<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[_] Definitive Additional Materials Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
EXODUS COMMUNICATIONS, 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):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
_____________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
_____________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________
(5) Total fee paid:
_____________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
_____________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
_____________________________________________________________________
(3) Filing Party:
_____________________________________________________________________
(4) Date Filed:
_____________________________________________________________________
<PAGE>
[LOGO OF EXODUS
APPEARS HERE]
May 5, 1999
To Our Stockholders:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Exodus Communications, Inc. to be held at The Westin Santa Clara, 5101 Great
America Parkway, Santa Clara, California, on Wednesday, June 2, 1999, at 10:00
a.m., local time.
The matters expected to be acted upon at the meeting are described in detail
in the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement.
It is important that you use this opportunity to take part in the affairs of
Exodus by voting on the business to come before this meeting. Whether or not
you expect to attend the meeting, please complete, date, sign and promptly
return the accompanying proxy in the enclosed postage-paid envelope so that
your shares may be represented at the meeting. Returning the proxy does not
deprive you of your right to attend the meeting and to vote your shares in
person.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Richard S. Stoltz
------------------------------------
Richard S. Stoltz
Executive Vice President, Finance,
Chief Operating Officer and Chief
Financial Officer
<PAGE>
EXODUS COMMUNICATIONS, INC.
2831 Mission College Blvd.
Santa Clara, California 95054
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Exodus
Communications, Inc. will be held at The Westin Santa Clara, 5101 Great
America Parkway, Santa Clara, California, on Wednesday, June 2, 1999, at 10:00
a.m., local time for the following purposes:
1. To elect ten directors of the Company, each to serve until the next
annual meeting of stockholders and until his or her successor has been
elected and qualified or until his or her earlier resignation, death or
removal. The Company's Board of Directors intends to present the
following nominees for election as directors:
Frederick W.W. Bolander Peter A. Howley
K.B. Chandrasekhar Max D. Hopper
Mark Dubovoy Daniel C. Lynch
John R. Dougery Thadeus J. Mocarski
Ellen M. Hancock Kanwal S. Rekhi
2. To approve an amendment to Exodus' Restated Certificate of Incorporation
to increase the authorized number of shares of Common Stock issuable by
the Company from 100,000,000 to 300,000,000.
3. To amend the Company's 1998 Equity Incentive Plan to increase the number
of shares of Common Stock reserved for issuance thereunder by 2,000,000
shares from 3,000,000 shares to 5,000,000 shares.
4. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 1999.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 22, 1999 are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ Richard S. Stoltz
-------------------------------------
Richard S. Stoltz
Executive Vice President, Finance,
Chief Operating Officer and Chief
Financial Officer
Santa Clara, California
May 5, 1999
Whether or not you expect to attend the meeting, please complete,
date, sign and promptly return the accompanying proxy in the enclosed
postage-paid envelope so that your shares may be represented at the
meeting.
<PAGE>
EXODUS COMMUNICATIONS, INC.
2831 Mission College Blvd.
Santa Clara, California 95054
----------------
PROXY STATEMENT
----------------
May 5, 1999
The accompanying proxy is solicited on behalf of the Board of Directors of
Exodus Communications, Inc., a Delaware corporation (the "Company" or
"Exodus"), for use at the Annual Meeting of Stockholders of the Company to be
held at The Westin Santa Clara, 5101 Great America Parkway, Santa Clara,
California, on Wednesday, June 2, 1999 at 10:00 a.m., local time (the
"Meeting"). Only holders of record of the Company's Common Stock at the close
of business on April 22, 1999 will be entitled to vote at the Meeting. At the
close of business on April 22, 1999, the Company had 40,871,758 shares of
Common Stock outstanding and entitled to vote. A majority of such shares,
present in person or represented by proxy, will constitute a quorum for the
transaction of business. This Proxy Statement and the accompanying form of
proxy were first mailed to stockholders on or about May 5, 1999. An annual
report for the year ended December 31, 1998 is enclosed with the Proxy
Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of Exodus Common Stock are entitled to one vote for each share held
as of the above record date.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote on the election of directors. Proposal No. 2 requires for
approval the affirmative vote of the majority of all outstanding shares of
Common Stock entitled to vote. Proposal Nos. 3 and 4 require for approval the
affirmative vote of the majority of shares of Common Stock present in person
or represented by proxy at the Meeting and entitled to vote on the proposals.
All votes will be tabulated by the inspector of election appointed for the
Meeting, who will tabulate affirmative and negative votes, abstentions and
broker non-votes. Abstentions will be counted towards a quorum and have the
same effect as negative votes with regard to Proposal Nos. 2, 3 and 4. In the
event that a broker indicates on a proxy that it does not have discretionary
authority to vote certain shares on a particular matter, such broker non-votes
will also be counted towards a quorum and will have the same effect as
negative votes with regard to Proposal No. 2, but will not be counted for any
purpose in determining whether Proposal Nos. 3 or 4 have been approved.
EXPENSES OF SOLICITATION
The expenses of soliciting proxies to be voted at the Meeting will be paid
by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company and/or its agents may also solicit proxies
by mail, telephone, telegraph or in person. Following the original mailing of
the proxies and other soliciting materials, the Company will request that
brokers, custodians, nominees and other record holders of the Company's Common
Stock forward copies of the proxy and other soliciting materials to persons
for whom they hold shares of Common Stock and request authority for the
exercise of proxies. In such cases, the Company, upon the request of the
record holders, will reimburse such holders for their reasonable expenses.
Skinner & Co. will assist the Company in obtaining the return of proxies at an
estimated cost to the Company of $5,500.
1
<PAGE>
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to the Meeting or at the Meeting prior to the
vote pursuant to the proxy. A proxy may be revoked by a writing delivered to
the Company stating that the proxy is revoked, by a subsequent proxy that is
signed by the person who signed the earlier proxy and is presented at the
Meeting or by attendance at the Meeting and voting in person. Please note,
however, that if a stockholder's shares are held of record by a broker, bank
or other nominee and that stockholder wishes to vote at the Meeting, the
stockholder must bring to the Meeting a letter from the broker, bank or other
nominee confirming that stockholder's beneficial ownership of the shares.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
The Board of Directors of Exodus has nominated for election as directors
each of the following persons to serve until the next annual meeting of
stockholders and until his or her successor has been duly elected and
qualified or until such director's earlier resignation, death or removal: K.B.
Chandrasekhar, Ellen M. Hancock, Frederick W.W. Bolander, John R. Dougery,
Mark Dubovoy, Max D. Hopper, Peter A. Howley, Daniel C. Lynch, Thadeus J.
Mocarski and Kanwal S. Rekhi.
Shares represented by the accompanying proxy will be voted "for" the
election of the nominees recommended by the Board unless the proxy is marked
in such a manner as to withhold authority so to vote. The size of the
Company's Board is currently set at ten members. Each of the nominees is
currently a director of the Company. In the event that any nominee for any
reason is unable to serve or for good cause will not serve, the proxies may be
voted for such substitute nominee as the present Board may determine. The
Company is not aware of any nominee who will be unable to or for good cause
will not serve as a director.
<TABLE>
<CAPTION>
Director
Name of Director Age Principal Occupation Since
---------------- --- -------------------- --------
<C> <C> <S> <C>
K.B. Chandrasekhar.............. 38 Chairman of the Board of Directors 1995
Ellen M. Hancock................ 56 Chief Executive Officer, President and 1998
Director
Frederick W.W. Bolander (1)(2).. 37 Managing Director, Gabriel Venture Partners 1996
John R. Dougery (2)............. 59 President, Dougery Ventures 1996
Mark Dubovoy (3)(4)............. 52 General Partner, Information Technology 1996
Ventures
Max D. Hopper (1)(4)............ 64 Chief Executive Officer, Max D. Hopper 1998
Associates
Peter A. Howley (1)............. 59 Chief Executive Officer, IPWireless, Inc. 1996
Daniel C. Lynch (3)............. 57 Owner, Lynch Enterprises 1998
Thadeus J. Mocarski (3)(4)...... 37 Managing Director, Fleet Equity Partners 1997
Kanwal S. Rekhi (2)............. 52 Director 1995
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Finance Committee
(4) Member of the Corporate Governance Committee
K.B. Chandrasekhar, a co-founder of Exodus, has served as our Chairman of
the Board of Directors since Exodus' incorporation in California in February
1995, as President from such incorporation until March 1998 and as Chief
Executive Officer from such incorporation until September 1998. From 1992 to
May 1995, he served as President and a director of Fouress, Inc., a network
software design and development firm and Exodus' predecessor, which he co-
founded. Mr. Chandrasekhar holds a B.S. degree in physics from Madras
University and a B.Tech. degree in electronics and communications from the
Madras Institute of Technology.
2
<PAGE>
Ellen M. Hancock has served as our President since March 1998 and our Chief
Executive Officer since September 1998 and has been a director since April
1998. She has also served as the acting Vice President, Marketing from July
1998 to October 1998. From July 1996 to July 1997, she served as Executive
Vice President for Research and Development and Chief Technology Officer of
Apple Computer, Inc. From September 1995 to May 1996, Mrs. Hancock served as
an Executive Vice President and Chief Operating Officer of National
Semiconductor Corporation. From 1966 to February 1995, she served in various
staff, managerial and executive positions at International Business Machines
Corporation, most recently as Senior Vice President and Group Executive. Mrs.
Hancock is also a director of Colgate-Palmolive Company and Aetna Inc. She
holds a B.A. degree in mathematics from The College of New Rochelle and an
M.A. degree in mathematics from Fordham University.
Frederick W. W. Bolander has served as a director since October 1996. He
has been a Managing Director of Gabriel Venture Partners, LLC, a venture
capital firm under formation since January 1999. From October 1994 to December
1998, he was associated with Apex Investment Partners, a venture capital firm,
where he held various capacities and retired as a general partner. From May
1993 to September 1993, he was a Consultant to the African Communications
Group, a venture capital and project management firm, and from September 1985
to September 1992, he held the position of Manager for AT&T Corporation. Mr.
Bolander is also a Director of Concord Communications, Inc. Mr. Bolander holds
B.S. and M.S. degrees in electrical engineering from the University of
Michigan and an M.B.A. degree from Harvard University.
John R. Dougery has served as a director since February 1996. He has been
President of Dougery Ventures, a venture capital firm, since January 1998.
Prior to that time he was a general partner of Dougery & Wilder, a venture
capital firm, from 1981 to December 1997. Mr. Dougery is also a director of
Printronix, Inc. Mr. Dougery holds an A.B. degree in mathematics from the
University of California, Berkeley and an M.B.A. degree from Stanford
University.
Mark Dubovoy has served as a director since October 1996. He was a founder
and has served as a general partner of Information Technology Ventures since
September 1994. Prior to that time, he was a general partner of Grace/Horn
Ventures from 1991 to August 1994. Mr. Dubovoy holds a B.S. degree in physics
from the National University of Mexico and M.A. and Ph.D. degrees in physics
from the University of California, Berkeley.
Max D. Hopper has served as a director since January 1998. Mr. Hopper has
been the Chief Executive Officer of Max D. Hopper Associates, Inc., an IS
management consulting firm, since January 1995. From 1985 to January 1995, he
served in various positions at American Airlines, a subsidiary of AMR
Corporation, most recently as Senior Vice President, Information Systems and
Chairman of the SABRE Group. Mr. Hopper is also a director of Gartner Group,
Inc., USData Corporation, VTEL Corporation, Worldtalk Corporation, Metrocall,
Inc., Payless Cashways, Inc. and United Stationers, Inc. From April 1996 to
August 1997, he served as a director of BBN Corporation. From March 1995 to
February 1998, he served as a director of Centura Software Corporation. From
August 1994 to February 1998, he served as a director of Computer Language
Research, Inc. He holds a B.S. degree in mathematics from the University of
Houston.
Peter A. Howley has served as a director since September 1996. Since April
1999, Mr. Howley has served as the Chief Executive Officer of IPWireless, Inc.
From May 1994 to April 1999, Mr. Howley has been a private consultant. From
1985 until April 1994, he served as Chairman of the Board, Chief Executive
Officer and President of Centex Telemanagement, Inc., a telecommunications
management company, which was acquired. Mr. Howley is also a director of
FaxSAV, Inc. and WorldPort Communications, Inc. Mr. Howley holds a B.I.E.
degree and an M.B.A. degree from New York University.
Daniel C. Lynch has served as director since January 1998. Mr. Lynch has
been the owner of Lynch Enterprises, a venture capital firm, since August
1993. From April 1994 to August 1996, he was a director of UUNet Technologies,
Inc., an Internet service provider. From 1991 to August 1993, he was the
Chairman of the Board of Interop, a conference and trade show company, which
he founded and which is now a division of ZD
3
<PAGE>
Comdex Forums. Mr. Lynch is a director of Cybercash, Inc., which he founded.
He holds a B.S. degree in mathematics from Loyola Marymount University and an
M.A. degree in mathematics from the University of California, Los Angeles.
Thadeus J. Mocarski has served as a director since June 1997. Mr. Mocarski
has been an officer of various entities affiliated with Fleet Equity Partners
since January 1994. Prior to joining Fleet Equity Partners, Mr. Mocarski was
an attorney with the law firm of Edwards & Angell from 1989 to January 1994.
Mr. Mocarski holds a B.A. degree in economics and government from Colby
College and a J.D. degree from the Washington College of Law.
Kanwal S. Rekhi has served as a director since December 1995. Mr. Rekhi was
the Chief Executive Officer of Cybermedia Inc., a consumer software company,
from May 1998 until September 1998. He was retired from January 1995 to May
1998. He served as Executive Vice President and a director at Novell Inc., a
network software company, from 1989 to December 1994. Mr. Rekhi holds a
B.Tech. degree in electrical engineering from the Indian Institute of
Technology, Bombay and an M.S. degree in electrical engineering from Michigan
Technology Institute.
The Board of Directors recommends a vote FOR the election
of each of the nominated directors
Board of Directors Meetings and Committees
Board of Directors. During fiscal year 1998, the Board met thirteen times,
including four telephone conference meetings, and acted by written consent two
times. No director attended fewer than 75% of the aggregate of the total
number of meetings of the Board (held during the period for which he or she
was a director) and the total number of meetings held by all committees of the
Board on which such director served (held during the period that such director
served).
Standing committees of the Board include an Audit Committee, a Compensation
Committee, a Finance Committee and a Corporate Governance Committee.
Audit Committee. Messrs. Bolander, Dougery and Rekhi are the current
members of the Audit Committee. The Audit Committee met two times during 1998.
The Audit Committee meets with the Company's independent accountants to review
the adequacy of the Company's internal control systems and financial reporting
procedures; reviews the general scope of the Company's annual audit and the
fees charged by the independent accountants; reviews and monitors the
performance of non-audit services by the Company's auditors, reviews the
fairness of any proposed transaction between the Company and any officer,
director or other affiliate of the Company (other than transactions subject to
the review of the Compensation Committee), and after such review, makes
recommendations to the full Board; and performs such further functions as may
be required by any stock exchange or over-the-counter market upon which the
Company's Common Stock may be listed.
Compensation Committee. Messrs. Bolander, Hopper and Howley are the current
members of the Compensation Committee. The Compensation Committee met ten
times during 1998. The Compensation Committee makes decisions regarding all
forms of salary paid to the executive officers of the Company; makes decisions
regarding the grant of all forms of bonus and stock compensation provided to
executive officers of the Company; makes decisions regarding the long-term
strategy of employee compensation and the types of stock and other
compensation plans to be used by the Company and the shares and amounts
reserved thereunder, and any other compensation matters as from time to time
directed by the Board of Directors; and administers the Company's employee
stock and option plans.
Corporate Governance Committee. Messrs. Dubovoy, Hopper and Mocarski are
the current members of the Corporate Governance Committee which was
established on July 28, 1998. The Corporate Governance Committee met one time
during 1998. The Corporate Governance Committee reviews, monitors and
recommends changes to the manner in which the Company is governed. The
Corporate Governance Committee also reports to the Board on the above matters
and makes specific recommendations for full Board action, as appropriate. The
Corporate Governance Committee also acts as a nominating committee.
4
<PAGE>
PROPOSAL NO. 2--AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
On April 19, 1999, the Board of Directors approved an amendment to the
Company's Restated Certificate of Incorporation, subject to stockholder
approval, to increase the authorized number of shares of Common Stock of the
Company from 100,000,000 shares, $0.001 par value per share, to 300,000,000
shares, $0.001 par value per share. The number of authorized shares of
preferred stock will remain unchanged at 5,000,000 shares.
At April 22, 1999, 40,871,758 shares of Exodus Common Stock were issued and
outstanding, 10,726,687 shares were reserved for issuance upon exercise of
outstanding options and 133,322 shares were reserved for issuance upon
exercise of outstanding warrants. Also as of that date, an additional
4,058,430 shares of Exodus Common Stock were reserved for issuance under its
existing stock and stock option plans (not including the increase being
requested for the 1998 Equity Incentive Plan under Proposal No. 3). The
proposed increase in the number of authorized shares of Common Stock from
100,000,000 to 300,000,000 would result in additional shares being available
for, among other things, stock splits, stock dividends, issuance from time to
time for other corporate purposes, such as acquisitions of companies or
assets, sales of stock or securities convertible into stock and issuances
pursuant to stock options or other employee benefit plans. The Company
currently has no specific plans, arrangements or understandings with respect
to the issuance of these additional shares, and no other change in the rights
of stockholders is proposed. The Company believes that the availability of the
additional shares will provide it with the flexibility to meet business needs
as they arise, to take advantage of favorable opportunities and to respond to
a changing corporate environment.
If the stockholders approve the amendment, the Company will file a
Certificate of Amendment of its Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware reflecting the increase in
authorized shares.
The Board of Directors recommends a vote FOR the amendment to increase the
number of shares of Common Stock authorized to be issued by the Company
PROPOSAL NO. 3--APPROVAL OF AMENDMENT TO INCREASE THE NUMBER OF SHARES
RESERVED FOR ISSUANCE UNDER THE 1998 EQUITY INCENTIVE PLAN
The stockholders are being asked to approve an amendment to the 1998 Equity
Incentive Plan (the "Incentive Plan") to increase the number of shares
reserved for issuance thereunder by 2,000,000, or 4.9% of the total
outstanding shares of the Company on April 22, 1999.
The Board believes that the increase in the number of shares reserved for
issuance under the Incentive Plan is in the best interests of the Company
because of the continuing need to provide stock options to attract and retain
quality employees and remain competitive in the industry. The granting of
equity incentives under the Incentive Plan plays an important role in the
Company's efforts to attract and retain employees of outstanding ability. The
Board believes that the additional reserve of shares with respect to which
equity incentives may be granted will provide the Company with adequate
flexibility to ensure that the Company can continue to meet its goals and
facilitate the Company's expansion of its employee base.
The Board approved the proposed amendment on April 19, 1999, to be
effective upon stockholder approval. Below is a summary of the principal
provisions of the Incentive Plan, assuming stockholder approval of the
amendment. The summary is not necessarily complete, and reference is made to
the full text of the Incentive Plan.
Incentive Plan History
The Incentive Plan, covering 1,500,000 shares of Common Stock, was adopted
by the Board in January 1998 and approved by the stockholders in February
1998. On April 12, 1999, the Company effected a two-for-one stock split and
the number of shares reserved for issuance under the Incentive Plan was
automatically adjusted to 3,000,000 shares. The purpose of the Incentive Plan
is to offer eligible persons an opportunity to participate in the Company's
future performance through awards of stock options, restricted stock and stock
bonuses.
5
<PAGE>
From inception of the Incentive Plan in January 1998 to April 22, 1999,
options to purchase an aggregate of 3,782,780 shares of the Company's Common
Stock were granted under the Incentive Plan. Of these, options were granted to
the Named Executive Officers as follows: Ellen M. Hancock, 300,000 shares; K.
B. Chandrasekhar, 300,000 shares; Sam S. Mohamad, 120,000 shares; Richard S.
Stoltz, 150,000 shares; B.V. Jagadeesh, 220,000 shares; Robert V. Sanford III,
100,000 shares and Herbert Dollahite, 220,000 shares. During the same period,
the Company's executive officers as of April 22, 1999 as a group (seven
persons) had been granted options to purchase a total of 1,090,000 shares and
the current directors or nominees for election as a director who are not
executive officers as a group (eight persons) had been granted 80,000 options.
No options were granted during the period under the Incentive Plan to any
associate of any executive officer or director of the Company, and no other
person received 5% or more of such options.
Shares Subject to the Incentive Plan
The stock subject to issuance under the Incentive Plan consists of shares
of the Company's authorized but unissued Common Stock. The Board has reserved
an aggregate of 5,000,000 shares of Common Stock for issuance under the
Incentive Plan, after taking into account the proposed amendment. In addition,
the following shares that were available on the effective date of the
Incentive Plan or became available thereafter under the terms of the Company's
1997 Equity Incentive Plan (the "1997 Plan") will no longer be available for
grant and issuance under the 1997 Plan, but rather will be available for
grants and purchases under the Incentive Plan: (a) any shares not issued or
subject to outstanding grants under the 1997 Plan on the effective date of the
Incentive Plan, (b) any shares issuable upon exercise of awards granted under
the 1997 Plan that expire or become unexercisable for any reason without
having been exercised in full and (c) any shares that were issued under awards
granted under the 1997 Plan that are repurchased at the original issue price
or are forfeited.
If any option granted pursuant to the Incentive Plan expires or terminates
for any reason without being exercised in whole or in part, or any award
granted thereunder terminates without shares being issued, the shares released
from such award will again become available for grant and purchase under the
Incentive Plan. In the event that shares issued pursuant to awards granted
under the Incentive Plan are repurchased at the original issue price, such
shares will also again become available for grant and purchase under the
Incentive Plan. The number of shares is subject to proportional adjustment to
reflect stock splits, stock dividends and other similar events.
Eligibility
Employees, officers, directors, consultants, independent contractors and
advisors of the Company (and of any parent and subsidiaries) are eligible to
receive awards under the Incentive Plan (the "Participants"). No Participant
is eligible to receive more than 750,000 shares of Common Stock in any
calendar year under the Incentive Plan, other than new employees of the
Company (including directors and officers who are also new employees) who are
eligible to receive up to a maximum of 1,250,000 shares of Common Stock in the
calendar year in which they commence their employment with the Company. As of
April 21, 1999, approximately 851 persons were in the class of persons who
would be eligible to participate in the Incentive Plan, 154,058 shares had
been issued upon exercise of options, 3,462,586 shares were subject to
outstanding options and 15,334 shares had been issued pursuant to restricted
stock awards or stock bonus awards. As of that date, 2,432,609 shares were
available for future grant pursuant to the Incentive Plan, after taking into
account the proposed amendment to the Incentive Plan and the shares originally
reserved for issuance under the 1997 Plan that have become available for
distribution under the Incentive Plan. The closing price of the Company's
Common Stock on the Nasdaq National Market was $84.00 per share on April 21,
1999, the last trading day before the Record Date.
Administration
The Incentive Plan will be administered by the Compensation Committee of
the Company's Board of Directors (the "Committee"). The Committee currently
consists of Frederick W.W. Bolander, Max D. Hopper and Peter A. Howley. Each
of these directors is a "non-employee director", within the meaning of Rule
16b-3
6
<PAGE>
promulgated under the Exchange Act, and an "outside director", within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code").
Subject to the terms of the Incentive Plan, the Committee will determine
the persons who are to receive awards, the number of shares subject to each
such award and the terms and conditions of such awards. The Committee will
also have the authority to construe and interpret any of the provisions of the
Incentive Plan or any awards granted thereunder.
Stock Options
The Incentive Plan permits the granting of options that are intended to
qualify either as Incentive Stock Options ("ISOs") or Nonqualified Stock
Options ("NQSOs"). ISOs may be granted only to employees (including officers
and directors who are also employees) of the Company or any parent or
subsidiary of the Company.
The option exercise price for each ISO share must be no less than 100% of
the "fair market value" (as defined in the Incentive Plan) of a share of
Common Stock at the time the ISO is granted. In the case of an ISO granted to
a 10% stockholder, the exercise price for each such ISO share must be no less
than 110% of the fair market value of a share of Common Stock at the time the
ISO is granted. The option exercise price for each NQSO share must be no less
than 85% of the fair market value of a share of Common Stock at the time of
grant.
The exercise price of options granted under the Incentive Plan may be paid
as approved by the Committee at the time of grant: (1) in cash (by check); (2)
by cancellation of indebtedness of the Company to the Participant; (3) by
surrender of shares of the Company's Common Stock obtained by Participant in
the public market or owned by the Participant for at least six months and
having a fair market value on the date of surrender equal to the aggregate
exercise price of the option; (4) by tender of a full recourse promissory
note; (5) by waiver of compensation due to or accrued by the Participant for
services rendered; (6) by a "same-day sale" commitment from the Participant
and a National Association of Securities Dealers, Inc. ("NASD") broker; (7) by
a "margin" commitment from the Participant and a NASD broker; or (8) by any
combination of the foregoing.
Restricted Stock Awards
The Committee may grant Participants restricted stock awards to purchase
stock either in addition to, or in tandem with, other awards under the
Incentive Plan under such terms, conditions and restrictions as the Committee
may determine. A restricted stock award is an offer by the Company to sell to
a Participant shares of the Company's Common Stock that are subject to
restrictions established by the Committee. These restrictions may be based
upon completion by the Participant of a specified number of years of service
or by the attainment of certain performance goals established by the
Committee. The purchase price for each such award is determined by the
Committee at the time of grant and may be less than the fair market value of
the Company's Common Stock on the date of the award. In the case of an award
to a 10% stockholder, the purchase price will be 100% of fair market value.
The purchase price may be paid for in any of the forms of consideration listed
in items (1) through (5) in "Stock Options" above, as are approved by the
Committee at the time of grant.
Stock Bonus Awards
The Committee may grant Participants stock bonus awards either in addition
to, or in tandem with, other awards under the Incentive Plan under such terms,
conditions and restrictions as the Committee may determine. A stock bonus is
an award of shares for services rendered. Stock bonuses may be awarded for
past services already rendered or upon satisfaction of performance goals that
are set out in advance in the Participant's stock bonus award agreement.
7
<PAGE>
Mergers, Consolidations, Change of Control
In the event of a merger, consolidation, dissolution or liquidation of the
Company, the sale of substantially all of the assets of the Company or any
other similar corporate transaction, the successor corporation may assume,
replace or substitute equivalent awards in exchange for those granted under
the Incentive Plan or provide substantially similar consideration, shares or
other property as was provided to stockholders of the Company (after taking
into account provisions of the awards). In the event that the successor
corporation does not assume, replace or substitute the options awarded, such
options will expire upon the closing of such transaction at the time and upon
the conditions as the Committee determines. The Committee may, in its sole
discretion, provide that the vesting of any or all awards granted pursuant to
the Incentive Plan will accelerate in whole or in part.
Amendment of the Incentive Plan
The Board may, at any time, terminate or amend the Incentive Plan,
including amending any form of award agreement or instrument to be executed
pursuant to the Incentive Plan. The Board will not amend the Incentive Plan,
without the approval of the stockholders, in any manner that requires
stockholder approval.
Term of the Incentive Plan
Unless terminated earlier as provided in the Incentive Plan, the Incentive
Plan will expire on January 14, 2008, ten (10) years from the date the
Incentive Plan was adopted by the Board of Directors.
Federal Income Tax Information
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER
THE INCENTIVE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER
INDIVIDUAL CIRCUMSTANCES. ANY TAX EFFECTS THAT ACCRUE TO FOREIGN PARTICIPANTS
AS A RESULT OF PARTICIPATING IN THE INCENTIVE PLAN ARE GOVERNED BY THE TAX
LAWS OF THE COUNTRIES IN WHICH SUCH PARTICIPANT RESIDES. EACH PARTICIPANT WILL
BE ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF PARTICIPATION IN THE INCENTIVE PLAN.
Incentive Stock Options. A Participant will recognize no income upon grant
of an ISO and incur no tax on its exercise, unless the Participant is subject
to the alternative minimum tax ("AMT"). If the Participant holds shares
acquired upon exercise of an ISO (the "ISO Shares") for more than one year
after the date the option was exercised and for more than two years after the
date the option was granted, the Participant generally will realize capital
gain or loss (rather than ordinary income or loss) upon disposition of the ISO
Shares. This gain or loss will be equal to the difference between the amount
realized upon such disposition and the amount paid for the ISO Shares. The
rate of taxation that applies to capital gain depends upon the amount of time
the ISO Shares are held by the Participant.
If the Participant disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized
upon such disposition, up to the difference between the fair market value of
the ISO Shares on the date of exercise (or, if less, the amount realized on a
sale of such shares) and the option exercise price, will be treated as
ordinary income. Any additional gain will be capital gain, taxed at a rate
that depends upon the amount of time the ISO Shares were held by the
Participant.
Alternative Minimum Tax. The difference between the option exercise price
and the fair market value of the ISO Shares that are vested on the date of
exercise is an adjustment to income for purposes of the AMT. If a Participant
exercises an ISO before it has fully vested, the Participant may incur an AMT
liability as the ISO Shares vest and the right of repurchase in the Company to
purchase the ISO Shares at the original issue price
8
<PAGE>
lapses, unless the Participant makes a timely election under Code Section
83(b) (an "83(b) election"). The AMT (imposed to the extent it exceeds the
taxpayer's regular income tax) is 26% of an individual taxpayer's alternative
minimum taxable income (28% in the case of alternative minimum taxable income
in excess of $175,000). Alternative minimum taxable income is determined by
adjusting regular taxable income for certain items, increasing that income by
certain tax preference items (including the difference between the fair market
value of the ISO Shares on the date of exercise and the exercise price) and
reducing this amount by the applicable exemption amount ($45,000 in case of a
joint return, subject to reduction under certain circumstances). If a
disqualifying disposition of the ISO Shares occurs in the same calendar year
as exercise of the ISO, there is no AMT adjustment with respect to those ISO
Shares. Also, upon a sale of ISO Shares that is not a disqualifying
disposition, alternative minimum taxable income is reduced in the year of sale
by the excess of the fair market value of the ISO Shares at exercise over the
amount paid for the ISO Shares.
Nonqualified Stock Options. A Participant will not recognize any taxable
income at the time an NQSO is granted. However, upon exercise of an NQSO for
vested shares, the Participant must include in income as compensation an
amount equal to the difference between the fair market value of the shares on
the date of exercise and the Participant's exercise price. The included amount
must be treated as ordinary income by the Participant and may be subject to
withholding by the Company (either by payment in cash or withholding out of
the Participant's salary). If a Participant exercises an NQSO before it has
fully vested, the Participant may incur a regular income liability as the
shares vest and the right of repurchase in the Company to purchase the shares
at the original issue price lapses, unless the Participant makes a timely
83(b) election. Upon resale of the shares by the Participant, any subsequent
appreciation or depreciation in the value of the shares will be treated as
capital gain or loss, taxable at a rate that depends upon the length of time
the shares were held by the Participant.
Restricted Stock and Stock Bonus Awards. A Participant who receives a
restricted stock award or a stock bonus award will include the amount of the
award in income as compensation at the time that any forfeiture restrictions
on the shares of stock lapse, unless the Participant makes a timely 83(b)
election. If the Participant does not timely make an 83(b) election, the
Participant will include in income the fair market value of the shares of
stock on the date that the restrictions lapse as to those shares, less any
purchase price paid for such shares. The included amount may be treated as
ordinary income by the Participant and will be subject to withholding by the
Company (either by payment in cash or withholding out of the Participant's
award).
If the Participant makes a timely 83(b) election, the Participant who
receives a restricted stock award will include in income as ordinary income,
the fair market value of the shares of stock on the date of receipt of the
award, less any purchase price paid for such shares and the Participant who
receives a stock bonus will include in income as ordinary income, the fair
market value of the shares of stock on the date of receipt of the award. The
income may be subject to withholding by the Company (either by payment in cash
or withholding out of the Participant's award). If the award is subsequently
forfeited, the Participant will not receive any deduction for the amount
treated as ordinary income.
Maximum Tax Rates. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum of 20%. In order to
receive long-term capital gain treatment, the shares acquired pursuant to the
Incentive Plan must be held for more than twelve months. Capital gains may be
offset by capital losses and up to $3,000 of capital losses may be offset
annually against ordinary income.
Tax Treatment of the Company. The Company generally will be entitled to a
deduction in connection with the exercise of an NQSO by a Participant or the
receipt by the Participant of restricted stock or a stock bonus to the extent
that the Participant recognizes ordinary income and the Company properly
reports such income to the Internal Revenue Service (the "IRS"). The Company
will be entitled to a deduction in connection with the disposition of ISO
Shares only to the extent that the Participant recognizes ordinary income on a
disqualifying disposition of the ISO Shares, provided that the Company
properly reports such income to the IRS.
9
<PAGE>
ERISA
The Incentive Plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") and is not qualified under
Section 401(a) of the Code.
The Board of Directors recommends a vote FOR the approval of the amendment to
the 1998 Equity Incentive Plan
PROPOSAL NO. 4--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP, independent auditors, to
audit the financial statements of the Company for the year ending December 31,
1999, and recommends that the stockholders vote for ratification of such
appointment. In the event of a negative vote on such ratification, the Board
of Directors will reconsider its selection. Representatives of KPMG LLP will
be present at the Meeting, will have the opportunity to make a statement at
the Meeting if they desire to do so, and will be available to respond to
appropriate questions.
The Board of Directors recommends a vote FOR the ratification
of the appointment of KPMG LLP
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 22, 1999,
with respect to the beneficial ownership of our Common Stock by (i) each
stockholder known by us to be the beneficial owner of more than 5% of our
Common Stock, (ii) each director, (iii) each person who served as our chief
executive officer in 1998, (iv) the three other most highly compensated
executive officers who were executive officers as of December 31, 1998 and
earned more than $100,000 in 1998, (v) two additional individuals who were
executive officers during 1998 and (vi) all current directors and executive
officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership(1) Percent of Class
- ------------------------------------ ----------------------- ----------------
<S> <C> <C>
Janus Capital Corporation (2).............................................. 4,534,306 10.9%
FMR Corp. (3).............................................................. 4,490,244 10.9
K.B. Chandrasekhar (4)..................................................... 1,551,118 3.8
B.V. Jagadeesh (5)......................................................... 856,794 2.1
John R. Dougery (6)........................................................ 748,754 1.8
Kanwal S. Rekhi (7)........................................................ 701,608 1.7
Ellen M. Hancock (8)....................................................... 571,122 1.4
Richard S. Stoltz (9)...................................................... 381,494 *
Thadeus J. Mocarski (10)................................................... 370,062 *
Mark Dubovoy (11).......................................................... 296,600 *
Peter A. Howley (12)....................................................... 249,838 *
Robert V. Sanford III (13)................................................. 125,429 *
Daniel C. Lynch (14)....................................................... 94,500 *
Sam S. Mohamad (15)........................................................ 69,406 *
Herbert Dollahite (16)..................................................... 38,402 *
Max D. Hopper (17)......................................................... 27,530 *
Frederick W.W. Bolander (18)............................................... 6,540 *
All current executive officers and directors as a group (15 persons) (19).. 5,172,974 12.5%
</TABLE>
- --------
* Represents less than 1% of our outstanding Common Stock.
(1) Unless otherwise indicated below, 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. Shares of Common Stock subject to options or convertible
notes that are currently exercisable or exercisable within 60 days of
April 22, 1999 are deemed to be outstanding and to be beneficially owned
by the person holding such options or convertible notes for the purpose
of computing the percentage ownership of such person but are not treated
as outstanding for the purpose of computing the percentage ownership of
any other person.
(2) Based upon a Schedule 13G filed with the Securities and Exchange
Commission on March 11, 1999. Includes 722,455 shares of Common Stock
resulting from the assumed conversion of $33,000,000 principal amount of
our 5% convertible subordinated notes due March 15, 2006. Janus Capital
Corporation is a registered investment adviser which furnishes investment
advice to several investment companies registered under Section 8 of the
Investment Company Act of 1940 and individual and institutional clients.
The address of Janus Capital Corporation is 100 Fillmore Street, Suite
300, Denver, CO 80206-4923.
(3) Based upon a Schedule 13G filed with the Securities and Exchange
Commission on March 10, 1999. Includes 153,244 shares of Common Stock
resulting from the assumed conversion of $7,000,000 principal amount of
our 5% convertible subordinated notes due March 15, 2006. FMR Corp.
reported sole dispositive power with respect to 4,490,244 shares of
Common Stock and sole voting power with respect to 171,500 shares of
Common Stock. The address of FMR Corp. is 82 Devonshire Street, Boston,
MA 02109.
(4) Includes 147,996 shares held by Mr. Chandrasekhar and his wife as
trustees for three trusts for their minor children, 4,256 shares held by
the K.B. Chandrasekhar Family Foundation, of which Mr. Chandrasekhar is a
trustee, and 217,668 shares subject to options exercisable within 60 days
of April 22, 1999. Mr. Chandrasekhar is our Chairman of the Board of
Directors.
11
<PAGE>
(5) Includes 469,664 shares held by Mr. Jagadeesh and his wife as trustees
for the Jagadeesh Family Trust, 66,664 shares held by Mr. Jagadeesh and
his wife as trustees for two trusts for their minor children and 120,466
shares subject to options exercisable within 60 days of April 22, 1999.
Mr. Jagadeesh, a co-founder of Exodus, served as our Vice President,
Engineering until October 26, 1998 and is currently our Chief Technology
Officer.
(6) Represents 439,608 shares held in the Dougery Revocable Trust, of which
Mr. Dougery and his wife are the trustees, 223,548 shares held by Mr.
Dougery as trustee of three trusts for his children, 52,300 shares held
by Mr. Dougery's wife as trustee for a separate trust, 30,798 shares held
by Dougery Ventures LLC, of which Mr. Dougery is President, and 2,500
shares subject to options exercisable within 60 days of April 22,1999.
Mr. Dougery is a director.
(7) Represents 580,416 shares held by Mr. Rekhi and his wife as trustees for
the Rekhi Family Trust, 9,996 shares held by Mr. Rekhi as custodian for
minor children, 108,696 shares held by Mr. Rekhi, his wife and one other
individual as trustees for two other trusts, and 2,500 shares subject to
options exercisable within 60 days of April 22, 1999. Mr. Rekhi is a
director.
(8) Represents 454,482 shares held by Mrs. Hancock and her husband and
116,640 shares subject to options exercisable within 60 days of April 22,
1999. Mrs. Hancock is our Chief Executive Officer, President and a
director.
(9) Represents 276,028 shares held by Mr. Stoltz and his wife and 105,466
shares subject to options exercisable within 60 days of April 22, 1999.
Mr. Stoltz is our Executive Vice President, Finance, Chief Operating
Officer and Chief Financial Officer.
(10) Represents 201,754 shares held by Fleet Venture Resources, Inc., 86,466
shares held by Fleet Equity Partners VI, L.P., 73,404 shares held by
Chisholm Partners III, L.P., 5,398 shares held by Kennedy Plaza Partners,
and 540 shares and 2,500 shares subject to options exercisable within 60
days of April 22, 1999 held by Mr. Mocarski. Mr. Mocarski, a director of
Exodus, is a Senior Vice President of each of (i) Fleet Venture
Resources, Inc., (ii) Fleet Growth Resources II, Inc., a general partner
of Fleet Equity Partners VI, L.P. and (iii) Silverado III, Corp., the
general partner of Silverado III, L.P., the general partner of Chisholm
Partners III, L.P. Mr. Mocarski is also a general partner of Kennedy
Plaza Partners. Mr. Mocarski may be deemed to share investment and voting
power in the aforementioned securities with Mr. Robert M. Van Degna and
Mr. Habib Y. Gorgi in their capacities as Chairman and Chief Executive
Officer, and President, respectively, of each of (i) Fleet Venture
Resources, Inc., (ii) Fleet Growth Resources II, Inc. and (iii) Silverado
III, Corp. and as managing general partners of Kennedy Plaza Partners.
Messrs. Mocarski, Van Degna and Gorgi disclaim beneficial ownership of
such securities except to the extent of their respective pecuniary
interests therein.
(11) Includes 249,136 shares held by Information Technology Ventures, L.P.,
6,128 shares held by ITV Affiliates Fund, L.P., 388 shares held by ITV
Management, LLC, and 2,500 shares subject to options exercisable within
60 days of April 22, 1999. Mr. Dubovoy, a director of Exodus, is a
managing member of ITV Management, LLC, the general partner of
Information Technology Ventures, L.P. and ITV Affiliates Fund, L.P.
(12) Includes 26,500 shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Howley is a director.
(13) Includes 22,665 shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Sanford is our Vice President, Operations.
(14) Includes 15,834 shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Lynch is a director.
(15) Includes 27,733 shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Mohamad is our Executive Vice President, Worldwide
Sales and Professional Services.
(16) Represents 38,402 shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Dollahite is our Executive Vice President, Customer
Services and Support and Quality.
(17) Includes 15,834 shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Hopper is a director.
12
<PAGE>
(18) Includes 2,500 shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Bolander is a director of Exodus.
(19) Includes 642,577 shares subject to options exercisable within 60 days of
April 22, 1999 held by our executive officers and directors. Does not
include shares or options owned by Mr. Jagadeesh and Mr. Sanford.
EXECUTIVE OFFICERS
The following sets forth certain information with regard to executive
officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
K.B. Chandrasekhar.......... 38 Chairman of the Board of Directors
Ellen M. Hancock............ 56 Chief Executive Officer, President and Director
Richard S. Stoltz........... 54 Executive Vice President, Finance, Chief
Operating Officer and Chief Financial Officer
Sam S. Mohamad.............. 40 Executive Vice President, Worldwide Sales and
Professional Services
James J. McInerney.......... 46 Executive Vice President, Engineering
Herbert Dollahite........... 47 Executive Vice President, Customer Services and
Support and Quality
Susan R. Farber............. 47 Vice President, Marketing and Strategy
</TABLE>
K.B. Chandrasekhar, a co-founder of Exodus, has served as our Chairman of
the Board of Directors since Exodus' incorporation in California in February
1995, as President from such incorporation until March 1998 and as Chief
Executive Officer from such incorporation until September 1998. From 1992 to
May 1995, he served as President and a director of Fouress, Inc., a network
software design and development firm and Exodus' predecessor, which he co-
founded. Mr. Chandrasekhar holds a B.S. degree in physics from Madras
University and a B.Tech. degree in electronics and communications from the
Madras Institute of Technology.
Ellen M. Hancock has served as our President since March 1998 and our Chief
Executive Officer since September 1998 and has been a director since April
1998. She also served as the acting Vice President, Marketing from July 1998
to October 1998. From July 1996 to July 1997, she served as Executive Vice
President for Research and Development and Chief Technology Officer of Apple
Computer, Inc. From September 1995 to May 1996, Mrs. Hancock served as an
Executive Vice President and Chief Operating Officer of National Semiconductor
Corporation. From 1966 to February 1995, she served in various staff,
managerial and executive positions at International Business Machines
Corporation, most recently as Senior Vice President and Group Executive. Mrs.
Hancock is also a director of Colgate-Palmolive Company and Aetna Inc. She
holds a B.A. degree in mathematics from The College of New Rochelle and an
M.A. degree in mathematics from Fordham University.
Richard S. Stoltz, a co-founder of Exodus, has served as our Executive Vice
President, Finance since December 1998, and our Chief Operating Officer and
Chief Financial Officer since October 1995 and was a director from January
1996 to October 1996. From February 1994 to September 1995, he was an
independent consultant specializing in financial and management information
system issues. From 1992 to January 1994, Mr. Stoltz served as Vice President
of Finance, Treasurer and Chief Financial Officer of Radius Inc., a computer
hardware company. Mr. Stoltz holds a B.S.B.A. degree in marketing and an
M.B.A. degree from The American University.
13
<PAGE>
Sam S. Mohamad has served as our Executive Vice President, Worldwide Sales
and Professional Services since December 1998 and as our Vice President,
Worldwide Sales from February 1997 to December 1998. From March 1996 to
January 1997, he served as Vice President of Sales and Marketing of Genuity,
Inc., a provider of data center products and services. From 1987 to February
1996, Mr. Mohamad held various positions at Oracle Corporation, most recently
as Vice President of Direct Sales and Marketing.
James J. McInerney has served as our Executive Vice President, Engineering
since February 1999 and served as our Vice President, Engineering from October
1998 to February 1999. From November 1995 to October 1998, he served as Vice
President of Software Engineering at Synopsys, Inc., a provider of software
tools for electronic design automation. From 1974 to October 1995, Mr.
McInerney served in various research, managerial and executive positions at
International Business Machines Corporation, most recently as Director,
Intelligent Communication Services. He holds B.S. and M.S. degrees in
mathematics from Polytechnic University in New York.
Herbert Dollahite has served as our Executive Vice President, Customer
Services and Support and Quality since November 1998, and served as our Vice
President, Quality from June 1998 to November 1998. From August 1994 to June
1998, he served as Senior Engineer/Scientist II, Senior Manager, Central
Quality, Director, Integration Quality, and Senior Director, Global Quality
Engineering of Apple Computer Inc. Dr. Dollahite holds a B.S. degree in
Engineering from Cornell University, an M.B.A. degree from University of
Virginia, and a Ph.D. degree in Computer Science from University of Alabama--
Huntsville.
Susan R. Farber has served as our Vice President, Marketing and Strategy
since November 1998. From April 1998 to October 1998, she served as Chief
Operating Officer of Fusion Telecommunications. From July 1996 to April 1998,
Ms. Farber served as Vice President, Business Markets, for GTE. From 1994 to
July 1996, she served as Consultant, International Technology Practice for
Heidrick & Struggles. From 1993 to 1994, Ms. Farber served as Vice President,
Marketing for Nielsen Europe. Ms. Farber holds a B.A. degree from Georgetown
University and an M.B.A. degree from George Washington University.
14
<PAGE>
EXECUTIVE COMPENSATION
Officer Compensation
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to Exodus in all capacities during the years ended
December 31, 1997 and 1998 by (i) each person who served as our chief
executive officer in 1998, (ii) the three other most highly compensated
executive officers other than the chief executive officer who were serving as
executive officers as of December 31, 1998, and (iii) two other individuals
who were executive officers during 1998 (collectively, the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation
-------------------------------------- Securities
Salary Other Annual Underlying
Year ($) Bonus ($) Compensation ($) Options
---- -------- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Ellen M. Hancock........ 1998 $156,213 -- -- 1,743,962
President and Chief
Executive Officer (1)
K.B. Chandrasekhar...... 1998 211,101 $75,000 $9,689(2) 966,668
Chairman of the Board 1997 160,000 75,000 5,373(2) 500,004
of Directors (1)
Sam S. Mohamad.......... 1998 381,546(3) -- 5,000(2) 120,000
Executive Vice 1997 273,626(3) 70,000 -- 333,336
President, Worldwide
Sales and Professional
Services
Richard S. Stoltz....... 1998 160,839 100,000 -- 306,000
Executive Vice 1997 147,500 40,000 -- 116,668
President, Finance,
Chief Operating Officer
and Chief Financial
Officer
B.V. Jagadeesh.......... 1998 150,787 85,000 -- 220,000
Chief Technical Officer 1997 135,000 40,000 -- 116,668
(4)
Robert V. Sanford III... 1998 150,787 65,000 -- 100,000
Vice President, 1997 101,250 35,000 -- 183,334
Operations (4)
Herbert Dollahite....... 1998 95,192 6,000 -- 220,000
Executive Vice 1997 -- -- -- --
President, Customer
Services and Support
and Quality (5)
</TABLE>
- --------
(1) Mr. Chandrasekhar ceased serving as our President in March 1998 and as our
Chief Executive Officer in September 1998 when Ellen M. Hancock was
appointed to those positions. Mr. Chandrasekhar remains as Chairman of the
Board of Directors.
(2) Represents a car allowance.
(3) Includes sales commissions of $209,366 in 1998 and $130,542 in 1997.
(4) No longer an executive officer.
(5) Mr. Dollahite joined us in June 1998.
15
<PAGE>
The following table sets forth further information regarding option grants
to each of the Named Executive Officers during 1998. In accordance with the
rules of the Securities and Exchange Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at the
end of their respective ten-year terms. These gains are based on assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted to the end of the option terms.
Option Grants in 1998
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual Rates
Number of Percentage of
Securities of Total Stock Price
Underlying Options Appreciation for
Options Granted to Option Term (2)
Granted Employees Exercise Price Expiration ----------------------
Name (#)(1) in 1998 Per Share ($) Date 5% 10%
---- ---------- ---------- -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ellen M. Hancock........ 1,443,962 18.4% $ 4.500 03/10/08 $4,086,450 $10,355,866
20,832 0.3 20.000 12/08/08 262,023 664,017
279,168 3.6 20.000 12/08/08 3,511,345 8,898,438
K.B. Chandrasekhar...... 333,334 4.2 4.500 01/27/08 943,344 2,390,618
333,334 4.2 9.000 01/27/08 1,886,688 4,781,237
12,390 0.2 20.000 12/08/08 155,840 394,929
287,610 3.7 20.000 12/08/08 3,617,528 9,167,525
Sam S. Mohamad.......... 16,266 0.2 20.000 12/08/08 204,592 518,476
103,734 1.3 20.000 12/08/08 1,304,755 3,306,506
Richard S. Stoltz....... 99,200 1.3 3.825 02/17/08 238,628 604,730
20,800 0.3 3.825 02/17/08 50,035 126,798
150,000 1.9 20.000 12/08/08 1,886,684 4,781,227
B.V. Jagadeesh.......... 99,200 1.3 3.825 02/17/08 238,628 604,730
20,800 0.3 3.825 02/17/08 50,035 126,798
100,000 1.3 20.000 12/08/08 1,257,789 3,187,485
Robert V. Sanford III... 19,174 0.2 20.000 12/08/08 241,169 611,168
80,826 1.0 20.000 12/08/08 1,016,621 2,576,317
Herbert Dollahite....... 41,926 0.5 9.938 09/08/08 262,022 664,016
58,074 0.7 9.938 09/08/08 362,942 919,765
120,000 1.5 20.000 12/08/08 1,509,347 3,824,982
</TABLE>
- --------
(1) These options were generally granted at fair market value, except for the
option granted to Mr. Chandrasekhar with an exercise price per share of
$9.00, which was above fair market value. The options generally vest over
a 50-month period so long as the individual is employed by us, except that
the two options granted to Mr. Chandrasekhar, each for 333,334 shares of
Common Stock at per share exercise prices of $4.50 and $9.00,
respectively, vest in full upon the third and fifth anniversaries of the
date of grant (January 27, 1998), respectively. Both options will
accelerate and become fully vested if we are acquired or sell all or
substantially all of our assets or if Mr. Chandrasekhar is terminated
other than for cause.
(2) The 5% and 10% assumed annual rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of future Common Stock prices.
16
<PAGE>
The following table sets forth the number of shares acquired upon the
exercise of stock options during 1998 and the number of shares covered by both
exercisable and unexercisable stock options held by each of the Named
Executive Officers at December 31, 1998. Also reported are values of
unexercised "in-the-money" options, which represent the positive spread
between the respective exercise prices of outstanding stock options and the
fair market value of our Common Stock on December 31, 1998 ($32.125 per
share).
Aggregated Option Exercises in 1998 and Year-End Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Year-End at Year-End
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ellen M. Hancock........ 231,034 $1,523,376 28,880 1,484,048 $ 797,810 $36,346,826
K.B. Chandrasekhar...... -- -- 125,000 1,341,670 3,977,375 32,470,703
Sam S. Mohamad.......... 104,000 1,847,609 13,334 336,000 424,705 8,332,414
Richard S. Stoltz....... -- -- 59,066 306,602 1,786,103 6,471,488
B.V. Jagadeesh.......... -- -- 80,066 256,602 2,454,034 5,865,238
Robert V. Sanford III... 95,666 982,701 11,000 176,668 351,388 3,660,134
Herbert Dollahite....... -- -- 12,002 207,998 266,294 3,407,456
</TABLE>
Executive Employment Policy. In December 1997, the Board adopted a form of
Executive Employment Policy (the "Policy") to be entered into between us and
each of our executive officers and certain of our other employees (together,
the "Executives"). Pursuant to the Policy, in the event of a "Termination" (as
defined in the Policy) resulting from a "Change of Control" (as defined in the
Policy), each Executive's base salary and medical benefits would continue for
18 months for the Chairman, Chief Executive Officer and President and up to 12
months for other Executives. In addition, in the event of a Change in Control,
each Executive's options would become exercisable with respect to 50% of such
Executive's remaining unvested shares subject to such options. In the event of
an "Involuntary Termination" (as defined in the Policy), base salary and
medical benefits would generally continue for shorter time periods than those
set forth above and the Executive's options would continue to vest during such
period. An Executive that "Voluntarily Terminates" (as defined in the Policy)
or is terminated for "Cause" (as defined in the Policy) would generally not
receive any compensation, additional stock option vesting or other benefits
after the date of termination. Pursuant to the Policy, during the term of any
payments made to an Executive after termination, such Executive would not be
permitted to manage, operate, control, participate in the management,
operation or control of or be employed by any other person or entity that is
engaged in providing services that are directly competitive with the services
offered by us.
Director Compensation
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses in attending
meetings of the Board. Under our 1998 Directors Stock Option Plan, each member
of the Board who is not our employee is automatically granted an option for
40,000 shares upon joining the Board, which will vest as to 33 1/3% of the
total shares on each annual anniversary of the date of grant provided the
optionee is still a member of the Board or a consultant to us. In 1998,
directors Lynch and Hopper each received an option for 40,000 shares at an
exercise price of $7.50 per share. At each annual meeting of stockholders,
each eligible director will automatically be granted an additional option for
10,000 shares, which will vest as to 25% of the total shares on each annual
anniversary of the date of grant provided the optionee is still a member of
the Board or a consultant to us. In May 1998, directors Bolander, Dougery,
Dubovoy, Hopper, Howley, Lynch, Mocarski and Rekhi each received an option for
10,000 shares at an exercise price of $15.344 per share.
In February 1998, we sold shares of Series D Preferred Stock convertible
into 66,666 and 11,696 shares of Common Stock at a purchase price per share of
$4.275 to directors Lynch and Hopper, respectively. Such shares have since
been converted into Common Stock.
17
<PAGE>
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee of the Board, consisting
of directors Bolander, Howley and Hopper, was at any time during 1998 an
officer or employee of Exodus. No executive officer of Exodus served during
1998 or serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving on our Board or
our Compensation Committee.
REPORT OF THE
COMPENSATION COMMITTEE
This Report of the Compensation Committee is required by the Securities and
Exchange Commission (the "SEC") and, in accordance with the SEC's rules, will
not be deemed to be part of or incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing
under the Securities Act of 1933, as amended (the "Securities Act"), or under
the Securities Exchange Act of 1934, (the "Exchange Act"), except to the
extent that the Company specifically incorporates this information by
reference, and will not otherwise be deemed "soliciting material" or "filed"
under either the Securities Act or the Exchange Act.
To the Board of Directors:
Final decisions regarding executive compensation and stock option grants to
executives are made by the Compensation Committee of the Board of Directors
(the "Committee"). The Committee is comprised of three independent non-
employee directors whose names appear below. None of these directors has
interlocking relationships as defined by the SEC.
GENERAL COMPENSATION POLICY
The Committee acts on behalf of the Board to establish the Company's
general compensation policy for all employees of the Company. The Committee
typically reviews base salary levels and target bonuses for the executive
officers of the Company at or about the beginning of each fiscal year. The
Committee administers the Company's incentive and equity plans, including the
1999 Stock Option Plan (the "1999 Plan"), the 1998 Equity Incentive Plan (the
"1998 Plan"), the 1997 Equity Incentive Plan, the 1995 Stock Option Plan and
the 1998 Employee Stock Purchase Plan.
The Committee's philosophy in compensating the Company' executive officers,
including the Company's CEO and President, is to relate compensation to
corporate performance. Consistent with this philosophy, the incentive
component of the compensation of the executive officers of the Company is
contingent on corporate revenue and customer satisfaction performance. Long-
term equity incentives for executive officers are effected through the
granting of stock options. Stock options generally have value for the
executive only if the price of the Company's stock increases above the fair
market value on the grant date and the executive remains in the Company's
employ for the period required for the shares to vest.
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee informally
reviewing data on prevailing compensation practices in technology companies
with whom the Company competes for executive talent and by the Committee
evaluating such information in connection with the Company's corporate goals.
Subject to the limitations regarding available data, the Committee compared
the compensation of the Company's executive officers with the compensation
practices of comparable companies to determine base salary, target bonuses and
target total cash compensation.
The Company used the Goldman Sachs Internet Index as its published line of
business index. The compensation practices of most of the companies in this
Index were not reviewed by the Committee when it reviewed the compensation
practices of comparable companies because the Committee determined that they
were not the companies the Company competes with for executive talent.
18
<PAGE>
FISCAL 1998 EXECUTIVE COMPENSATION
BASE COMPENSATION. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
for each executive officer.
INCENTIVE COMPENSATION. Cash bonuses are awarded only if the Company meets
objectives. For all officers, other than the Chairman and the CEO and
President, the objectives used by the Company as the basis for incentive
compensation are revenue and customer satisfaction. The target amount of bonus
is determined by the Committee. During fiscal 1998, certain executive officers
received bonuses ranging from $6,000 to $100,000.
STOCK OPTIONS. In fiscal 1998 stock options were granted to certain
executive officers as incentives for them to become employees or to aid in the
retention of executive officers and to align their interests with those of the
stockholders. Stock options typically have been granted to executive officers
when the executive first joins the Company, in connection with a significant
change in responsibilities and, occasionally, to achieve equity within a peer
group. The Committee may, however, grant additional stock options to
executives for other reasons. The number of shares subject to each stock
option granted is within the discretion of the Committee and is based on the
executive's anticipated future contribution, ability to impact corporate
results and past performance or consistency within the executive's peer group.
In fiscal 1998, the Committee considered these factors, as well as the number
of options held by each executive officer that remained unvested at the time
the Committee was considering whether to make new option grants and the amount
of shares underlying any new option grant. At the discretion of the Committee,
executive officers may also be granted stock options to provide greater
incentives to continue their employment with the Company and to strive to
increase the value of the Company's Common Stock. The stock options generally
become exercisable over a fifty-month period and are granted at a price that
is equal to the fair market value of the Company's Common Stock on the date of
the grant.
COMPANY PERFORMANCE AND CEO COMPENSATION
K.B. Chandrasekhar, the Company's Chairman of the Board of Directors, was
the Company's CEO until September 1998 at which time Ellen Hancock became the
Company's CEO.
BASE COMPENSATION. For fiscal year 1998, Mr. Chandrasekhar received a base
salary of $210,000 and Ms. Hancock received a base salary of $200,000.
INCENTIVE COMPENSATION. The objectives used by the Company as the basis for
incentive compensation for Mr. Chandrasekhar and Ms. Hancock were a
combination of revenue and earnings (loss) before net interest expense, income
taxes, depreciation, amortization (including amortization of deferred stock
compensation) and other noncash charges ("EBITDA") performance as set forth in
the Executive Bonus Plan. Mr. Chandrasehkar was eligible to earn a target
bonus of $115,000 for work performed in fiscal 1998 based on attainment of
100% of the Executive Bonus Plan objectives. Mr. Chandrasekhar and Ms. Hancock
elected to forego their bonuses for work they performed in fiscal 1998.
STOCK OPTIONS. In December 1998, Mr. Chandrasekhar was granted an incentive
and a nonqualified stock option under the 1998 Plan, each at an exercise price
per share of $20.00. The incentive stock option is for 12,390 shares and the
nonqualified stock option is for 287,610 shares. Both vest over fifty months
from the date of grant at a rate of 2% per month. Mr. Chandrasekhar was
granted two non-plan option grants for 333,334 shares each in January 1998.
One of the non-plan options was granted by the Board of Directors at an
exercise price per share of $4.50 and is not exercisable until the third
anniversary of its date of grant provided Mr. Chandrasekhar continues to
provide services as a full-time employee of the Company or any subsidiary of
the Company through that date. The other non-plan option was granted by the
Board of Directors at an exercise price per share of $9.00 and is not
exercisable until the fifth anniversary of its date of grant, provided
Mr. Chandrasekhar continues to provide services as a full-time employee of the
Company or any subsidiary of the Company through that date. The exercise price
of the second option was at a 100% premium over the fair
19
<PAGE>
market value. If any of the following events occurs prior to the third or fifth
grant anniversary date, both non-plan options immediately will become
exercisable in full: the closing of the merger of the Company with and into an
unaffiliated corporation, the sale of all or substantially all of the assets of
the Company or his involuntary termination for any reason other than cause.
In December 1998, Ms. Hancock was granted an incentive and a nonqualified
stock option under the 1998 Plan, each at an exercise price per share of
$20.00. The incentive stock option is for 20,832 shares and the nonqualified
stock option is for 279,168 shares. Both vest over fifty months from the date
of grant at a rate of 2% per month. The Board of Directors granted Ms. Hancock
a non-plan option grant for 1,443,962 shares at $4.50 per share in connection
with the commencement of her employment in March 1998. This option vests over
fifty months while Ms. Hancock provides services to the Company or any
subsidiary as to twelve percent of the shares six months after the date of
grant and thereafter as to an additional two percent at the end of each full
calendar month.
1999 STOCK OPTION PLAN
In January 1999, the Company's Board of Directors adopted the 1999 Plan. The
1999 Plan has been 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 1999 Plan. Only nonqualified stock
options may be granted under the 1999 Plan.
COMPLIANCE WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE.
Internal Revenue Code Section 162(m) limits the Company's ability to deduct
compensation in excess of $1,000,000 in any taxable year to the individual who
is the CEO at the end of the taxable year and the four other highest
compensated officers of the Company during the taxable year. Cash compensation
for fiscal 1998 for any individual was not in excess of $1,000,000 and the
Company does not expect cash compensation for fiscal 1999 to be in excess of
$1,000,000 for any individual. The Company's 1998 Plan is in compliance with
Section 162(m) by limiting the amount of stock awards that may be granted to
any one individual. The non-plan stock option grants made in fiscal 1998 do not
comply with Section 162(m). In addition, the 1999 Plan is not in compliance
with Section 162(m).
COMPENSATION COMMITTEE
PETER A. HOWLEY, CHAIR
THADEUS J. MOCARSKI
(through 12/8/98)
MAX D. HOPPER
(from 12/8/98)
FREDERICK W.W. BOLANDER
20
<PAGE>
PERFORMANCE GRAPH
The stock price performance graph below is required by the SEC and 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 or the Exchange Act, except to the extent the Company
specifically incorporates this information by reference and shall not
otherwise be deemed soliciting material or filed under such acts.
The following graph shows a comparison of cumulative total stockholder
return, calculated on a dividend reinvested basis, for the Company, the Nasdaq
Composite Stock Market Index (US) and the Goldman Sachs Internet Index. The
graph assumes that $100 was invested in the Company's Common Stock, the Nasdaq
Composite Stock Market (US) and the GS Internet Index from the date of the
Company's initial public offering on March 19, 1998 through December 31, 1998.
Note that historic stock price performance is not necessarily indicative of
future stock price performance.
[PERFORMANCE GRAPH APPEARS HERE]
$100 Initial Investment on March 19, 1998
<TABLE>
<CAPTION>
GS Nasdaq
Exodus Internet Composite
Communications Index Index
-------------- -------- ---------
<S> <C> <C> <C>
3/31/98............................... $101.36 $103.91 $101.98
6/30/98............................... 161.99 127.37 105.26
9/30/98............................... 88.24 130.99 94.10
12/31/98............................... 232.58 270.52 121.82
</TABLE>
21
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From January 1, 1998 to the present, there have been no (and there are no
currently proposed) transactions in which the amount involved exceeded $60,000
to which we or any of our subsidiaries was (or is to be) a party and in which
any executive officer, director, 5% beneficial owner of our Common Stock or
member of the immediate family of any of the foregoing persons had (or will
have) a pecuniary interest, except as described in the Executive Compensation
section above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than 10% of our Common Stock ("10%
Stockholders"), to file with the SEC initial reports of ownership on a Form 3
and reports of changes in ownership of our Common Stock and other equity
securities on a Form 4 or Form 5. Such executive officers, directors and 10%
Stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based solely on our review of the copies of
such forms furnished to us and written representations from the executive
officers and directors, we believe that all of our executive officers,
directors and 10% Stockholders made all the necessary filings under Section
16(a) during 1998, except that the following individuals had late filings in
1998: K.B. Chandrasekhar (Form 4 for sale of stock), John R. Dougery (Form 4
for exercise of warrants and purchase of stock), Mark Dubovoy (Form 4 for
exercise of warrants and purchase of stock), Max D. Hopper (Form 4 for
purchase of stock), Peter A. Howley (Form 4 for exercise of warrants and
purchase of stock), Daniel C. Lynch (Form 4 for purchase of stock) and
Kanwal S. Rekhi (Form 4 for exercise of warrants).
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the Company's Proxy Statement and
form of proxy relating to the Company's annual meeting of stockholders to be
held in 2000 must be received by January 5, 2000. Stockholders wishing to
bring a proposal before the annual meeting for 2000 (but not include it in the
Company's proxy materials) must provide written notice of such proposal to the
Secretary of the Company at the principal executive offices of the Company no
later than April 5, 2000.
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Meeting, and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the Notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended
that proxies, in the form enclosed, will be voted in respect thereof in
accordance with the judgment of the persons voting such proxies.
Whether or not you expect to attend the meeting, please complete, date,
sign and promptly return the accompanying proxy in the enclosed postage paid
envelope so that your shares may be represented at the meeting.
22
<PAGE>
PROXY
EXODUS COMMUNICATIONS, INC.
Annual Meeting of Stockholders - June 2, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard S. Stoltz and Adam W. Wegner, and
each of them, as proxies of the undersigned, each with full power to appoint
his substitute, and hereby authorizes them to represent and to vote all the
shares of stock of Exodus Communications, Inc. which the undersigned is
entitled to vote, as specified on the reverse side of this card, at the Annual
Meeting of Stockholders of Exodus Communications, Inc. (the "Meeting") to be
held on June 2, 1999 at 10:00 a.m., local time, at The Westin Santa Clara,
5101 Great America Parkway, Santa Clara, California, and at any adjournment or
postponement thereof.
When this Proxy is properly executed, the shares to which this Proxy relates
will be voted as specified and, if no specification is made, will be voted for
the Board of Director nominees and for Proposals 2, 3 and 4, and this Proxy
authorizes the above designated Proxies to vote in their discretion on such
other business as may properly come before the meeting or any adjournments or
postponements thereof to the extent authorized by Rule 14a-4(c) promulgated
under the Securities Exchange Act of 1934, as amended.
[See reverse side] (Continued and to be signed on reverse side)
1
<PAGE>
[X] Please mark votes as in this example
The Board of Directors recommends a vote FOR the Proposals:
1. ELECTION OF DIRECTORS.
Nominees: Frederick W.W. Bolander Daniel C. Lynch
Mark Dubovoy Thadeus J. Mocarski
John R. Dougery Kanwal S. Rekhi
Max D. Hopper K. B. Chandrasekhar
Peter A. Howley Ellen M. Hancock
[_] For [_] Against [_] Abstain
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below:
__________________________________________________________________________
2. AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK ISSUABLE BY THE COMPANY FROM
100,000,000 TO 300,000,000.
[_] For [_] Against [_] Abstain
3. AMENDMENT OF 1998 EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY 2,000,000 SHARES.
[_] For [_] Against [_] Abstain
4. RATIFICATION OF APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS.
[_] For [_] Against [_] Abstain
Please sign exactly as your name(s) appear(s) on this Proxy. If shares of
stock stand of record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign this Proxy. If shares of stock are held of record by a
corporation, this Proxy should be executed by the president or vice president
and the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute this Proxy for a deceased stockholder should give
their full title. Please date this Proxy.
[_] Mark here for address change and note below
Signature:__________________________ Date: _________________
Whether or not you plan to attend the meeting in person, you are urged to
complete, date, sign and promptly mail this Proxy in the enclosed return
envelope so that your shares may be represented at the meeting.
2
