<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
Netopia, Inc.
--------------------------------------------------------------------------------
(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):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(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:
________________________________________________________________________
Notes:
<PAGE>
[NETOPIA LOGO APPEARS HERE]
December 28, 2000
Netopia, Inc.
2470 Mariner Square Loop
Alameda, CA 94501
NOTICE OF ANNUAL STOCKHOLDER MEETING
Notice is hereby given that the Annual Stockholder Meeting of Netopia, Inc.
(the "Company"), will be held on January 29, 2001, at 10:00 a.m. local time, at
2470 Mariner Square Loop, Alameda, California 94501 for the following purposes:
1. To elect four directors to serve until the 2002 Annual Stockholder
Meeting and until his successor has been elected and qualified or until
his earlier resignation, death or removal. The Company's Board of
Directors has nominated the following individuals to serve: Reese M.
Jones, Alan B. Lefkof, David C. King and David F. Marquardt.
2. To approve an amendment to the Company's 1996 Stock Option Plan to
increase the number of shares of Common Stock available for issuance
under the plan by 500,000 shares.
3. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares of Common Stock available for issuance
under the plan by 800,000 shares.
4. To amend the Company's Amended and Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 25
million shares to 50 million shares.
5. To ratify the appointment of KPMG LLP as independent auditors of the
Company.
6. To transact such other business as may properly be brought before the
meeting.
The foregoing items of business are more fully described in the attached
Proxy Statement.
Stockholders of record at the close of business on December 1, 2000 are the
only stockholders entitled to notice of and to vote at the Annual Stockholder
Meeting and at any adjournment or postponements thereof. A list of such
stockholders will be available for inspection at the Company's headquarters
located at 2470 Mariner Square Loop, Alameda, CA 94501, during ordinary
business hours for the ten-day period prior to the Annual Stockholder Meeting.
By Order of the Board of Directors,
/s/ DAVID A. KADISH
David A. Kadish
Vice President, General Counsel and
Secretary
Alameda, California
December 28, 2000
IMPORTANT
Whether or not you expect to attend the meeting, please vote, sign, date
and return the enclosed proxy in the attached self-addressed envelope as
promptly as possible. If you attend the meeting, you may vote your shares
in person, even though you have previously signed and returned your proxy.
<PAGE>
[NETOPIA LOGO APPEARS HERE]
Netopia, Inc.
2470 Mariner Square Loop
Alameda, CA 94501
----------------
PROXY STATEMENT
FOR THE ANNUAL STOCKHOLDER MEETING
To be held on January 29, 2001
The accompanying proxy is solicited by the Board of Directors of Netopia,
Inc., a Delaware corporation (the "Company" or "Netopia"), for use at the
Annual Stockholder Meeting to be held on Monday, January 29, 2001, at 10:00
a.m. local time or any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Stockholder Meeting. The meeting will be held at
the Company's facility at 2470 Mariner Square Loop, Alameda, California. The
Company's telephone number is (510) 814-5100. The date of this Proxy Statement
is December 28, 2000, the approximate date on which this Proxy Statement and
the accompanying form of proxy were first sent or given to stockholders.
GENERAL INFORMATION
Annual Report. An annual report for the fiscal year ended September 30, 2000
is enclosed with this Proxy Statement.
Voting Securities. The Company's Common Stock ("Common Stock") is the only
type of security entitled to vote at the Annual Stockholder Meeting. On
December 1, 2000, the record date for the determination of stockholders
entitled to vote at the Annual Stockholder Meeting, there were 17,607,608
shares of Common Stock issued and outstanding. Each stockholder of record on
December 1, 2000 will be entitled to one vote for each share of Common Stock
held by such stockholder on December 1, 2000. Shares of Common Stock may not be
voted cumulatively. All votes will be tabulated by the inspector of elections
appointed for the meeting, who will separately tabulate affirmative and
negative votes, abstentions and broker non-votes.
Stockholders may vote in person or by proxy. The Company's bylaws provide
that a majority of all of the shares of the Common Stock entitled to vote,
whether present in person or represented by proxy, shall constitute a quorum
for the transaction of business at the Annual Stockholder Meeting. Abstentions
and broker non-votes will be counted as present for the purpose of determining
the presence of a quorum.
Solicitation of Proxies. The cost of soliciting proxies will be borne by the
Company. In addition to soliciting holders by mail through its regular
employees, the Company will request banks and brokers, and other custodians,
nominees and fiduciaries to forward copies of the proxies and other soliciting
materials to persons for whom they hold shares of Common Stock and to request
authority for the exercise of proxies and will reimburse them for their
reasonable, out-of-pocket costs. The Company may use the services of its
officers, directors and others to solicit proxies, personally or by telephone,
without additional compensation.
Voting of Proxies. Whether or not you are able to attend the Annual
Stockholder Meeting, you are urged to complete and return the enclosed proxy,
which is solicited by the Company's Board of Directors and which will be voted
as you direct on your proxy when properly completed. In the event no directions
are specified, such proxies will be voted FOR the Nominees of the Board of
Directors (as set forth in Proposal No. 1), FOR Proposals No. 2, No. 3, No. 4
and No. 5, and in the discretion of the proxy holders as to other matters that
may properly come before the Annual Stockholder Meeting. If sufficient votes in
favor of the proposals are not
<PAGE>
received by the date of the Annual Stockholder Meeting, the persons named as
proxies may propose one or more adjournments of the meeting to permit further
solicitations of proxies. Any such adjournment would require the affirmative
vote of the majority of the outstanding shares present in person or represented
by proxy at the meeting. All valid proxies received prior to the meeting will
be voted. All shares represented by a proxy will be voted, and where a holder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. A
holder giving a proxy has the power to revoke his or her proxy, at any time
prior to the time it is voted, by delivery to the Secretary of the Company of a
written instrument revoking the proxy or a duly executed proxy with a later
date, or by attending the meeting and voting in person.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of December 1, 2000,
with respect to the beneficial ownership of Common Stock by (i) the Chief
Executive Officer and the four other executive officers of the Company named in
the "Executive Compensation and Other Matters--Summary Compensation Table,"
(ii) all directors and nominees, (iii) all executive officers and directors of
the Company as a group and (iv) each stockholder known by us to be the
beneficial owner of more than 5% of the outstanding Common Stock. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, and generally includes voting or
investment power with respect to securities. Under this rule, certain shares
may be deemed to be beneficially owned by more than one person (if, for
example, persons share the power to vote or the power to dispose of the
shares). Shares of Common Stock subject to options and warrants that are
currently exercisable or are exercisable by a holder within sixty (60) days of
December 1, 2000 are deemed to be beneficially owned by that holder and to be
outstanding for the purpose of computing the percentage ownership of that
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. As a result, the percentage of
outstanding shares of any person as shown in the following table does not
necessarily reflect the person's actual voting power at any particular date.
Unless otherwise indicated, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned (1)
------------------
Currently Percent
Name of Beneficial Owner Owned of Class
------------------------ --------- --------
<S> <C> <C>
Kern Capital Management LLC (2)......................... 1,857,400 10.5%
Alan B. Lefkof (3)...................................... 346,828 1.9%
James A. Clark (4)...................................... 115,910 *
David A. Kadish (5)..................................... 60,617 *
Thomas A. Skoulis (6)................................... 134,016 *
Michael P. Trupiano (7)................................. 159,412 *
Reese M. Jones (8)...................................... 1,299,655 7.4%
David C. King (9)....................................... 6,250 *
David F. Marquardt (10)................................. 94,486 *
All Current Directors and Executive Officers as a Group
(10 persons)(11)....................................... 2,329,592 12.6%
</TABLE>
--------
* Less than 1% of the outstanding shares of Common Stock.
(1) The number of shares of Common Stock beneficially owned includes
shares issuable pursuant to stock options that may be exercised within
sixty (60) days after December 1, 2000.
(2) Based on a Form 13F filed on November 15, 2000 with the Securities and
Exchange Commission by Kern Capital Management LLC.
(3) Includes 270,625 shares issuable upon the exercise of stock options
held by the named person under the 1996 Stock Option Plan ("Option
Plan") and 76,203 shares held by the Lefkof Family Trust over which
Alan B. Lefkof has shared voting and investment authority.
2
<PAGE>
(4) Includes 78,875 shares issuable upon the exercise of stock options
held by the named person under the Option Plan.
(5) Includes 57,313 shares issuable upon the exercise of stock options
held by the named person under the Option Plan.
(6) Includes 122,406 shares issuable upon the exercise of stock options
held by the named person under the Option Plan.
(7) Includes 155,889 shares issuable upon the exercise of stock options
held by the named person under the Option Plan.
(8) Includes 25,000 shares issuable upon the exercise of stock options
held by the named person under the Option Plan.
(9) Includes 6,250 shares issuable upon the exercise of stock options held
by the named person under the Option Plan.
(10) Includes 25,000 shares issuable upon the exercise of stock options
held by the named person under the Option Plan.
(11) Includes 839,673 shares issuable upon the exercise of stock options
held by the named persons under the Option Plan.
3
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The directors who are being nominated for election to the Board of Directors
(the "Nominees"), their ages as of September 30, 2000, their positions and
offices held with the Company and certain biographical information are set
forth below. The proxy holders intend to vote all proxies received by them in
the accompanying form FOR the Nominees listed below unless otherwise
instructed. In the event any Nominee is unable or declines to serve as a
director at the time of the Annual Stockholder Meeting, the proxies will be
voted for any nominee who may be designated by the present Board of Directors
to fill the vacancy. The size of the Board of Directors is currently set at
four members. As of the date of this Proxy Statement, the Board of Directors is
not aware of any Nominee who is unable or will decline to serve as a director.
The four Nominees receiving the highest number of affirmative votes of the
shares entitled to vote at the Annual Stockholder Meeting will be elected
directors of the Company to serve until the next Annual Stockholder Meeting or
until their successors have been duly elected and qualified.
Vote Required And Board Of Directors' Recommendation
Directors are elected by a plurality of the affirmative votes cast by those
shares of Common Stock present in person or represented by proxy and entitled
to vote at the Annual Stockholder Meeting. The four nominees for director
receiving the highest number of affirmative votes will be elected. Abstentions
and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum. Abstentions and broker non-votes will not
be counted towards a nominee's total. Stockholders may not cumulate votes in
the election of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" ELECTION OF EACH OF THE NOMINATED DIRECTORS.
<TABLE>
<CAPTION>
First Became
Name and Positions Held with the Company Age a Director
---------------------------------------- --- ------------
<S> <C> <C>
Alan B. Lefkof, President, Chief Executive Officer and
Director (1)............................................. 47 1991
Reese M. Jones, Chairman of the Board of Directors........ 42 1987
David C. King, Director (2)(3)............................ 41 2000
David F. Marquardt, Director (2)(3)....................... 51 1990
</TABLE>
--------
(1) Member of the Stock Option Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Alan B. Lefkof joined the Company as President in August 1991 and has been
Chief Executive Officer since November 1994. Prior to joining the Company, Mr.
Lefkof spent over nine years at GRiD Systems, a manufacturer of laptop
computers, where he served as President from October 1989 to August 1991, Chief
Financial Officer from March 1987 to September 1989, and Vice President of
Marketing from August 1983 to February 1987. Before joining GRiD Systems, Mr.
Lefkof served as a Management Consultant at McKinsey & Company from July 1977
to January 1982. Mr. Lefkof received a B.S. in computer science from the
Massachusetts Institute of Technology in 1975 and an M.B.A. from Harvard
Business School in 1977.
Reese M. Jones, founder of the Company, has served as Chairman of the Board
of Directors of the Company since inception. Mr. Jones served as Chief
Executive Officer of the Company from the date of the Company's incorporation
until Mr. Lefkof was appointed Chief Executive Officer in November 1994. Mr.
Jones currently serves on the Board of Directors of a number of privately held
companies. Mr. Jones received a B.A. in biophysics from the University of
California at Berkeley in 1982.
David C. King has been a director of the Company since January 2000. Mr.
King is Chairman, President and CEO of Proxim, Inc. Mr. King joined Proxim in
1992 as Vice President of Marketing, in 1993 was
4
<PAGE>
appointed President, Chief Executive Officer and Director, and in 1996 was
named Chairman of the Board of Directors. Mr. King currently serves on the
Board of Directors of MobileStar Network Corporation, a privately held company.
Mr. King received an A.B. in economics in 1981, a J.D in 1985, and an M.B.A in
1985, all from Harvard University.
David F. Marquardt has been a director of the Company since 1990. Mr.
Marquardt is a founding general partner of August Capital, formed in 1995 and
has been a general partner of various Technology Venture Investors ("TVI")
entities since August 1980. August Capital and the TVI entities are all private
venture capital partnerships. Mr. Marquardt currently serves on the Board of
Directors of Microsoft Corporation, Tumbleweed Communications and a number of
privately held companies. Mr. Marquardt received a B.S. in mechanical
engineering from Columbia University in 1973 and an M.B.A. from Stanford
University in 1979.
During the fiscal year ended September 30, 2000, the Board held five
meetings and acted by written consent one time. No director listed above who
served on the Board in fiscal year 2000 attended fewer than 75% of the meetings
of the Board and any committee on which he served. The Board has an Audit
Committee, Compensation Committee and Stock Option Committee. The Board does
not have a standing Nominating Committee.
During the fiscal year ended September 30, 2000, the Company's Audit
Committee met four times. The Audit Committee (i) makes recommendations to the
Board regarding engagement of the Company's independent auditors, (ii) reviews
the services and activities of such auditors, (iii) reviews and evaluates the
Company's accounting systems, financial controls and financial personnel, (iv)
monitors the integrity of the Company's financial reporting process and systems
of internal controls regarding finance, accounting and legal compliance, (v)
monitors the independence and performance of such auditors and (vi) provides an
avenue of communication among the independent auditors, management and the
Board of Directors. For additional information concerning the Audit Committee,
see "Report of the Audit Committee" and the Audit Committee Charter included as
Appendix A to this Proxy Statement. The members of the Audit Committee during
the 2000 fiscal year were David F. Marquardt and David C. King.
During the fiscal year ended September 30, 2000, the Compensation Committee
met four times and acted by written consent five times. The Compensation
Committee sets salaries and other compensation arrangements for officers and
other key employees of the Company, administers the Company's stock option,
stock purchase and stock bonus plans, and advises the Board on general aspects
of the Company's compensation and benefit policies. For additional information
concerning the Compensation Committee, see "Report of the Compensation
Committee on Executive Compensation," "Executive Compensation and Other
Matters" and "Compensation Committee Interlocks and Insider Participation." The
members of the Compensation Committee during the 2000 fiscal year were David F.
Marquardt and David C. King.
During the fiscal year ended September 30, 2000, the Stock Option Committee
acted by written consent eighteen times. The Compensation Committee has
delegated to the Stock Option Committee the authority to approve the grant to
non-officer employees and other individuals of stock options in amounts less
than 10,000 shares. The sole member of the Stock Option Committee during the
2000 fiscal year was Alan B. Lefkof.
Compensation of Directors
Members of the Company's Board of Directors do not receive compensation for
their services as directors. Non-employee directors of the Company are eligible
to receive options under the Company's 1996 Stock Option Plan. The Automatic
Option Grant Program, which is part of the 1996 Stock Option Plan, provides for
the grant of an option to purchase 25,000 shares of Common Stock upon a
nonemployee director's initial election or appointment to the Board. Pursuant
to this program, on June 12, 1996, Mr. Marquardt was granted a nonstatutory
stock option to purchase 25,000 shares of Common Stock at an exercise price of
$16 per share, and on January 13, 2000, Mr. King was granted a nonstatutory
stock option to purchase 25,000 shares of
5
<PAGE>
Common Stock at an exercise price of $51.75 per share. In addition, Mr. Jones
received an option to purchase 25,000 shares at an exercise price of $9.50 per
share on September 16, 1996 under the 1996 Stock Option Plan. The program also
provides for the grant of an option to purchase 6,000 shares of Common Stock to
non-employee directors on the date of each annual stockholders meeting.
Pursuant to this program, on February 2, 2000, Messrs. Jones and Marquardt each
received a nonstatutory stock option to purchase 6,000 shares of Common Stock
at an exercise price of $86.25 per share. The terms applicable to the foregoing
option grants are summarized below in the description of the Automatic Option
Grant Program. In addition, members of the Board are eligible to receive
options under the Company's 2000 Stock Incentive Plan.
PROPOSAL NO. 2
AMENDMENT OF THE 1996 STOCK OPTION PLAN
The stockholders are being asked to approve an amendment to the Netopia,
Inc. 1996 Stock Option Plan (the "Option Plan") to increase the number of
shares of Common Stock available for issuance under the Option Plan by 500,000
shares to a total of 7,180,301 shares. The Option Plan is an important part of
our compensation program, and we believe it is essential to our ability to
attract and retain highly qualified employees in an extremely competitive
environment in which employees view equity incentives as an increasingly
important component of their compensation. The proposed amendment to the Option
Plan is necessary to enable us to continue providing stock-based compensation
to new and current employees. The Board approved the proposed amendment on
October 18, 2000. A summary of the principal provisions of the Option Plan,
assuming stockholder approval of the amendment, follows below.
Vote Required and Board of Directors' Recommendation
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the Annual Stockholder Meeting, at which a quorum
is present either in person or by proxy, is required for approval of this
proposal. The Company's executive officers and directors have an interest in
approval of this proposal because they, along with all other individuals
eligible to participate in the Option Plan, will be eligible for grants of
options and other awards under the Option Plan from the additional 500,000
shares. The proxy holders intend to vote all proxies received by them FOR the
amendment of the Option Plan. Abstentions are not affirmative votes and,
therefore, will have the same effect as a vote against the proposal. Broker
non-votes will not be treated as entitled to vote on the matter, and thus will
not affect the outcome of the voting on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THE AMENDMENT OF THE 1996 STOCK OPTION PLAN.
Summary of the 1996 Stock Option Plan
The principal terms and provisions of the Option Plan are summarized below.
The summary, however, is not intended to be a complete description of all the
terms of the Option Plan. A copy of the Option Plan will be furnished by the
Company to any stockholder upon written request to the Company's Secretary at
the executive offices in Alameda, California.
Option Plan Background. The Company established the Option Plan as a
successor to the 1987 Restated Stock Option Plan ("1987 Plan") to provide a
means whereby employees, officers, directors, consultants and independent
advisers of the Company or its subsidiary corporations may be given an
opportunity to purchase shares of Common Stock. The Option Plan was adopted by
the Board on April 16, 1996 and amended on February 14, 1997, October 29, 1997,
October 27, 1998, January 13, 2000 and October 18, 2000, and the stockholders
approved each of the foregoing amendments except the last one, which is the
subject of the proposal. In addition, the Board approved an amendment on April
13, 2000, which removed conditional automatic acceleration of vesting in the
event of a Corporate Transaction.
6
<PAGE>
Structure. The Option Plan contains two separate equity incentive programs:
(i) a Discretionary Option Grant Program under which eligible persons may be
granted stock options to purchase shares of Common Stock, and (ii) an Automatic
Option Grant Program under which option grants will be made at specified
intervals to the nonemployee Board members.
Administration. The Option Plan is currently administered by the
Compensation Committee (the "Committee") of the Board of Directors. The Option
Plan may also be administered by the Board or a secondary committee comprised
of one or more Board members with respect to optionees who are not executive
officers subject to the short-swing profit rules of Federal securities laws.
Currently, a secondary committee, the Stock Option Committee, which has as its
sole member Alan B. Lefkof, the Company's Chief Executive Officer, has the
authority to grant options under the Option Plan in amounts less than 10,000
shares to individuals who are not officers or directors of the Company.
Committee members serve for such period of time as the Board may determine. The
Committee (or Board or secondary committee to the extent acting as plan
administrator) has full authority (subject to the express provisions of the
Option Plan) to determine the eligible individuals who are to receive grants
under the Option Plan, the number of shares to be covered by each granted
option, the date or dates on which the option is to become exercisable, the
maximum term for which the option is to remain outstanding, whether the granted
option will be an incentive stock option ("Incentive Option") which satisfies
the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or a nonstatutory option not intended to meet such
requirements, and the remaining provisions of the option grant.
Administration of the Automatic Option Grant Program is self-executing in
accordance with the terms of that program; however, the Plan Administrator may
exercise discretionary functions with respect to grants made thereunder.
Eligibility. Employees (including officers), consultants, independent
contractors and nonemployee members of the Board of Directors who render
services to the Company or its parent or subsidiary corporations (whether now
existing or subsequently established) are eligible to receive option grants
under the Discretionary Option Grant Program. A nonemployee member of the Board
of Directors is also eligible for option grants under the Automatic Option
Grant Program.
Securities Subject to Option Plan. A total of 7,180,301 shares, including
the increase of 500,000 shares which is the subject of this Proposal No. 2, of
Common Stock are reserved for issuance under the Option Plan. Such share
reserve will be subject to further adjustment in the event of subsequent
changes to the capital structure of the Company. The shares may be made
available either from the Company's authorized but unissued Common Stock or
from Common Stock reacquired by the Company, including shares purchased on the
open market. The share reserve increases automatically on January 1, 2001 by a
number of shares equal to 5% of the number of shares of Common Stock
outstanding on the last trading day of the preceding calendar year, up to a
maximum annual increase of 1,200,000 shares.
In no event may any one participant in the Option Plan acquire shares of
Common Stock under the Option Plan in excess of 750,000 shares over the period
beginning on July 1, 1999 and ending on July 1, 2002. Should an option expire
or terminate for any reason prior to exercise in full, the shares subject to
the portion of the option not so exercised will be available for subsequent
option grants under the Option Plan. The holder of an option shall have no
stockholder rights with respect to the shares underlying the option until such
person shall have exercised the option, paid the exercise price and become the
stockholder of record of the purchased shares.
Discretionary Option Grant Program
Price and Exercisabilty. The option exercise price per share may not be less
than 85% of the fair market value of Common Stock on the grant date. Options
granted under the Discretionary Option Grant Program become exercisable at such
time or times, and during such period, as the Committee may determine and set
forth in the instrument evidencing the option grant. In any event, options
granted under the Option Plan may not have a term in excess of 10 years.
7
<PAGE>
The exercise price for options granted under the Option Plan may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised on
a cashless basis through the same-day sale of the purchased shares. The
Committee may also permit the optionee to pay the exercise price through a
promissory note payable in installments over a period of years. The amount
financed may include any Federal or state income and employment taxes incurred
by reason of the option exercise.
No optionee has any stockholder rights with respect to the option shares
until the optionee has exercised the option and paid the exercise price.
Options are not assignable or transferable other than by will or the laws of
descent and distribution, and during the optionee's lifetime, the option may be
exercised only by the optionee.
Termination of Service. Any option held by the optionee at the time of
cessation of service will not remain exercisable beyond the designated post-
service exercise period. Under no circumstances may any option be exercised
after the specified expiration date of the option term. Each such option will
normally, during such limited period, be exercisable only to the extent of the
number of shares of Common Stock in which the optionee is vested at the time of
cessation of service. The optionee will be deemed to continue in service for so
long as such individual performs services for the Company (or any subsidiary
corporation), whether as an employee, independent contractor, consultant or
Board member.
The Committee has complete discretion to extend the period following the
optionee's cessation of service during which his or her outstanding options may
be exercised and/or to accelerate the exercisability of such options in whole
or in part. Such discretion may be exercised at any time while the options
remain outstanding, whether before or after the optionee's actual cessation of
service.
The shares of Common Stock acquired upon the exercise of one or more options
may be subject to repurchase by the Company at the original exercise price paid
per share upon the optionee's cessation of service prior to the vesting of such
shares. The Committee has complete discretion to establish the vesting schedule
to be in effect for any such unvested shares and may cancel the Company's
outstanding repurchase rights with respect to those shares at any time, thereby
accelerating the vesting of the shares subject to the canceled rights.
Incentive Options. Incentive Options may only be granted to individuals who
are employees of the Company or its subsidiary corporations. During any
calendar year, the aggregate fair market value (determined as of the grant
date(s)) of Common Stock for which one or more options granted to any employee
under the Option Plan (or any other option plan of the Company or subsidiary
corporations) may for the first time become exercisable as incentive stock
options under Section 422 of the Code shall not exceed $100,000.
If an employee to whom an Incentive Option is granted is the owner of stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its subsidiary corporations, then the option
price per share will be at least 110% of the fair market value per share on the
grant date, and the option term will not exceed five years, measured from the
grant date.
Tandem Stock Appreciation Rights. The Committee is authorized to issue
tandem stock appreciation rights in connection with option grants under the
Discretionary Option Grant Program. Tandem stock appreciation rights provide
the holders with the right, subject to the Committee's approval, to surrender
their options for a distribution from the Company equal in amount to the excess
of (a) the fair market value of the vested shares of Common Stock subject to
the surrendered option over (b) the aggregate exercise price payable for such
shares. Such distribution may, at the discretion of the Committee, be made in
cash or in shares of Common Stock or partly in shares of Common Stock and
partly in cash.
Automatic Option Grant Program
Under the Automatic Option Grant Program, non-employee Board members will
receive option grants at designated dates during their period of Board service.
Each individual who was serving as a non-employee Board member on June 12,
1996, which was the date of the Company's initial public offering, was
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<PAGE>
automatically granted on that date a nonstatutory stock option to purchase
25,000 shares of Common Stock. Each individual who subsequently becomes a non-
employee Board member, whether through election by the stockholders or
appointment by the Board, will automatically be granted, at the time of such
initial election or appointment, a nonstatutory stock option to purchase 25,000
shares of Common Stock, provided such individual has not previously been in the
employ of the Company. Each individual who is serving as a non-employee Board
member on the date of each annual stockholders meeting held after January 13,
2000 will automatically be granted, at the time of such annual meeting, a
nonstatutory stock option to purchase 6,000 shares of Common Stock. An
individual who has previously been in the employ of the Company is eligible for
the annual option grants, but a non-employee director who receives the initial
option in a calendar year will not also receive an annual option grant in that
same calendar year.
Each option grant under the Automatic Option Grant Program will be subject
to the following terms and conditions:
1. The option price per share will be equal to 100% of the fair market
value per share of the Common Stock on the automatic grant date and each
option is to have a maximum term of ten years measured from the grant date.
2. Each automatic option granted before December 31, 1996 will be
immediately exercisable for all of the option shares, but the shares
purchasable under the option will be subject to repurchase at the original
exercise price in the event the optionee's Board service should cease prior
to full vesting. With respect to each initial grant, the repurchase right
will lapse and the optionee vest in a series of five successive annual
installments, measured from the grant date, provided such optionee
continues service as a Board member.
3. Each initial option granted on or after January 13, 2000 will become
exercisable in a series of four successive annual installments over the
optionee's Board service measured from the grant date. Each annual option
grant will become exercisable in full upon the optionee's completion of one
year of Board service measured from the grant date.
4. The option will remain exercisable for a twelve-month period
following the optionee's termination of service as a Board member for any
reason. Should the optionee die while serving as a Board member or during
the twelve-month period following his or her cessation of Board service,
then such options may be exercised during the twelve-month period following
such optionee's cessation of service by the personal representatives of the
optionee's estate or the person to whom the grant is transferred by the
optionee's will or the laws of inheritance. In no event, however, may the
option be exercised after the expiration date of the option term. During
the applicable exercise period, the option may not be exercised for more
than the number of vested shares (if any) for which it is exercisable at
the time of the optionee's cessation of Board service.
5. The option shares will become fully exercisable and fully vested in
the event of a Corporate Transaction (as defined below) or a Change in
Control (as defined below). The option shares will become fully exercisable
and fully vested in the event of the optionee's cessation of Board service
by reason of death or permanent disability.
6. Upon the occurrence of a hostile tender offer, each option granted
before December 31, 1996 (whether or not the optionee is vested in such
option) shall be automatically canceled and the optionee will in return be
entitled to a cash distribution from the Company in an amount per canceled
option share equal to the excess of (i) the highest reported price per
share of Common Stock paid in the tender offer or, if greater, the fair
market value per share of Common Stock over (ii) the option exercise price
payable per share.
7. Option grants under the Automatic Option Grant Program will be made
in strict compliance with the express provisions of that program. The
remaining terms and conditions of the options will in general conform to
the terms described above for option grants under the Discretionary Option
Grant Program and will be incorporated into the option agreement evidencing
the automatic grant.
9
<PAGE>
General Provisions
Acceleration of Options/Termination of Repurchase Rights. Upon the
occurrence of either of the following transactions (a "Corporate Transaction"):
(i) the sale, transfer, or other disposition of all, or substantially
all, of the Company's assets in complete liquidation or dissolution of the
Company, or
(ii) a merger or consolidation in which securities possessing more than
50% of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction,
each outstanding option under the Option Plan will, immediately prior to the
effective date of the Corporate Transaction, become fully exercisable for all
of the shares at the time subject to such option. However, an outstanding
option shall not accelerate if and to the extent: (a) such option is, in
connection with the Corporate Transaction, either to be assumed by the
successor corporation (or parent) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent),
(b) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
such option or (c) the acceleration of such option is subject to other
limitations imposed by the Committee at the time of the option grant.
Immediately following the consummation of the Corporate Transaction, all
outstanding options will terminate and cease to be exercisable, except to the
extent assumed by the successor corporation.
Also upon a Corporate Transaction, the Company's outstanding repurchase
rights will terminate automatically and the shares of Common Stock subject to
those terminated rights shall vest in full unless assigned to the successor
corporation or accelerated vesting is precluded by other limitations imposed by
the Committee at the time the repurchase right is issued.
Any options which were granted prior to April 13, 2000 and which are assumed
or replaced in the Corporate Transaction and do not otherwise accelerate at
that time shall automatically accelerate (and any of the Company's outstanding
repurchase rights which do not otherwise terminate at the time of the Corporate
Transaction shall automatically terminate and the shares of Common Stock
subject to those terminated rights shall immediately vest in full) in the event
the optionee's service should subsequently terminate by reason of an
involuntary or constructive termination within twelve months following the
effective date of such Corporate Transaction. Any options so accelerated shall
remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one-year period
measured from the effective date of the employment termination.
The Committee has the discretion to accelerate outstanding options and
terminate the Company's outstanding repurchase rights in its discretion,
including upon the occurrence of the following transactions ("Change in
Control"):
(i) any person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) acquires beneficial ownership of more
than 50% of the Company's outstanding voting stock without the Board's
recommendation, or
(ii) there is a change in the composition of the Board over a period of
36 consecutive months or less such that a majority of the Board members
ceases by reason of a proxy contest(s) to be comprised of individuals who
(a) have been Board members continuously since the beginning of such period
or (b) have been elected or nominated for selection as Board members by a
majority of the Board in clause (a) who were still in office at the time
such election or nomination was approved by the Board.
The Committee also has the discretion to accelerate outstanding options and
terminate the Company's outstanding repurchase rights upon the subsequent
termination of the optionee's service within a specified period following the
Change in Control.
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<PAGE>
The acceleration of options in the event of a Corporate Transaction or
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt, or other efforts
to gain control of the Company.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the Option Plan, the fair market value of a share of
Common Stock on any relevant date will be the closing price per share of Common
Stock on that date, as such price is reported on the Nasdaq National Market.
The fair market value on December 1, 2000 as reported on the Nasdaq National
Market was $4.25 per share.
Change in Capitalization. In the event any change is made to the Common
Stock issuable under the Option Plan by reason of any stock split, stock
dividend, combination of shares, exchange of shares, or other change effecting
the outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the Option Plan, (ii) the maximum
number and/or class of securities for which any one person may be granted
options over the specified term, (iii) the number and/or class of securities
for which automatic option grants are to be subsequently made per director
under the Automatic Option Grant Program and (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option (including any option incorporated from the 1987 Plan) in order to
prevent the dilution or enlargement of benefits thereunder.
Each outstanding option which is assumed in connection with a Corporate
Transaction will be appropriately adjusted to apply and pertain to the number
and class of securities which would otherwise have been issued, in consummation
of such Corporate Transaction, to the option holder had the option been
exercised immediately prior to the Corporate Transaction. Appropriate
adjustments will also be made to the option price payable per share and to the
class and number of securities available for future issuance under the Option
Plan on both an aggregate and a per-participant basis.
Option Plan Amendments. The Board may amend or modify the Option Plan in any
and all respects. However, without the approval of the Company's stockholders,
the Board may not (i) materially increase the maximum number of shares issuable
under the Option Plan (except in connection with certain changes in
capitalization) or (ii) materially modify the eligibility requirements for
option grants.
Unless sooner terminated by the Board, the Option Plan will in all events
terminate on April 15, 2006. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
New Plan Benefits. As of December 1, 2000 options covering 4,227,815 shares
were outstanding under the Option Plan, 33,610 shares are available not taking
into account the increase in the share reserve requested by this Proposal No.
2, and 2,418,876 shares have been issued under the Option Plan. The expiration
dates for all such outstanding options range from March 2001 to December 2010.
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<PAGE>
Except as set forth above under the caption "Automatic Option Grant
Program," grants to be made under the Option Plan in the future are at the
discretion of the Committee and are not determinable at this time. The
following table shows all option grants made under the Option Plan during the
fiscal year ending September 30, 2000 and through December 1, 2000, to the
indicated individuals, all current executive officers as a group, all current
directors who are not executive officers as a group, and all employees
(including all current officers who are not executive officers) as a group,
respectively:
<TABLE>
<CAPTION>
Number of
Option Shares
-------------
<S> <C>
Alan B. Lefkof............................................... 80,000
James A. Clark............................................... 30,000
David A. Kadish.............................................. 50,000
Thomas A. Skoulis............................................ 40,000
Michael P. Trupiano.......................................... 100,000
Reese M. Jones............................................... 6,000
David C. King................................................ 25,000
David F. Marquardt........................................... 6,000
All Current Executive Officers as a Group (7 persons)........ 400,000
All Directors who were not employees as a group (3 persons).. 37,000
All Employees (including officers who are not executive
officers)................................................... 1,404,074
</TABLE>
Employees and directors of the Company, including officers, are also
eligible to receive options under the 2000 Plan, see "Report of the
Compensation Committee on Executive Compensation." Through December 1, 2000,
options to purchase 999,400 shares of Common Stock had been granted under the
2000 Plan, of which directors and officers of the Company held options to
purchase 344,500 shares.
Federal Income Tax Consequences of Options Granted Under the Option Plan
Options granted under the Option Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Code or nonstatutory
options that are not intended to meet such requirements. The Federal income tax
treatment for the two types of options differs.
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the excess of the fair market value
of the purchased shares on the exercise date over the exercise price paid for
the shares generally is includable in alternative minimum taxable income. The
optionee will recognize taxable income in the year in which the purchased
shares are sold or otherwise made the subject of disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two holding periods
prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of
those shares on the date the option was exercised over (ii) the lesser of
(a) the exercise price paid for the shares and (b) the sale price received for
the shares, will be taxable as ordinary income. Any additional gain recognized
upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
lesser of (a) the
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<PAGE>
exercise price paid for the shares and (b) the sale price received for the
shares. In no other instance will the Company be allowed a deduction with
respect to the optionee's disposition of the purchased shares.
Nonstatutory Options. No taxable income is recognized by an optionee upon
the grant of a nonstatutory option.
The optionee will in general recognize ordinary income in the year in which
the option is exercised equal to the excess of the fair market value of the
purchased shares on the exercise date over the exercise price paid for the
shares, and the optionee will be required to satisfy the tax withholding
requirements applicable to such income.
Special provisions of the Code apply to the acquisition of Common Stock
under a nonstatutory option if the purchased shares are subject to repurchase
by the Company. These special provisions may be summarized as follows:
(i) If the shares acquired upon exercise of the nonstatutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (a) the
fair market value of the shares on the date such repurchase right lapses
with respect to such shares over (b) the exercise price paid for the
shares.
(ii) The optionee may, however, elect under Section 83(b) of the Code to
include as ordinary income in the year of exercise of the nonstatutory
option an amount equal to the excess of (a) the fair market value of the
purchased shares on the exercise date (determined as if the shares were not
subject to the Company's repurchase right) over (b) the exercise price paid
for such shares. If the Section 83(b) election is made, the optionee will
not recognize any additional income as and when the repurchase right
lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised nonstatutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the
amount of the appreciation distribution. The Company will be entitled to a
business expense deduction equal to the appreciation distribution for the
taxable year of the Company in which the ordinary income is recognized by the
optionee.
PROPOSAL NO. 3
AMENDMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to approve an amendment to the Netopia,
Inc. Employee Stock Purchase Plan (the "Purchase Plan") to increase the number
of shares of Common Stock available for issuance under the Purchase Plan by
800,000 shares to a total of 1,600,000. The Purchase Plan is an important part
of our compensation program, and we believe it is essential to our ability to
attract and retain highly qualified employees in an extremely competitive
environment. The Company believes that it should reserve a sufficient number of
shares under the Purchase Plan to last through the end of each twenty-four
month offering period beginning prior to the 2001 Annual Stockholder Meeting.
In accordance with applicable accounting guidance, an insufficient number of
shares reserved at the beginning of an offering period may result in future
compensation charges for financial reporting purposes. The Company estimates
that without the proposed increase the remaining shares reserved for issuance
under the Purchase Plan will be exhausted early in 2001, in part because the
decline in the market price of the Common Stock since the beginning of many of
the previous enrollment dates under the Purchase Plan means that more shares
will be purchased by participants in the Purchase Plan. Accordingly, the Board
is recommending an increase to the number of shares available under the
Purchase Plan.
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<PAGE>
Vote Required and Board of Directors' Recommendation
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the Annual Stockholder Meeting, at which a quorum
is present either in person or by proxy, is required for approval of this
proposal. The Company's executive officers have an interest in approval of this
proposal because they, along with all other individuals eligible to participate
in the Purchase Plan, will be eligible to purchase Common Stock under the
Purchase Plan from the additional 800,000 shares. The proxy holders intend to
vote all proxies received by them FOR the amendment of the Purchase Plan.
Abstentions are not affirmative votes and, therefore, will have the same effect
as a vote against the proposal. Broker non-votes will not be treated as
entitled to vote on the matter, and thus will not affect the outcome of the
voting on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE
COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
Summary of the Employee Stock Purchase Plan
The principal terms and provisions of the Purchase Plan are summarized
below. The summary, however, is not intended to be a complete description of
all the terms of the Purchase Plan. A copy of the Purchase Plan will be
furnished by the Company to any stockholder upon written request to the
Company's Secretary at the executive offices in Alameda, California.
Purchase Plan Background. The Purchase Plan was adopted by the Board on
April 16, 1996 and approved by the stockholders on May 15, 1996. The Purchase
Plan was amended on February 14, 1997, October 29, 1997, October 27, 1998,
January 13, 2000 and on October 28, 2000 to increase the number of shares
issuable thereunder. The stockholders approved each of the foregoing amendments
except the last one, which is the subject of the proposal.
Purpose. The purpose of the Purchase Plan is to provide employees of the
Company and designated parent or subsidiary corporations (collectively,
"Participating Companies") an opportunity to participate in the ownership of
the Company by purchasing Common Stock through payroll deductions. The Company
is the only Participating Company in the Purchase Plan. The Purchase Plan and
the right of participants to make purchases thereunder are intended to meet the
requirements of an "employee stock purchase plan" as defined in Section 423 of
the Code.
The Purchase Plan is intended to benefit the Company as well as its
stockholders and employees. The Purchase Plan gives employees an opportunity to
purchase shares of Common Stock at a favorable price. The Company believes that
the stockholders will correspondingly benefit from the increased interest on
the part of participating employees in the appreciation of the Company's share
price. Finally, the Company will benefit from the periodic investments of
equity capital provided by participants in the Purchase Plan.
Administration. The Purchase Plan is currently administered by the
Compensation Committee of the Board (the "Committee"). All costs and expenses
incurred in plan administration are paid by the Company without charge to
participants. All cash proceeds received by the Company from payroll deductions
under the Purchase Plan are credited to a non-interest bearing book account.
Shares and Terms. The stock issuable under the Purchase Plan may be
authorized but unissued shares or reacquired shares. The maximum number of
shares of Common Stock that may be issued under the Purchase Plan is 1,600,000,
assuming approval of this Proposal No. 3. Common Stock subject to a terminated
purchase right is available for purchase pursuant to purchase rights
subsequently granted.
Adjustments. If any change in the Common Stock occurs (through
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration), appropriate adjustments shall
be made by the Company
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<PAGE>
to the class and maximum number of shares subject to the Purchase Plan, to the
class and maximum number of shares purchasable by each participant on any one
purchase date, and the class and number of shares and purchase price per share
subject to outstanding purchase rights in order to prevent the dilution or
enlargement of benefits thereunder.
Eligibility. Generally, any individual who is customarily employed by a
Participating Company more than 20 hours per week and for more than five months
per calendar year is eligible to participate in the Purchase Plan.
Approximately 360 employees (including 7 officers) were eligible to participate
in the Purchase Plan as of December 1, 2000.
Offering Periods. The Purchase Plan is implemented by offering periods which
generally have a duration of twenty-four months. Each offering period is
comprised of a series of one or more successive purchase periods, each of which
generally have a duration of six months. Offering periods are concurrent and
successive and, accordingly, a new offering period commences every six months
and runs concurrently with each prior offering period. Generally, purchase
periods start on the first business day in each of February and August and end,
respectively, on the last business day of July of the same year and January of
the following year. A new offering period will begin on February 1, 2001 and
will end on January 31, 2003. The Committee in its discretion may vary the
beginning date and ending date of the offering periods prior to their
commencement, provided no offering period (other than the initial offering
period) shall exceed 24 months in length, and may terminate an offering period
following any purchase period.
The participant will have a separate purchase right for each offering period
in which he or she participates. The purchase right will be granted on the
first day of the offering period and will be automatically exercised in
successive installments on the last day of each purchase period within the
offering period.
Purchase Price. The purchase price per share under the Purchase Plan will be
85% of the lower of (i) the fair market value of a share of Common Stock on the
first day of the applicable offering period, or (ii) the fair market value of a
share of Common Stock on the purchase date. Generally, the fair market value of
the Common Stock on a given date is the closing sale price of the Common Stock,
as reported on the Nasdaq National Market. The market value of the Common Stock
as reported on the Nasdaq National Market as of December 1, 2000 was $4.25 per
share.
Limitations. The plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following:
1. No purchase right shall be granted to any person who immediately
thereafter would own, directly or indirectly, stock or hold outstanding
options or rights to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the
Company or any of its parent or subsidiary corporations.
2. In no event shall a participant be permitted to purchase more than
2,000 shares on any one purchase date.
3. The right to purchase Common Stock under the Purchase Plan (or any
other employee stock purchase plan that the Company or any of its
subsidiaries may establish) in an offering intended to qualify under
Section 423 of the Code may not accrue at a rate that exceeds $25,000 in
fair market value of such Common Stock (determined at the time such
purchase right is granted) for any calendar year in which such purchase
right is outstanding.
The purchase right shall be exercisable only by the Participant during the
Participant's lifetime and shall not be assignable or transferable by the
Participant.
Payment of Purchase Price; Payroll Deductions. Payment for shares by
participants shall be by accumulation of after-tax payroll deductions during
the purchase period. The deductions may not exceed 15% of a participant's cash
compensation paid during a purchase period. Compensation for this purpose will
include
15
<PAGE>
elective contributions that are not includable in income under Sections 125 or
401(k) of the Code, and all bonuses, overtime, commissions, and other amounts
to the extent paid in cash.
The participant will receive a purchase right for each offering period in
which he or she participates to purchase up to the number of shares of Common
Stock determined by dividing such participant's payroll deductions accumulated
prior to the purchase date by the applicable purchase price (subject to the
limitations described in the "Limitations" section). No fractional shares shall
be purchased. Any payroll deductions accumulated in a participant's account
that are not sufficient to purchase a full share will be retained in the
participant's account for the subsequent purchase period. No interest shall
accrue on the payroll deductions of a participant in the Purchase Plan.
Termination and Change to Payroll Deductions. A purchase right shall
terminate at the end of the offering period or earlier if (i) the participant
terminates employment and then any payroll deductions which the participant may
have made with respect to a terminated purchase right will be refunded or (ii)
the participant elects to withdraw from the Purchase Plan. Any payroll
deductions which the participant may have made with respect to a terminated
purchase right under clause (ii) will be refunded unless the participant elects
to have the funds applied to the purchase of shares on the next purchase date.
Unless a participant has irrevocably elected otherwise, he or she may decrease
his or her deductions once during a purchase period.
Amendment and Termination. The Purchase Plan shall continue in effect until
the earlier of (i) the last business day in July 2006, (ii) the date on which
all shares available for issuance under the Purchase Plan shall have been
issued or (iii) a Corporate Transaction, unless the Purchase Plan is earlier
terminated by the Board in its discretion.
The Board may at any time alter, amend, suspend or discontinue the Purchase
Plan, provided that, without the approval of the stockholders, no such action
may (i) alter the purchase price formula so as to reduce the purchase price
payable for shares under the Purchase Plan, (ii) materially increase the number
of shares issuable under the Purchase Plan or the maximum number of shares
purchasable per participant, or (iii) materially increase the benefits accruing
to participants under the Purchase Plan or materially modify the eligibility
requirements.
In addition, the Company has specifically reserved the right, exercisable in
the sole discretion of the Board, to terminate the Purchase Plan immediately
following any six-month purchase period. If such right is exercised by the
Board, then the Purchase Plan will terminate in its entirety and no further
purchase rights will be granted or exercised, and no further payroll deductions
shall thereafter be collected under the Purchase Plan.
Corporate Transaction. In the event of (i) a merger or consolidation in
which securities possessing more than 50% of the total combined voting power of
the Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction or (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company (a "Corporate Transaction"), each purchase right
under the Purchase Plan will automatically be exercised immediately before
consummation of the Corporate Transaction as if such date were the last
purchase date of the offering period. The purchase price per share shall be
equal to 85% of the lower of the fair market value per share of Common Stock on
the start date of the offering period or the fair market value per share of
Common Stock immediately prior to the effective date of such Corporate
Transaction. Any payroll deductions not applied to such purchase shall be
promptly refunded to the participant.
The grant of purchase rights under the Purchase Plan will in no way affect
the right of the Company to adjust, reclassify, reorganize, or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
Pro Ration of Purchase Rights. If the total number of shares of Common Stock
for which purchase rights are to be granted on any date exceeds the number of
shares then remaining available under the Purchase Plan, the Committee shall
make a pro rata allocation of the shares remaining.
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<PAGE>
Federal Income Tax Consequences. The following is a general description of
certain federal income tax consequences of the Purchase Plan. This description
does not purport to be complete.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. Under a plan which so qualifies, no
taxable income will be reportable by a participant, and no deductions will be
allowable to the Company, by reason of the grant or exercise of the purchase
rights issued thereunder. A participant will, however, recognize taxable income
in the year in which the purchased shares are sold or otherwise made the
subject of disposition.
A sale or other disposition of the purchased shares will be a disqualifying
disposition if made before the later of two years after the start of the
offering period in which such shares were acquired or one year after the shares
are purchased. If the participant makes a disqualifying disposition of the
purchased shares, then the Company will be entitled to an income tax deduction,
for the taxable year in which such disposition occurs, equal to the amount by
which the fair market value of such shares on the date of purchase exceeded the
purchase price, and the participant will be required to satisfy the employment
and income tax withholding requirements applicable to such income. In no other
instance will the Company be allowed a deduction with respect to the
participant's disposition of the purchased shares.
Any additional gain or loss recognized upon the disposition of the shares
will be a capital gain, which will be long-term if the shares have been held
for more than one year following the date of purchase under the Purchase Plan.
The foregoing is only a summary of the federal income taxation consequences
to the participant and the Company with respect to the shares purchased under
the Purchase Plan. In addition, the summary does not discuss the tax
consequences of a participant's death or the income tax laws of any city, state
or foreign country in which the participant may reside.
New Purchase Plan Benefits. Since purchase rights are subject to discretion,
including an employee's decision not to participate in the Purchase Plan,
purchases of Common Stock under the Purchase Plan for the current fiscal year
are not determinable. However, in the fiscal year ended September 30, 2000,
each of the Named Officers purchased the following number of shares of Common
Stock at a price of $21.1438 per share: Mr. Clark 1,035; Mr. Kadish 1,304; Mr.
Lefkof 486; and Mr. Skoulis 1,610. In addition, Mr. Trupiano purchased 2,000
shares at a price of $4.04 per share and 145 shares at a price of $40.80 per
share. All executive officers as a group (7 persons) purchased 9,818 shares
during the fiscal year ended September 30, 2000.
PROPOSAL NO. 4
INCREASE IN THE NUMBER OF AUTHORIZED SHARES UNDER
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") currently authorizes us to issue up to 25,000,000
shares of Common Stock and 5,000,000 shares of preferred stock. This Proposal
would amend our Restated Certificate to authorize us to issue up to 50,000,000
shares of Common Stock and 5,000,000 shares of preferred stock. The larger
number of authorized shares of Common Stock provided for in this Proposal will
provide us with the certainty and flexibility to undertake various types of
transactions, including stock splits, issuances of stock dividends, financings,
increases in the shares reserved for issuance under our equity incentive plans,
or other corporate transactions not yet determined.
In order for our Board of Directors to be able to respond to future
circumstances with a reasonable degree of flexibility, we must have a
sufficient number of authorized shares to cover any stock splits or other
transactions. For example, since there are currently 25,000,000 shares of
Common Stock authorized and, as of December 1, 2000, 17,607,608 shares of
Common Stock are issued and outstanding and 5,400,005 shares of Common Stock
are reserved for issuance under our various equity incentive plans, we
currently have
17
<PAGE>
1,992,387 shares available for issuance in the future. Consequently, the number
of shares currently authorized would not be sufficient to approve a two-for-one
stock split without first obtaining stockholder approval. The proposed increase
in the number of authorized shares of Common Stock from 25,000,000 shares to
50,000,000 would result in our having 26,992,387 shares available for issuance
in the future. We have no current plans to issue the additional authorized
shares. Although we currently have no agreements or understandings with respect
to material acquisitions, the increase in the number of shares of Common Stock
will provide us with additional flexibility with regard to any future
acquisitions.
Under this Proposal, the additional shares of Common Stock would be
available for issuance without further stockholder action, unless stockholder
action is otherwise required by Delaware law or the rules of any stock exchange
or automated quotation system on which the Common Stock may then be listed or
quoted.
The additional shares of Common Stock that would become available for
issuance if the proposed amendment were adopted could also be used by us to
oppose a hostile takeover attempt or delay or prevent changes of our control or
changes in or removal of our management. For example, without further
stockholder approval, our Board could strategically sell shares of Common Stock
in a private transaction to purchasers who would oppose a takeover or favor the
current Board. Although this proposal to increase the number of authorized
shares of Common Stock has been prompted by business and financial
considerations, not by the threat of any attempt to accumulate shares or
otherwise gain control of us, stockholders nevertheless should be aware that
approval of the proposal could facilitate future efforts by us to deter or
prevent changes of our control, including transactions that are favored by a
majority of the independent stockholders or in which the stockholders might
otherwise receive a premium for their shares over then-current market prices or
benefit in some other manner.
In addition, the authority granted by our Restated Certificate to our Board
to fix the designations, powers, preferences, rights, qualifications,
limitations and restrictions of any class or series of our preferred stock
could be used for anti-takeover purposes. The proposal to increase the number
of authorized shares of Common Stock, however, is not part of any plan to adopt
a series of amendments having an anti-takeover effect, and our management
presently does not intend to propose anti-takeover measures in future proxy
solicitations.
Vote Required and Board of Directors' Recommendation
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the Annual Stockholder Meeting, at which a quorum
is present either in person or by proxy, is required for approval of this
proposal. The proxy holders intend to vote all proxies received by them FOR the
amendment of the Amended and Restated Certificate of Incorporation. Abstentions
are not affirmative votes and, therefore, will have the same effect as a vote
against the proposal. Broker non-votes will not be treated as entitled to vote
on the matter, and thus will not affect the outcome of the voting on the
proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE
COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
18
<PAGE>
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has selected KPMG LLP as the independent auditors of the Company
for the fiscal year ending September 30, 2001. KPMG LLP has acted in such
capacity since its appointment for fiscal year 1987. A representative of KPMG
LLP will be present at the Annual Stockholder Meeting, will be given the
opportunity to make a statement, if he or she so desires, and will be available
to respond to appropriate questions.
In the event ratification by the holders of the appointment of KPMG LLP as
the Company's independent auditors is not obtained, the Board will reconsider
such appointment.
Vote Required and Board of Directors' Recommendation
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the Annual Stockholder Meeting, at which a quorum
is present either in person or by proxy, is required for approval of this
proposal. The proxy holders intend to vote all proxies received by them FOR the
ratification of the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending September 30, 2001. Abstentions are not
affirmative votes and, therefore, will have the same effect as a vote against
the proposal. Broker non-votes will not be treated as entitled to vote on the
matter, and thus will not effective the outcome of the voting on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING SEPTEMBER 30, 2001.
19
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer and the four other most highly
compensated officers who were serving as executive officers at the end of
fiscal 2000 and whose total earned salary and bonus for fiscal 2000 exceeded
$100,000 for fiscal 2000 (collectively, the "Named Officers"), for services
rendered in all capacities to the Company and its subsidiary, for fiscal years
1998, 1999 and 2000. Bonus payments shown with respect to services performed in
each fiscal year were paid in the subsequent fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation (1) Awards
---------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Salary Bonus Compensation (3) Options (#) Compensation (2)
--------------------------- -------- ------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Alan B. Lefkof............. 2000 $280,324 $ -- $1,155 80,000 $8,884
President and Chief 1999 267,500 65,000 2,325 60,000 7,830
Executive Officer 1998 253,750 13,500 643 120,000 7,272
James A. Clark............. 2000 174,428 -- 1,480 30,000 6,000
Vice President and Chief 1999 166,000 40,000 65 25,000 6,000
Financial Officer 1998 157,750 32,200 125 75,000 6,000
David A. Kadish (4)........ 2000 174,679 30,000 180 50,000 6,000
Vice President, General 1999 132,421 5,000 -- 116,500 2,000
Counsel and Secretary 1998 88,332 -- -- -- --
Thomas A. Skoulis (5)...... 2000 139,277 84,779 -- 40,000 6,000
Senior Vice President and 1999 130,000 75,469 -- 30,000 6,000
General Manager, Web 1998 128,750 56,451 -- 65,000 6,000
Platforms
Michael P. Trupiano (6).... 2000 187,763 54,154 1,565 100,000 6,000
Senior Vice President and 1999 177,083 60,906 -- 100,000 6,000
General Manager, Internet 1998 151,250 6,750 -- 92,000 6,000
Equipment
</TABLE>
--------
(1) Includes amounts deferred under the Company's 401(k) Plan.
(2) Represents car allowances.
(3) Represents amounts paid in connection with tax services paid for by the
Company.
(4) The amounts shown include consulting fees and expenses of $88,332 and
$78,253 paid during fiscal 1998 and 1999, respectively, before Mr. Kadish
became an employee of the Company.
(5) Bonus includes commissions earned of $52,701, $50,469 and $64,779 during
fiscal 1998, 1999 and 2000, respectively.
(6) Bonus includes commissions earned of $25,906 and $39,154 during fiscal 1999
and 2000, respectively.
20
<PAGE>
Option Grants in Last Fiscal Year
The following table contains information concerning the stock option grants
made to each of the Named Officers in the fiscal year ended September 30, 2000.
In accordance with the rules of the United States Securities and Exchange
Commission, the table sets forth the hypothetical gains or "option spreads"
that would exist for the options at the end of their respective ten-year terms.
No stock appreciation rights were granted to these individuals during such
year.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise for Option Term (4)
Options in Fiscal Price per Expiration ---------------------
Name Granted (1) 2000 (2) Share (3) Date 5% 10%
---- ----------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan B. Lefkof.......... 80,000 5.24% $48.00 2/1/10 $2,414,955 $6,119,971
President and Chief
Executive Officer
James A. Clark.......... 30,000 1.97% 48.00 2/1/10 905,608 2,294,989
Vice President and
Chief Financial Officer
David A. Kadish......... 40,000 2.62% 48.00 2/1/10 1,207,478 3,059,986
Vice President, General 10,000 0.66% 34.63 4/17/10 217,755 551,833
Counsel and Secretary
Thomas A. Skoulis....... 40,000 2.62% 48.00 2/1/10 1,207,478 3,059,986
Senior Vice President
and General Manager,
Web Platforms
Michael P. Trupiano..... 75,000 4.91% 48.00 2/1/10 2,264,021 5,737.473
Senior Vice President 25,000 1.64% 34.63 4/17/10 544,387 1,379,583
and General Manager,
Internet Equipment
</TABLE>
--------
(1) Stock options are granted with an exercise price equal to the fair market
value of the Common Stock on the date of grant. The options become
exercisable in quarterly installments over four years beginning from the
grant date. All outstanding options will automatically accelerate in full
and then terminate following an acquisition of the Company by merger or
asset sale unless the acquiring company assumes the outstanding options or
replaces the outstanding options with a substitute option or with a cash
incentive program. Any options which are assumed or replaced, excluding the
options granted on April 17, 2000, shall automatically accelerate in the
event the optionee's service should subsequently terminate by reason of an
involuntary termination within twelve months of such transaction and remain
exercisable for a one-year period from the date of termination.
(2) Based on options to acquire an aggregate of 1,526,274 shares granted in the
2000 fiscal year.
(3) The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. The Company may also finance the
option exercise by loaning the optionee sufficient funds to pay the
exercise price for the purchased shares, together with any federal and
state income tax liability incurred by the optionee in connection with such
exercise.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. Actual
gains, if any, on option exercises are dependent on the future performance
of the Common Stock and overall market conditions. There can be no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the 10-
year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
21
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information concerning the shares acquired
and the value realized upon the exercise of stock options during the 2000
fiscal year and the year-end number and value of unexercised options with
respect to each of the Named Officers. No stock appreciation rights were
exercised by the Named Officers in fiscal 2000.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options in-the-Money Options at
Shares at September 30, 2000 September 30, 2000 (2)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan B. Lefkof.......... 263,000 $13,342,822 230,625 189,375 $1,548,761 $605,259
James A. Clark.......... 118,315 5,784,430 58,688 87,997 404,089 324,785
David A. Kadish......... 7,000 469,750 47,001 117,499 67,094 0
Thomas A. Skoulis....... 41,000 2,758,189 103,939 96,561 628,374 317,751
Michael P. Trupiano..... 106,900 5,421,276 123,214 217,886 624,279 464,091
</TABLE>
--------
(1) "Value Realized" represents the fair market value of the shares underlying
the option on the date of exercise less the aggregate exercise price.
(2) These values have not been and may never be realized. They are based on the
fair market value of the Common Stock at September 30, 2000 ($11.00 per
share), as determined by the closing price on the Nasdaq National Market,
less the exercise price payable for such shares.
Employment and Change of Control Arrangements
The Compensation Committee, as plan administrator of the 1996 Stock Option
Plan, has the authority to provide for accelerated vesting of the shares of
Common Stock subject to outstanding options held by the Named Officers and any
other executive officer in connection with certain changes in control of the
Company or the subsequent termination of the officer's employment following the
change in control event.
None of the Named Officers have employment agreements with the Company, and
their employment may be terminated at any time. However, the Company has
entered into an agreement with Messrs. Lefkof, Clark, Kadish, Skoulis and
Trupiano which provides for acceleration of vesting of option shares as if the
officer remained employed for twelve additional months in the event the
officer's employment is involuntarily terminated during the 12 month period
following certain acquisitions or changes in control of the Company. In
addition, Messrs. Clark and Kadish will receive severance pay equal to 12
months salary and Messrs. Lefkof, Skoulis and Trupiano will receive severance
pay equal to six months salary upon any such termination.
Certain Relationships and Related Transactions
On August 5, 1998, the Company sold its Farallon LAN Division to Farallon
Communications, Inc., an affiliate of Gores Technology Group, for cash, a
warrant and certain receivables aggregating $4.9 million in consideration. In
June 2000, Proxim, Inc. acquired substantially all of the business and assets
of Farallon. David C. King, a director of the Company, is the Chairman,
President and CEO of Proxim. In connection with the acquisition, Netopia
exercised its warrant immediately prior to the sale of Farallon to Proxim.
Netopia paid Farallon the warrant exercise price of $300 and received $410,406
from Proxim as consideration for the Farallon shares Netopia had purchased by
exercising the warrant.
Compensation Committee Interlocks And Insider Participation
The Compensation Committee of the Company's Board of Directors, as of
September 30, 2000, consisted of Messrs. King and Marquardt. Neither Mr. King
nor Mr. Marquardt was at any time during the fiscal year ended September 30,
2000, or at any other time, an officer or employee of the Company. No member of
the Compensation Committee serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
22
<PAGE>
Further information may be found in "Certain Relationships and Related
Transactions" above.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Common Stock to file initial reports of ownership and reports of changes in
ownership with the United States Securities and Exchange Commission ("SEC").
Such persons are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms filed by such persons. Based solely on the Company's
review of such forms furnished to the Company and written representations from
certain reporting persons, the Company believes that all filing requirements
applicable to the Company's executive officers, directors and more than 10%
stockholders were complied with during fiscal 2000.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This Report of the Compensation Committee (the "Committee") shall not be
deemed to be incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filing under the Securities Act of
1933, as amended, or under the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed soliciting material
or filed under such acts.
The Committee has the authority to establish the level of base salary
payable to the Chief Executive Officer ("CEO") and to administer the Company's
various stock incentive plans. In addition, the Committee has the
responsibility for approving the individual bonus program to be in effect for
the CEO. The CEO has the authority to establish the level of base salary
payable to all other employees of the Company, including all executive
officers, subject to the approval of the Committee. In addition, the CEO has
the responsibility for approving the bonus programs to be in effect for all
other executive officers and other key employees each fiscal year, subject to
the approval of the Committee.
For fiscal 2000, the process utilized by the CEO in determining executive
officer compensation levels took into account both qualitative and quantitative
factors. Among the factors considered by the CEO were informal surveys
conducted by Company personnel among local companies. The Committee reviewed
but made no changes to the CEO's compensation proposals for the officers.
General Compensation Policy. The CEO's fundamental policy is to offer the
Company's executive officers competitive compensation opportunities based upon
overall Company performance, their individual contribution to the financial
success of the Company and their personal performance. It is the CEO's
objective to have a substantial portion of each officer's compensation
contingent upon the Company's performance, as well as upon his or her own level
of performance. Accordingly, each executive officer's compensation package
consists of (i) base salary, (ii) cash bonus awards and (iii) long-term stock-
based incentive awards.
In preparing the stock performance graph for this Proxy Statement, the
Company has selected the Standard & Poor's 500 Index, the Nasdaq Stock Market-
US Index, the Nasdaq Telecommunications Index and the Chase H&Q Technology
Index. To the extent that the Company compares its compensation practices
against other companies, through informal compensation surveys or otherwise,
the constituent companies are not necessarily those included in the Indices,
because the latter may not be competitive with the Company for executive talent
or because compensation information is not available to the Company.
Base Salary. The base salary for each executive officer is set at the time
of hire based on individual negotiation, and any subsequent increases are
awarded on the basis of personal performance.
Annual Cash Bonuses. Each executive officer has an established bonus target
each fiscal year. The annual pool of bonuses for executive officers is
determined on the basis of the Company's achievement of financial performance
targets established at the start of the fiscal year including operating
results, gross margin
23
<PAGE>
performance and revenue, and then a range is established for each executive on
the basis of his/her expected contribution to the Company's performance
targets. Actual bonuses paid reflect both achievement of corporate objectives
and an individual's accomplishment of functional objectives, with greater
weight being given to achievement of corporate rather than functional
objectives.
Long-Term Incentive Compensation. Generally, a significant grant is made in
the year that an officer commences employment and grants typically of lesser
amounts are made periodically. Generally, the size of each grant is set at a
level that the Committee deems appropriate, to create a meaningful opportunity
for stock ownership based upon the individual's position with the Company, the
individual's potential for future responsibility and promotion, the
individual's performance in the recent period and the number of unvested
options held by the individual at the time of the new grant. The relative
weight given to each of these factors will vary from individual to individual
at the Committee's discretion based on the recommendation made by the CEO to
the Committee. In fiscal 2000, stock option grants were awarded to each of the
executive officers to provide an incentive for the officers to improve the
Company's performance.
Each grant allows the officer to acquire shares of Common Stock at a fixed
price per share (the market price on the grant date) over a specified period of
time. The option vests in periodic installments over a four-year period,
contingent upon the executive officer's continued employment with the Company.
Accordingly, the option will provide a return to the executive officer only if
he/she remains in the Company's employ, and then only if the market price of
the Common Stock appreciates over the option term.
CEO Compensation. Mr. Lefkof, the Company's President and CEO, received an
increase in annual base salary on January 1, 2000. The remaining components of
the CEO's fiscal 2000 incentive compensation were entirely dependent upon the
Company's financial performance and provided no dollar guarantees. Mr. Lefkof
did not receive a bonus during fiscal 2000. Along with the other executive
officers, in fiscal 2000 stock option grants were awarded to the CEO to provide
an incentive for the CEO to improve the Company's performance.
2000 Stock Incentive Plan. In October 2000, the Board of Directors adopted
the 2000 Stock Incentive Plan (the "2000 Plan"). A total of 1,000,000 shares of
Common Stock are authorized for issuance under the 2000 Plan. The 2000 Plan is
designed to meet the "broadly based plans" exemption from the stockholder
approval requirement for stock option plans under the Nasdaq National Market
listing requirements. Officers of the Company and individuals who are subject
to Section 16 of the Exchange Act may not receive more than 40% of all shares
reserved for grant under the 2000 Plan. The 2000 Plan is generally similar to
the Option Plan, except that only nonqualified stock options may be granted
under the 2000 Plan, the 2000 Plan does not comply with the requirements for
tax deductibility under Section 162(m) of the Code, and adoption of and
amendments to the 2000 Plan do not require approval of the Company's
stockholders.
Tax Limitation. A publicly held company such as the Company will not be
allowed a Federal income tax deduction for compensation paid to certain
executive officers to the extent that compensation exceeds $1 million per
officer in any year. This limitation will be in effect for all fiscal years of
the Company ending after the Company's initial public offering. The
stockholders approved the Option Plan, which includes a provision that limits
the maximum number of shares of Common Stock for which any one participant may
be granted stock options over a three-year period. Accordingly, any
compensation deemed paid to an executive officer when he exercises an option
under the Option Plan with an exercise price equal to the fair market value of
the option shares on the grant date will generally qualify as performance-based
compensation that will not be subject to the $1 million limitation. Since it is
not expected that the cash compensation to be paid to the Company's executive
officers for the 2000 fiscal year will exceed the $1 million limit per officer,
the Committee will defer any decision on whether to limit the dollar amount of
the cash compensation payable to the Company's executive officers to the $1
million cap.
Compensation Committee
David C. King
David F. Marquardt
24
<PAGE>
COMPARISON OF STOCKHOLDER RETURNS
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's Common Stock with the cumulative
total return of the Standard & Poor's 500 Index, the Nasdaq Stock Market-US
Index, the Nasdaq Telecommunications Index and the Chase H&Q Technology Index
for the period commencing on June 13, 1996 and ending on September 30, 2000.
The Company's fiscal year ended September 30, 2000. This stock performance
graph includes data as of the latest practicable date. The Company has included
the Nasdaq Technology Index in this Proxy Statement for the first year because
the Company believes that this index is particularly relevant given the product
mix underlying the Company's revenue. The Company in future years will not
include the S&P 500 Index in its proxy statements because the entities included
in that index are not of a comparable size to the Company.
COMPARISON OF 4-YEAR CUMULATIVE TOTAL RETURN*
AMONG NETOPIA, INC., THE S&P 500 INDEX,
THE NASDAQ STOCK MARKET (U.S.) INDEX, THE CHASE H&Q TECHNOLOGY INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
6/13/96 6/96 9/96 12/96 3/97 6/97 9/97 12/97 3/98 6/98 9/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NETOPIA, INC. 100.00 92.19 65.63 39.84 26.56 31.25 42.97 35.94 37.89 49.22 35.16
S & P 500 100.00 100.47 103.58 112.21 115.22 135.33 145.47 149.65 170.52 176.15 158.63
NASDAQ STOCK MARKET (U.S.) 100.00 96.75 100.21 105.15 99.44 117.66 137.56 128.79 150.73 154.86 139.74
CHASE H & Q TECHNOLOGY 100.00 96.01 101.92 109.29 104.18 125.39 151.96 128.13 155.15 158.84 141.19
NASDAQ TELECOMMUNICATIONS 100.00 97.04 91.34 91.46 84.80 106.28 123.08 133.51 169.93 179.72 158.67
<CAPTION>
12/98 3/99 6/99 9/99 12/99 3/00 6/00 9/00
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NETOPIA, INC. 42.58 50.78 149.22 249.22 339.46 449.61 251.56 68.75
S & P 500 192.41 202.00 216.24 202.73 232.90 238.24 231.91 229.67
NASDAQ STOCK MARKET (U.S.) 181.59 203.65 222.77 228.30 337.41 378.68 329.25 303.09
CHASE H & Q TECHNOLOGY 199.30 217.06 257.07 271.96 445.11 502.11 451.00 442.80
NASDAQ TELECOMMUNICATIONS 220.93 277.85 294.71 268.99 391.80 416.21 328.32 262.77
</TABLE>
This graph shall not be deemed to be incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed soliciting material or filed under such acts.
25
<PAGE>
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is to consist of three independent directors. The Audit
Committee presently consists of Messrs. King and Marquardt, with one vacancy.
Both Mr. King and Mr. Marquardt are independent, non-employee directors of the
Company. The Audit Committee operates under a written charter adopted by the
Board of Directors (the "Charter"). A copy of the Charter is included as
Appendix A to this Proxy Statement. Under the Charter, the Audit Committee is
required to make regular reports to the Board. The Audit Committee recommends
to the Board of Directors the selection of the Company's independent auditors.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and to
issue a report thereon. The Audit Committee's responsibility is to monitor and
oversee these processes. In that context, the Audit Committee met and held
discussions with management and the Company's independent auditors, KPMG LLP
(the "Independent Auditors"). Management represented to the Audit Committee
that the Company's consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the Audit
Committee has reviewed and discussed the consolidated financial statements with
management and the Independent Auditors.
The Audit Committee discussed with Independent Auditors those matters
required to be discussed by Statement on Auditing Standards No. 61
(communication with Audit Committees) as currently in effect, including the
independence of the Independent Auditors. Additionally, the Independent
Auditors also provided to the Audit Committee the written disclosures required
by Independence Standards Board Standard No.1 (Independence Discussions with
Audit Committees), as currently in effect.
Based upon the discussions and representations referenced above, the Audit
Committee recommended to the Board of Directors that the audited financials
statements be included in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2000.
Audit Committee
David C. King
David F. Marquardt
26
<PAGE>
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL STOCKHOLDER MEETING
Proposals of stockholders intended to be presented at the next Annual
Stockholder Meeting of the Company must be received by the Company at its
offices at 2470 Mariner Square Loop, Alameda, California 94501, not later than
August 31, 2001 and satisfy the conditions established by the Securities and
Exchange Commission for holder proposals to be included in the Company's proxy
statement for that meeting. Pursuant to Rule 14a-4(c)(1) of the Securities
Exchange Act of 1934, as amended, stockholders wishing to bring a proposal
before the next Annual Stockholder Meeting of the Company (but not to include
it in the Company's proxy statement for that meeting) should provide written
notice of the proposal to the Company no later than November 13, 2001, as
proxies solicited for that meeting will confer discretionary authority to vote
on any such matter of which the Company did not have notice as of such date.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S REPORT ON FORM 10-K FOR FISCAL 2000, INCLUDING THE CONSOLIDATED
FINANCIAL STATEMENTS, SCHEDULE AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO
NETOPIA, INC., 2470 MARINER SQUARE LOOP, ALAMEDA, CALIFORNIA 94501, ATTENTION:
INVESTOR RELATIONS.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors is not
informed of any other matter, other than those stated above, that may be
brought before the meeting. The persons named in the enclosed form of proxy or
their substitutes will vote with respect to any such matters in accordance with
their best judgment.
By Order of the Board of Directors,
/s/ DAVID A. KADISH
David A. Kadish
Vice President, General Counsel and
Secretary
Dated: December 28, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE
ANNUAL STOCKHOLDER MEETING. IF YOU DECIDE TO ATTEND THE ANNUAL STOCKHOLDER
MEETING AND WISH TO CHANGE YOUR VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING
IN PERSON AT THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL STOCKHOLDER MEETING.
27
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APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE
BOARD OF DIRECTORS OF NETOPIA, INC.
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
. Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
. Monitor the independence and performance of the Company's independent
auditors.
. Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the Nasdaq Stock
Market. The Audit Committee shall be comprised of three or more directors
as determined by the Board, each of whom shall be independent directors,
free from any relationship that would interfere with the exercise of his or
her independent judgment.
Audit Committee members shall be appointed by the Board. If an audit
committee Chair is not designated or present, the members of the Committee
may designate a Chair by majority vote of the Committee membership.
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. The Committee should meet privately in executive
session at least annually with management, the independent auditors, and as
a committee to discuss any matters that the Committee or each of these
groups believe should be discussed. In addition, the Committee, or at least
its Chair, should communicate with management quarterly to review the
Company's financial statements and significant findings based upon the
auditors' limited review procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually. Submit
the charter to the Board of Directors for approval and have the document
published at least every three years in accordance with SEC regulations.
2. Review the Company's annual audited financial statements prior to filing or
distribution. Review should include discussion with management and
independent auditors of significant issues regarding accounting principles,
practices, and judgments.
3. In consultation with management and the independent auditors, consider the
integrity of the company's financial reporting processes and controls.
Discuss significant financial risk exposures and the steps management has
taken to monitor, control, and report such exposures. Review significant
findings prepared by the independent auditors together with management's
responses.
4. Review with financial management and, where appropriate as determined by
the Audit Committee, with the independent auditors, the company's quarterly
financial results prior to the release of earnings and/or the company's
quarterly financial statements prior to filing or distribution. Discuss any
significant changes
A-1
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to the Company's accounting principles and any items required to be
communicated by the independent auditors in accordance with SAS 71. The
Chair of the Committee may represent the entire Audit Committee for
purposes of this review.
Independent Auditors
5. The independent auditors are ultimately accountable to the Audit Committee
and the Board of Directors. The Audit Committee shall review the
independence and performance of the auditors and annually recommend to the
Board of Directors the appointment of the independent auditors or, where
appropriate, approve any change of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Committee shall review and discuss with the
independent auditors their written statement delineating all relationships
they have with the Company that could impair the auditors' independence.
8. Review the independent auditors' audit plan--discuss scope, staffing
locations, reliance upon management and general audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the audit
with the independent auditors. Discuss certain matters required to be
communicated to audit committees in accordance with AICPA SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
Internal Audit Department and Legal Compliance
11. Review whether the Company's operations have changed such that the
implementation of an internal audit function is needed and, if so,
establish the budget, plan, activities, organizational structure, and
qualifications of the internal audit department, as needed.
12. On at least an annual basis, review with the Company's counsel, any legal
matters that could have a significant impact on the organization's
financial statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.
Other Audit Committee Responsibilities
13. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in the Company's
annual proxy statement.
14. Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or the Board deems necessary
or appropriate.
15. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
Other Optional Charter Disclosures
16. Periodically perform self-assessment of audit committee performance.
17. Annually review a summary of director and officers' related party
transactions and potential conflicts of interest.
A-2
<PAGE>
NETOPIA, INC
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints Alan B. Lefkof and James A. Clark, and
either of them, to vote all shares of stock which the undersigned is entitled to
vote at the Annual Stockholder Meeting, to be held at 2470 Mariner Square Loop,
Alameda, California 94501 on Monday, January 29, 2001 at 10:00 a.m., local time,
and at any continuation or adjournment thereof, with all the powers which the
undersigned might have if personally present at the meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual
Stockholder Meeting and Proxy Statement, dated December 28, 2000, and a copy of
the Company's 2000 Annual Report to Stockholders. The undersigned hereby
expressly revokes any and all proxies heretofore given or executed by the
undersigned with respect to the shares of stock represented by this Proxy and,
by filing this Proxy with the Secretary of the Company, gives notice of such
revocation.
WHERE NO CONTRARY CHOICE IS INDICATED BY THE STOCKHOLDER, THIS PROXY, WHEN
RETURNED, WILL BE VOTED FOR SUCH PROPOSALS, FOR SUCH NOMINEES AND WITH
DISCRETIONARY AUTHORITY UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING. THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
1. ELECTION OF DIRECTORS
For all nominees Withhold Authority to vote for
listed below [_] nominees listed below [_]
Reese M. Jones, Alan B. Lefkof, David C. King and David F. Marquardt
2. PROPOSAL TO APPROVE AMENDMENT TO THE 1996 STOCK OPTION PLAN TO INCREASE THE
NUMBER OF SHARES AVAILABLE FOR ISSUANCE BY 500,000 SHARES, AS SET FORTH IN
THE ACCOMPANYING PROXY STATEMENT.
For [_] Against [_] Abstain [_]
3. TO APPROVE AN AMENDMENT TO THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN TO
INCREASE THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK AVAILABLE FOR
ISSUANCE BY 800,000 SHARES, AS SET FORTH IN THE ACCOMPANYING PROXY
STATEMENT.
For [_] Against [_] Abstain [_]
4. TO AMEND THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 25 MILLION
SHARES TO 50 MILLION SHARES.
For [_] Against [_] Abstain [_]
5. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS OF
THE COMPANY.
For [_] Against [_] Abstain [_]
6. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY BE BROUGHT BEFORE THE
MEETING.
<PAGE>
This proxy when properly executed will be voted in the manner directed herein by
the undersigned Stockholder.
DATED: ___________________, 2001 _________________________________
PLEASE VOTE, SIGN, DATE AND Signature
RETURN THE PROXY CARD
USING THE ENCLOSED ENVELOPE _________________________________
Signature (if held jointly)
