernst & Young LLP is expected to be
present at the meeting, will have the opportunity to make a statement, and is
expected to be available to respond to appropriate questions.
Vote Required; Recommendation of the Board of Directors
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the shares represented, in person or by proxy, and voting at the Annual
Meeting, which shares voting affirmatively also constitute at least a majority
of the required quorum. In the event that the stockholders do not approve the
selection of Ernst & Young LLP, the appointment of the independent auditors
will be reconsidered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP, AS INDEPENDENT AUDITORS FOR FISCAL YEAR
ENDING DECEMBER 31, 1999. THE EFFECT OF AN ABSTENTION IS THE SAME AS A VOTE
AGAINST THE RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITORS.
6
<PAGE>
BENEFICIAL SHARE OWNERSHIP BY
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 31, 1999 for the following: (i) each person or entity
who is known by the Company to own beneficially more than 5% of the
outstanding shares of the Company's Common Stock; (ii) each of the Company's
directors; (iii) the Company's Chief Executive Officer and each of the
officers named in the Summary Compensation Table on page 9 hereof; and (iv)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially
Owned(1)
-----------------------
Names and Addresses Number Percentage(%)
- ------------------- --------- -------------
<S> <C> <C>
Williams Communications, Inc.(2)..................... 2,671,876 13.3
One Williams Center
Tulsa, OK 74172
Southwestern Bell Internet Services, Inc.(3)......... 1,813,358 9.0
175 E. Houston
San Antonio, TX 78205
TMI Telemedia International, Ltd.(4)................. 1,580,966 7.9
Viale del Campo, Boario, 56D
00153 Rome, Italy
Henry R. Nothhaft(5)................................. 208,798 1.0
John K. Peters(6).................................... 170,662 *
Michael F. Anthofer(7)............................... 56,227 *
William C. Etheredge(8).............................. 36,042 *
Mark W. Fisher(9).................................... 29,826 *
Vinod Khosla(10)..................................... 246,675 1.2
Franco Regis(11)..................................... 1,580,966 7.9
Gary E. Rieschel(12)................................. -- --
All current executive officers and directors as a
group (8 persons)(13)............................... 2,299,370 11.4
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares, subject to the applicable
community property laws. Percentage of beneficial ownership is based on
20,109,319 shares of Common Stock outstanding as of March 31, 1999.
Shares of Common Stock subject to options or warrants currently
exercisable, or exercisable within 60 days after March 31, 1999, are
deemed outstanding for the purpose of computing the percentage ownership
of the person holding such options or warrants, but are not deemed
outstanding for computing the percentage ownership of any other person.
(2) Includes warrants to purchase 355,018 shares of Common Stock.
(3) Includes warrants to purchase 906,679 shares of Common Stock.
(4) Includes warrants to purchase 341,001 shares of Common Stock.
(5) Includes 22,474 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants.
(6) Includes 104,325 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants.
(7) Includes 10,790 shares of Common Stock issuable upon exercise of
outstanding stock options.
(8) Includes 20,074 shares of Common Stock issuable upon exercise of
outstanding stock options.
7
<PAGE>
(9) Includes 28,541 shares of Common Stock issuable upon exercise of
outstanding stock options.
(10) Includes 161,913 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants to purchase 83,333 shares of
Common Stock. Represents shares beneficially owned by Kleiner Perkins
Caufield & Byers VII and KPCB Information Sciences Zaibatsu Fund II. Mr.
Khosla is an affiliate of such entities. Mr. Khosla disclaims beneficial
ownership of such shares, except to the extent of his pecuniary interest
therein.
(11) Includes 1,239,965 shares and warrants to purchase 341,001 shares of
Common Stock held by TMI Telemedia International, Ltd. Mr. Regis is the
Director of Business Development and Strategic Planning of Telecom
Italia, S.p.A., the parent of TMI Telemedia International, Ltd. See note
(4). Mr. Regis disclaims beneficial ownership of such shares.
(12) Excludes 752,279 shares held by SOFTBANK Ventures Inc. Mr. Rieschel, a
Director of the Company, is the Senior Vice President at SOFTBANK
Holdings Inc., an affiliate of SOFTBANK Ventures Inc. Mr. Rieschel
disclaims beneficial ownership of such shares.
(13) Includes shares of Common Stock issuable upon exercise of outstanding
options and warrants, and shares beneficially owned by entities
associated with Messrs. Regis, Khosla and Reischel as to which they
disclaim beneficial ownership. See Notes (4), (10) and (12).
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the
Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers, Inc. Such officers, directors and ten-percent stockholders
are also required by SEC rules to furnish the Company with copies of all such
forms that they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons that no
Forms 5 were required for such persons, the Company believes that during
fiscal 1998 all Section 16(a) filing requirements applicable to its officers,
directors and ten-percent stockholders were complied with.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Messrs. Khosla
and Rieschel. No interlocking relationship exists between any member of the
Company's Board of Directors or Compensation Committee and any member of the
Board of Directors or compensation committee of any other Company, nor has any
such interlocking relationship existed in the past. No member of the
Compensation Committee is or was formerly an officer or an employee of the
Company or its subsidiaries.
There has not been any fees for compensation and reimbursement of expenses
for attendance at Board of Director meetings of the Company.
The Company has entered into indemnification agreements with each member of
its board of directors and certain of its officers. Such agreements provide
for the indemnification of such person to the fullest extent authorized,
permitted, or allowed by law.
8
<PAGE>
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning total
compensation received by the Chief Executive Officer and each of the four most
highly compensated executive officers whose salary plus bonus exceeded
$100,000 during the last fiscal year for services rendered to the Company in
all capacities during the last three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------- --------------------------------
Fiscal Other Annual Stock Option All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Grant(#)($) Compensation(1)($)
- --------------------------- ------ --------- -------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Henry R. Nothhaft........ 1998 288,942 2,296 24,000(2) 74,000 6,084
President, Chief 1997 214,231 -- -- 124,666(3) 2,162
Executive Officer
and Chairman of the 1996 184,808 -- -- -- 3,105
Board
John K. Peters........... 1998 248,631 -- 15,000(2) 57,700 5,511
Executive Vice President 1997 201,346 -- -- 103,466(3) --
and
General Manager, Network 1996 184,273 -- -- -- 3,076
Services Applications
Division
Michael F. Anthofer...... 1998 203,692 1,124 10,000(2) 20,000 3,847
Senior Vice President 1997 185,500 -- -- 73,333 1,027
and
Chief Financial Officer 1996 136,336 20,000 155,212(4) 43,333(5) 1,545
Mark W. Fisher(6)........ 1998 181,230 -- 10,000(2) 25,000 1,942
Senior Vice President 1997 71,697 -- -- 65,000 695
and General
Manager, Network 1996 -- -- -- -- --
Services Division
William C. Etheredge(7).. 1998 175,577 1,921 109,234(8) 15,000 4,228
Senior Vice President of 1997 106,731 -- 50,000(8) 75,000 1,052
Sales
1996 -- -- -- -- --
</TABLE>
- --------
(1) Reflects Company contributions to an employee 401(k) plan and term life
insurance premiums paid by the Company.
(2) Bonus earned in 1998, but not paid until 1999.
(3) Includes certain options that were granted at higher fair market values
earlier in February 1997 and repriced by amendment in July 1997 to reflect
fair market values at that time.
(4) Reflects relocation expense payments.
(5) Includes certain options that were granted at higher fair market values
earlier in 1996 and repriced by amendment in April 1996 to reflect lower
fair market values at that time.
(6) Mr. Fisher was hired in June, 1997.
(7) Mr. Etheredge was hired in March, 1997.
(8) Reflects sales commissions.
9
<PAGE>
Option Grants in Last Fiscal Year
The following table shows, as to each of the officers named in the Summary
Compensation Table, information concerning stock options granted during the
fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------
Potential
Realizable Value
of Assumed Annual
Market Rates of Stock
Percent of Price of Price
Number of Total Securities Appreciation for
Securities Options Exercise Underlying Options Term
Underlying Granted to Price Options on (2)($)
Options Employees Per Date of Expiration -----------------
Name Granted(1)(#) in 1997(%) Share($) Grant($) Date 5% 10%
---- ------------- ---------- -------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry R. Nothhaft....... 4,063 0.24 22.12 22.12 05/21/08 56,533 143,267
34,937 2.04 22.12 22.12 05/21/08 486,123 1,231,932
487 0.03 20.75 20.75 08/04/08 6,355 16,105
34,513 2.01 20.75 20.75 08/04/08 450,379 1,141,350
John K. Peters.......... 3,683 0.21 22.12 22.12 05/21/08 51,246 129,868
29,017 1.69 22.12 22.12 05/21/08 403,751 1,023,184
1,193 0.07 20.75 20.75 08/04/08 15,568 39,452
23,807 1.39 20.75 20.75 08/04/08 310,670 787,301
Michael F. Anthofer..... 4,503 0.26 20.75 20.75 08/04/08 58,762 148,914
15,497 0.90 20.75 20.75 08/04/08 202,229 512,488
Mark W. Fisher.......... 7,215 0.42 20.75 20.75 08/04/08 94,153 238,601
17,785 1.04 20.75 20.75 08/04/08 232,086 588,152
William C. Etheredge.... 6,397 0.37 20.75 20.75 08/04/08 83,478 211,549
8,603 0.50 20.75 20.75 08/04/08 112,265 284,502
</TABLE>
- --------
(1) Options vest with respect to 25% of the shares on the first anniversary
date of grant and the remaining 75% vests monthly over the succeeding
three years.
(2) Potential Realizable Value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth.
Option Exercises and Holdings
The following table sets forth, for each of the officers in the Summary
Compensation Table, certain information concerning stock options exercised
during fiscal 1998, and the number of shares subject to both exercisable and
unexercisable stock options as of December 31, 1998. Also reported are values
for "in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options at
Options at 12/31/98 (#) 12/31/98 (1)($)
------------------------- -------------------------
Shares
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Henry R. Nothhaft....... 197,357 3,790,119.95 10,127 235,515 680,547 12,264,493
John K. Peters.......... 81,481 1,218,296.79 91,599 185,019 6,397,696 9,768,789
Michael F. Anthofer..... 57,750 1,441,309.65 8,358 115,558 568,484 6,335,859
Mark W. Fisher.......... 0 0 27,187 72,813 1,769,031 4,218,469
William C. Etheredge.... 18,783 250,126.95 16,529 64,688 1,076,512 3,814,688
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at March 31, 1999 ($74.75 per share)
and the exercise price of the Named Officer's option.
10
<PAGE>
Executive Continuity Agreements
The Company has entered into Executive Continuity Agreements (the
"Agreements") with the following executive officers: Henry R. Nothhaft, John
K. Peters, Michael F. Anthofer, Mark W. Fisher and William C. Etheredge. The
Agreements have initial two-year terms, and thereafter are renewed on a
monthly basis at the discretion of the Company. The Agreements provide that in
the event of the executive's involuntary termination without cause, the
executive is entitled to 12 months of severance pay, reimbursement for medical
expenses for 12 months, and 12 months of continued option vesting. The
Agreements also provide that in the event the executive is actually or
constructively terminated without cause within 18 months of a change of
control, the executive shall instead be entitled to 24 months of severance
pay, reimbursement for medical expenses for 24 months, and 24 months continued
option vesting. The executive's right to receive these benefits is conditioned
upon the executive's non-competition with the Company for 12 months following
termination. In addition, the executive is obligated not to solicit the
Company's employees, customers, or service providers for one year after
termination of employment.
Report of the Compensation Committee of the Board of Directors
The Compensation Committee (the "Committee") is comprised of Messrs. Khosla
and Rieschel, each of whom is a non-employee director. The Committee sets,
reviews and administers the Company's executive compensation program. The role
of the Committee is to establish and recommend salaries and other compensation
paid to executive officers of the Company and to administer the Company's
stock option plan and employee stock purchase plan. The Committee approves all
stock option grants to executive officers, all executive officer base salaries
and any cash bonus payments to executive officers and reviews all stock option
grants to employees.
The Company's executive pay programs are designed to attract and retain
executives who will contribute to the Company's long-term success, to mesh
executive and stockholder interests through stock option based plans and to
provide a compensation package that recognizes individual contributions and
Company performance.
At this time in the Company's growth, the Committee has determined that the
most effective means of compensation are base salaries and long-term
incentives through the Company's stock option programs.
Base Salary. The base salaries of executive officers are initially
determined by evaluating the responsibilities of the position held and the
experience and performance of the individual, with reference to the
competitive marketplace for executive talent, including a comparison to base
salaries for comparable positions in high growth, technology-based companies
of reasonably similar size. The Committee reviews executive salaries annually
and adjusts them as appropriate to reflect changes in the market conditions
and individual performance and responsibility. During fiscal 1998, salaries
for executive officers were increased by 8.8% to 20.4% depending on the
executive officer. The Chief Executive Officer's base salary was $295,000.00.
Stock Options. Under the Company's Stock Plan, stock options may be granted
to executive officers and other employees of the Company. Upon joining the
Company, an individual's initial option grant is based on the individual's
responsibilities and position. The size of stock option awards are based
primarily on an individual's performance and responsibilities. Because of the
competitive nature of the technology industry in which the Company's competes,
the Committee believes stock option grants are an effective method of
incentivising executives to take a longer term view of the Company's
performance and to ensure that the executive's and the stockholder's interests
are in alignment.
Bonus. The bonuses awarded to executive officers are determined based on
achievement of individual and company performance goals.
Other. Other elements of executive compensation include Company-wide medical
and life insurance benefits and the ability to defer compensation pursuant to
a 401(k) plan. The Company currently matches contributions under the 401(k)
plan.
11
<PAGE>
The Company's Chief Executive Officer does not receive any other special or
additional compensation other than as described above.
The Committee has considered the potential impact of Section 162(m) of the
Code and the regulations thereunder (the "Section"). The Section disallows a
tax deduction for any publicly-held corporation for individual compensation
exceeding $1 million in any taxable year for any of the Named Executive
Officers, unless such compensation is performance-based. Since the cash
compensation of each of the Named Executive Officers is below the $1 million
threshold and the Committee believes that any options granted under the Stock
Plan will meet the requirements of being performance-based, the Committee
believes that the Section will not reduce the tax deduction available to the
Company. The Company's policy is to qualify, to the extent reasonable, its
executive officers' compensation for deductibility under applicable tax laws.
However, the Committee believes that its primary responsibility is to provide
a compensation program that will attract, retain and reward the executive
talent necessary to the Company's success. Consequently, the Committee
recognizes that the loss of a tax deduction could be necessary in some
circumstances.
Compensation Committee of the Board
of Directors
Vinod Khosla
Gary Rieschel
12
<PAGE>
Company Stock Price Performance Graph
COMPARISON OF 17 MONTH CUMULATIVE TOTAL RETURN*
AMONG CONCENTRIC NETWORK CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX AND
THE NASDAQ TELECOMMUNICATIONS INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
CONCENTRIC NASDAQ
Measurement Period NETWORK STOCK NASDAQ
(Fiscal Year Covered) CORPORATION MARKET (U.S) TELECOMMUNICATIONS
- ------------------- ---------- ------------ ------------------
<S> <C> <C> <C>
Measurement Pt- 8/1/97 $100 $100 $100
FYE 9/97 $108 $106 $109
FYE 12/97 $ 74 $ 99 $119
FYE 3/98 $163 $116 $151
FYE 6/98 $253 $119 $161
FYE 9/98 $175 $108 $143
FYE 12/98 $277 $140 $195
</TABLE>
13
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Company may recommend.
It is important that your shares be presented at the meeting, regardless of
the number of shares which you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
San Jose, California
April 5, 1999
14
<PAGE>
ANNEX A
Description of Stock Plan
The essential terms of the Stock Plan, as proposed to be amended, are as
follows:
Purpose
The purpose of the Stock Plan is to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees, directors and consultants, and to promote the success
of the Company's business. The Stock Plan will continue in effect for a term
of ten years beginning in August 1997 unless terminated earlier pursuant to
the terms of the Stock Plan.
Stock Subject to the Stock Plan
The maximum aggregate number of shares that may be optioned and sold under
the Stock Plan is 3,250,000 Shares, plus an annual increase to be added on the
first day of the fiscal year beginning in 2000 equal to the lesser of (i)
1,000,000 shares, (ii) 4% of the outstanding shares on such date or (iii) an
amount determined by the board. The shares may be authorized, but unissued, or
reacquired Common Stock. If an option or stock purchase right expires or
becomes unexercisable without having been exercised in full, or is surrendered
pursuant to an option exchange program, the unpurchased shares that were
subject thereto will become available for future grant or sale under the Stock
Plan.
Administration
The Stock Plan is administered by the Board of Directors and/or different
committees of the Board of Directors (referred to as the "Administrator").
Subject to the provisions of the Stock Plan, the Administrator has the
authority, in its discretion: (i) to determine the fair market value of the
Company's Common Stock; (ii) to select the employees, directors or consultants
to whom options and stock purchase rights may be granted under the Stock Plan;
(iii) to determine the number of shares of Common Stock to be covered by each
option and stock purchase right granted under the Stock Plan; (iv) to approve
forms of agreement for use under the Stock Plan; (v) to determine the terms
and conditions of any option or stock purchase right granted under the Stock
Plan such as the exercise price, the time or times when options or stock
purchase rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions; (vi) to reduce
the exercise price of any option or stock purchase right to the then current
fair market value; (vii) to institute an option exchange program; (viii) to
construe and interpret the terms of the Stock Plan and awards granted pursuant
to the Stock Plan; (ix) to prescribe, amend and rescind rules and regulations
relating to the Stock Plan; (x) to modify or amend each option or stock
purchase right; (xi) to allow optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the shares to be issued upon
exercise of an option or stock purchase right that number of shares having a
fair market value equal to the amount required to be withheld; (xii) to
authorize any person to execute on behalf of the Company any instrument
required to effect the grant of an option or stock purchase right previously
granted by the Administrator; and (xiii) to make all other determinations
deemed necessary or advisable for administering the Plan.
Eligibility
All employees, directors and consultants are eligible to participate in the
Stock Plan. Stock options intended to qualify as an incentive stock option
within the meaning of Section 422 of the Internal Revenue Code (an "Incentive
Stock Option") may be granted only to employees. Options not intended to
qualify as Incentive Stock Options ("Nonstatutory Stock Options") and Stock
Purchase Rights may be granted to employees, directors and consultants of the
Company. No optionee may be granted, in any fiscal year of the Company,
options to purchase more than 500,000 shares; provided that, in connection
with his or her initial service, an optionee may be granted options to
purchase up to an additional 500,000 shares that shall not count against such
limit.
A-1
<PAGE>
Terms and Conditions of Options
Each option granted pursuant to the Stock Plan is evidenced by a written
stock option agreement (an "Option Agreement") between the optionee and the
Company and is subject to the following terms and conditions:
Term of Option. The term of each option is stated in each Option Agreement.
In the case of an Incentive Stock Option, the term is ten years from the date
of grant or such shorter terms as may be provided in the Option Agreement. In
the case of an Incentive Stock Option granted to an optionee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary, the term of the Incentive Stock Option is
five years from he date of grant or such shorter term as may be provided in
the Option Agreement.
Exercise Price. The per share exercise price for the Shares to be issued
pursuant to the exercise of an option is determined by the Administrator,
subject to the following: (i) in the case of an Incentive Stock Option (A)
granted to an employee who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent of the voting power of all
classes of stock of the Company or any parent or subsidiary, the per share
exercise price may be no less than 110% of the fair market value per share on
the date of grant and (B) granted to any employee other than an employee
described in (A) immediately preceding, the per share exercise price may be no
less than 100% of the fair market value per share on the date of grant; (ii)
in the case of a Nonstatutory Stock Option, the per share exercise price may
be determined by the Administrator; and (iii) in the case of a Nonstatutory
Stock Option intended to qualify as "performance-based compensation" within
the meaning of Section 162(m) of the Code, the per share exercise price may be
no less than 100% of the fair market value per share on the date of grant.
Notwithstanding the foregoing, options may be granted with a per share
exercise price of less than 100% of the fair market value per share on the
date of grant pursuant to a merger or other corporate transaction.
Waiting Period and Exercise Dates. At the time an option is granted, the
Administrator fixes the period within which the option may be exercised and
determines any conditions that must be satisfied before the option may be
exercised.
Form of Consideration. The Administrator determines the acceptable form of
consideration for exercising an option, including the method of payment. In
the case of an Incentive Stock Option, the Administrator determines the
acceptable form of consideration at the time of grant. Such consideration may
consist entirely of cash, check, promissory note, other shares that (a) in the
case of shares acquired upon exercise of an option, have been owned by the
optionee for more than six months on the date of surrender, and (b) have a
fair market value on the date of surrender equal to the aggregate exercise
price of the shares as to which such option is exercised, consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Stock Plan, a reduction in the amount of any
Company liability to the optionee, including any liability attributable to the
optionee's participation in any Company-sponsored deferred compensation
program or arrangement, any combination of the foregoing methods of payment,
or any other consideration and method of payment for the issuance of shares to
the extent permitted by applicable laws.
Exercise of Option. Any option granted under the Stock Plan is exercisable
according to the terms of the Stock Plan and at such times and under such
conditions as determined by the Administrator and set forth in the Option
Agreement. Unless the Administrator provides otherwise, vesting of options
granted under the Stock Plan are tolled during any paid leave of absence.
Termination of Relationship as a Service Provider. If an optionee ceases to
be an employee, director or consultant, other than upon the optionee's death
or disability, the optionee may exercise his or her option within such period
of time as is specified in the Option Agreement to the extent that the option
is vested on 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 absence of a specified time in the Option Agreement, the option remains
exercisable for three months following the optionee's termination. If, on the
date of termination, the optionee is not vested as to his or
A-2
<PAGE>
her entire option, the shares covered by the unvested portion of the option
revert to the Stock Plan. If, after termination, the optionee does not
exercise his or her option within the time specified by the Administrator, the
option terminates, and the shares covered by such option revert to the Stock
Plan.
Disability of Optionee. If an optionee ceases to be an employee, director or
consultant as a result of the optionee's disability, the optionee may exercise
his or her option within such period of time as is specified in the Option
Agreement to the extent the option is vested on 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 absence of a specified time in the Option
Agreement, the option will remain exercisable for twelve months following the
optionee's termination. If, on the date of termination, the optionee is not
vested as to his or her entire option, the shares covered by the unvested
portion of the option revert to the Stock Plan. If, after termination, the
optionee does not exercise his or her option within the time specified herein,
the option will terminate, and the shares covered by such Option revert to the
Stock Plan.
Death of Optionee. If an Optionee dies while an employee, director or
consultant, the option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration
of the term of such option as set forth in the Option Agreement), by the
optionee's estate or by a person who acquires the right to exercise the option
by bequest or inheritance, but only to the extent that the option is vested on
the date of death. In the absence of a specified time in the Option Agreement,
the option will remain exercisable for twelve months following the optionee's
termination. If, at the time of death, the optionee is not vested as to his or
her entire option, the shares covered by the unvested portion of the option
will revert to the Stock Plan. The option may be exercised by the executor or
administrator of the optionee's estate or, if none, by the person(s) entitled
to exercise the option under the optionee's will or the laws of descent or
distribution. If the option is not so exercised within the time specified, the
option terminates, and the shares covered by such option revert to the Stock
Plan.
Buyout Provisions. The Administrator may at any time offer to buy out for a
payment in cash, shares or otherwise an option previously granted based on
such terms and conditions as the Administrator establishes and communicates to
the optionee at the time that such offer is made.
Stock Purchase Rights
Rights to Purchase. Stock purchase rights may be issued either alone, in
addition to, or in tandem with other awards granted under the Stock Plan
and/or cash awards made outside of the Stock Plan. After the Administrator
determines that it will offer stock purchase rights under the Stock Plan, it
will advise the offeree in writing or electronically, by means of a Notice of
Grant, of the terms, conditions and restrictions related at the offer,
including the number of shares that the offeree will be entitled to purchase,
the price to be paid, and the time within which the offeree must accept such
offer. The offer will be accepted by execution of a restricted stock purchase
agreement in the form determined by the Administrator.
Repurchase Option. Unless the Administrator determines otherwise, the
restricted stock purchase agreement will grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service with the Company for any reason (including death or disability). The
purchase price for shares repurchased pursuant to the restricted stock
purchase agreement will be the original price paid by the purchaser and may be
paid by cancellation of any indebtedness of the purchaser to the Company. The
repurchase option will lapse at a rate determined by the Administrator.
Buyout Provisions. The Administrator may at any time offer to buy out for a
payment in cash, shares or otherwise an option previously granted based on
such terms and conditions as the Administrator will establish and communicate
to the optionee at the time that such offer is made.
Other Provisions. The restricted stock purchase agreement will contain such
other terms, provisions and conditions not inconsistent with the Stock Plan as
may be determined by the Administrator in its sole discretion.
A-3
<PAGE>
Rights as a Stockholder. Once the stock purchase right is exercised, the
purchaser will have the rights equivalent to those of a stockholder, and will
be a stockholder when his or her purchase is entered upon the records of the
duly authorized transfer agent of the Company.
Non-Transferability of Options and Stock Purchase Rights
An option or stock purchase right may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale
Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding option and stock purchase right, and the number of shares of
Common Stock that have been authorized for issuance under the plan but as to
which no options or stock purchase rights have yet been granted or that have
been returned to the Stock Plan upon cancellation or expiration of an option
or stock purchase right, as well as the price per share of Common Stock
covered by each such outstanding option or stock purchase right, will be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company.
Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator will notify each optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an optionee to have the
right to exercise his or her option until ten days prior to such transaction
as to all of the optioned stock covered thereby, including shares as to which
the option would not otherwise be exercisable. In addition, the Administrator
may provide that any Company repurchase option applicable to any shares
purchased upon exercise of an option or stock purchase right will lapse as to
all such shares, provided the proposed dissolution or liquidation take place
at the time and in the manner contemplated. To the extent it has not been
previously exercised, an option or stock purchase right will terminate
immediately prior to the consummation of such proposed action.
Merger or Asset Sale. In the event of a merger of the Company with or into
another corporation, or the sale of substantially all of the assets of the
Company, each outstanding option and stock purchase right will be assumed or
an equivalent option or right substituted by the successor corporation or a
parent or subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option or stock
purchase right, the optionee will fully vest in and have the right to exercise
the option or stock purchase right as to all of the optioned stock, including
shares as to which it would not otherwise be vested or exercisable. If an
option or stock repurchase right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator will notify the Optionee in writing or electronically that the
option or stock purchase right shall be fully vested and exercisable for a
period of fifteen days from the date of such notice, and the option or stock
purchase right shall terminate upon the expiration of such period.
Amendment and Termination of the Plan
The Board may at any time amend, alter, suspend or terminate the Stock Plan;
provided that the Company is required to obtain stockholder approval of any
Stock Plan amendment to the extent necessary and desirable to comply with
applicable laws.
Federal Income Tax Consequences
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to
A-4
<PAGE>
the alternative minimum tax. Upon a disposition of the shares more than two
years after grant of the option and one year after exercise of the option, any
gain or loss is treated as long- term capital gain or loss. If these holding
periods are not satisfied, the optionee recognizes ordinary income at the time
of disposition equal to the difference between the exercise price and the
lower of (i) the fair market value of the shares at the date of the option
exercise or (ii) the sale price of the shares. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% stockholder of the Company. The Company is entitled
to a deduction in the same amount as the ordinary income recognized by the
optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price.
Any taxable income recognized in connection with an option exercise by an
employee of the Company is subject to tax withholding by the Company. The
Company is entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Upon a disposition of such shares by the optionee,
any difference between the sale price and the optionee's exercise price, to
the extent not recognized as taxable income as provided above, is treated as
long-term or short-term capital gain or loss, depending on the holding period.
Stock Purchase Rights. Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time
of purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when a stock ceases to be subject
to a substantial risk of forfeiture. The stock will generally cease to be
subject to a substantial risk of forfeiture when it is no longer subject to
the Company's right to repurchase the stock upon the purchaser's termination
of employment with the Company. At such times, the purchaser will recognize
ordinary income measured as the difference between the purchase price and the
fair market value of the stock on the date the stock is no longer subject to a
substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding
period by timely filing an election pursuant to Section 83(b) of the Code. In
such event, the ordinary income recognized, if any, is measured as the
difference between the purchase price and the fair market value of the stock
on the date of purchase, and the capital gain holding period commences on such
date. The ordinary income recognized by a purchaser who is an employee will be
subject to tax withholding by the Company. Different rules may apply if the
purchaser is also an officer, director, or 10% stockholder of the Company.
The foregoing is only a summary of the effect of federal income taxation
upon optionees, holders of stock purchase rights, and the Company with respect
to the grant and exercise of options and stock purchase rights under the 1997
Stock Plan. It does not purport to be complete, and does not discuss the tax
consequences of the employee's or consultant's death or the provisions of the
income tax laws of any municipality, state or foreign country in which the
employee or consultant may reside.
A-5
<PAGE>
Participation in the Stock Plan
The following table sets forth certain information regarding options to
purchase Common Stock issued during the fiscal year ended December 31, 1998 to
each of the executive officers named in the Summary Compensation Table on page
9 who participated in the Stock Plan, all current executive officers as a
group, all current non-executive officer directors as a group and all other
employees who participated in the Stock Plan as a group:
<TABLE>
<CAPTION>
Number of
Securities Dollar
Underlying Value
Name of Individual and Position Option(#) ($)(1)
- ------------------------------- ---------- ----------
<S> <C> <C>
Henry R. Nothhaft....................................... 74,000 5,531,500
President, Chief Executive Officer, Chairman of the
Board and Director
John K. Peters.......................................... 57,700 4,313,075
Executive Vice President and General Manager, Network
Service Division
Michael F. Anthofer..................................... 20,000 1,495,000
Senior Vice President and Chief Financial Officer
Mark W. Fisher.......................................... 25,000 1,868,750
Senior Vice President of Corporate Marketing
William C. Etheredge.................................... 15,000 1,121,250
Senior Vice President of Sales
All current Executive Officers as a group (5 persons)... 544,955 40,735,386
Non-Executive Officer Directors as a group (5 persons).. 0 0
All Other Employees as a group.......................... 584,575 43,696,981
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at March 31, 1999 ($74.75 per share)
and the exercise price of the option.
A-6
<PAGE>
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CONCENTRIC NETWORK CORPORATION
Proxy for 1999 Annual Meeting of Stockholders
May 5, 1999
The undersigned shareholder of Concentric Network Corporation (the
"Company") hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement for the 1999 Annual Meeting of Stockholders of
the Company to be held on May 5, 1999 at 10:00 a.m., local time, at the
Company's principal place of business, 1400 Parkmoor Avenue, San Jose,
California 95126-3429 (telephone (408) 817-2800), and hereby revokes all
previous proxies and appoints Henry R. Nothaft and Michael F. Anthofer or either
of them, with full power of substitution, Proxies and Attorneys-in-Fact, on
behalf and in the name of the undersigned, to vote and otherwise represents all
of the shares registered in the name of the undersigned at said Annual Meeting,
or any adjournment thereof, with the same effect as if the undersigned were
present and voting such shares, on the matters and in the manner specified on
the reverse side:
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR EACH OF THE FOLLOWING PERSONS AND PROPOSALS, AND FOR
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETINGS AS THE PROXYHOLDERS
DEEM ADVISABLE.
(Continued and to be signed on reverse side)
<PAGE>
<TABLE>
<CAPTION>
Please mark
your votes [x]
as indicated
<S> <C> <C> <C> <C> <C> <C>
AUTHORITY
FOR ALL TO VOTE
NOMINEES WITHHELD FOR AGAINST ABSTAINS
1. Election of Directors [ ] [ ] 2. Proposal to amend the Company's 1997 Stock Plan to [ ] [ ] [ ]
(INSTRUCTION: to increase the number of shares available for
withhold authority issuance thereunder by 1,000,000 shares to an
vote for any individual aggregate of 3,250 shares.
nominee's name on the 3. Proposal to amend the Company's 1997 Stock Plan to [ ] [ ] [ ]
list below.) provide for an annual increase, beginning January 1,
01 Gary Rieschel 2000, in the number of shares received for issuance
01 Vinod Khosla thereunder equal to the lesser of: (i) 1,000,000
shares, (ii) 4% of the outstanding shares of
Nominee GARY RISCHEL and Common Stock and the Company or (iii) a number of
VINOD KHOSLA shares determined by the Board of Directors.
4. Proposal to ratify the appointment of Ernst & Young [ ] [ ] [ ]
LLP as the independent auditors of the Company for
the fiscal year ending December 31, 1999.
In their discretion, the Proxies are entitled to
vote upon such other matters as may properly come
before the meeting of any adjournments thereof.
Dated: _____________________________________,1999
Signature:_______________________________________
Signature:_______________________________________
(This proxy should be market, dated and signed by
each stockholder exactly as such stockholder's name
appears hereon, and reprinted promptly in the
enclosed envelope. Persons signing in a fiduciary
capacity should so indicate. A corporation is
requested to sign its name by its President or
other authorized officer, with the office held
designated. If shares are held by joint tenants or
as community property, both holders should sign.)
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
</TABLE>
