<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
EXTENDED SYSTEMS INCORPORATED
- --------------------------------------------------------------------------------
(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]
NOTICE OF THE 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 27, 1999
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders (the
"Annual Meeting") of Extended Systems Incorporated, a Delaware corporation (the
"Company"), will be held Wednesday, October 27, 1999, at 9:00 a.m., local time,
at the Boise Centre on the Grove located at 850 West Front Street, Boise, Idaho,
for the following purposes:
1. To elect two Class I directors to serve until the 2002 Annual Meeting of
Shareholders or until their successors are duly elected and qualified;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the Company's fiscal year ending June
30, 2000; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on September 1, 1999,
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting. Only shareholders of record at the close of
business on September 1, 1999, are entitled to notice of and to vote at the
Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date, and return the enclosed Proxy as promptly as possible
in the postage prepaid envelope enclosed for that purpose. Any shareholder
attending the Annual Meeting may vote in person even if he or she has returned a
Proxy.
By Order of the Board of Directors,
Robert G. Hamlin
SECRETARY
Boise, Idaho
September 24, 1999
IMPORTANT: IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING,
REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE REQUESTED TO COMPLETE,
SIGN, DATE, AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE PROVIDED.
<PAGE>
EXTENDED SYSTEMS INCORPORATED
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Extended Systems Incorporated, a Delaware corporation (the "Company"), for use
at the 1999 Annual Meeting of Shareholders (the "Annual Meeting") to be held
Wednesday, October 27, 1999 at 9:00 a.m., local time, or at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held at the Boise
Centre on the Grove located at 850 West Front Street, Boise, Idaho.
The Company's principal executive offices are located at 5777 North Meeker
Avenue, Boise, Idaho 83713. These proxy solicitation materials were first mailed
on or about September 24, 1999, together with the Company's 1999 Annual Report
to Shareholders, to all shareholders entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company's Secretary a
written notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Pursuant to Delaware General Corporation Law and the Company's Restated
Certificate of Incorporation and Bylaws, each shareholder will be entitled to
one vote for each share of the Company's Common Stock held at the close of
business on September 1, 1999 (the "Record Date"), for all matters, including
the election of directors. Shareholders do not have the right to cumulate their
votes in the election of directors. The Company's transfer agent, BankBoston
N.A., will tabulate the votes at the Annual Meeting.
This solicitation of proxies is made by the Company, and the Company will
bear all related costs. The Company has elected to retain the services of
Corporate Investor Communications, Inc. for the purposes of conducting the
broker nominee search, distribution of proxy materials to banks, brokers,
nominees and intermediaries and solicitation in order to obtain voted proxies
for the Annual Meeting at an estimated cost of $1,000, plus out of pocket
expenses. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares of the Company's Common Stock
for their expenses in forwarding solicitation material to such beneficial
owners. Certain of the Company's directors, officers and regular employees may
also solicit proxies without additional compensation, personally or by telephone
or telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is
a majority of the votes eligible to be cast by holders of shares of the
Company's Common Stock issued and outstanding on the Record Date. Shares that
are voted "FOR," "WITHHOLD AUTHORITY" or "AGAINST" a matter are treated as being
present at the Annual Meeting for the purposes of establishing a quorum and are
also treated as shares entitled to vote at the Annual Meeting (the "Votes Cast")
with respect to such matter.
1
<PAGE>
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of a controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
of voting against a proposal.
In a 1988 Delaware case, BERLIN V. EMERALD PARTNERS, the Delaware Supreme
Court held that, while broker non-votes should be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which a broker has
expressly not voted. Accordingly, the Company intends to treat broker non-votes
in this manner. Thus, a broker non-vote will not effect the outcome of the
voting on a proposal.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules promulgated by
the Securities and Exchange Commission. Proposals of shareholders of the Company
intended to be presented for consideration at the Company's 2000 Annual Meeting
of Shareholders (the "2000 Annual Meeting") must be received by the Company no
later than May 22, 2000, in order that they may be included in the proxy
statement and form of proxy related to that meeting.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a shareholder intends to
submit a proposal at the 2000 Annual Meeting, which is not eligible for
inclusion in the proxy statement and form of proxy relating to that meeting, the
shareholder must do so no later than August 10, 2000. If such a shareholder
fails to comply with the foregoing notice provision, the proxy holders will be
allowed to use their discretionary voting authority when the proposal is raised
at the 2000 Annual Meeting.
RECORD DATE
Only shareholders of record at the close of business on September 1, 1999,
are entitled to notice of and to vote at the Annual Meeting. The Company has one
class of voting securities outstanding, which is Common Stock, $0.001 par value
per share. As of the Record Date, 9,228,065 shares of the Company's authorized
Common Stock were issued and outstanding.
PRINCIPAL SHARE OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date with respect to
(i) each person who is known by the Company to own beneficially more than 5% of
the Company's outstanding shares of Common Stock, (ii) each director of and each
nominee for director of the Company, (iii) each of the executive officers named
in the Summary Compensation Table in "Executive Compensation and Other Matters"
below, and (iv) all directors and executive officers of the Company as a group.
The address of each of the persons listed in the table below is as follows: c/o
Extended Systems Incorporated, 5777 North Meeker Avenue, Boise, Idaho 83713.
2
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP(1) STOCK OUTSTANDING
- ------------------------------------------------ ------------------ -----------------
<S> <C> <C>
Douglas B. Winterrowd........................... 1,460,154(2) 15.8%
Charles M. Jopson............................... 1,233,777(3) 13.4%
Ted L. Wimer.................................... 970,578(4) 10.5%
Raymond A. Smelek............................... 376,975(5) 4.0%
Steven D. Simpson............................... 167,616(6) 1.8%
Gregory M. Avis................................. 82,881(7) *
S. Scott Wald................................... 48,306(8) *
John M. Russell................................. 17,463(9) *
Holmes T. Lundt................................. 331,702(10) 3.6%
Thomas C. White................................. 82,466(11) *
Bradley J. Surkamer............................. 52,339(12) *
Karla K. Rosa................................... 41,441(13) *
Scott J. Ritchie................................ 32,127(14) *
All directors and executive officers as a group
(11 persons).................................. 2,693,470 27.3%
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable, or exercisable within 60 days of
September 1, 1999, and are deemed outstanding for computing the percentage
of the person holding such options but are not deemed outstanding for
computing the percentage of any other person. Except as indicated by a
footnote and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock owned by them.
(2) Includes 331,726 shares held of record by the Employee Stock Ownership Plan
for which Mr. Winterrowd serves as trustee. Mr. Winterrowd is Chief
Engineer and a director of the Company.
(3) Includes 6,000 shares held of record by Mr. Jopson's daughter. Mr. Jopson
is an employee of the Company.
(4) Mr. Wimer is an employee of the Company.
(5) Includes 1,942 shares held of record by Smelek & Associates, a business
owned by Mr. Smelek's wife and 274,666 shares subject to options
exercisable within 60 days of September 1, 1999. Mr. Smelek is the Chairman
of the Board of Directors.
(6) Includes 93,554 shares subject to options exercisable within 60 days of
September 1, 1999. Mr. Simpson is the President, Chief Executive Officer
and a director of the Company.
(7) Includes 1,090 shares held by Summit Investors II, L.P., 73,910 shares held
by Summit Ventures II, L.P. and 7,881 shares subject to options exercisable
within 60 days of September 1, 1999. Mr. Avis is the Managing Partner of
Summit Partners, L.P., the general partner of Summit Investors II, L.P.
("Summit Investors") and Summit Ventures II, L.P. ("Summit Ventures").
Summit Investors and Summit Ventures also hold subordinated notes
convertible into 557,787 shares of the Company's Common Stock. Mr. Avis is
a director of the Company.
(8) Includes 34,306 shares subject to options exercisable within 60 days of
September 1, 1999. Mr. Wald is a director of the Company.
(9) Includes 7,463 shares subject to options exercisable within 60 days of
September 1, 1999. Mr. Russell is a director of the Company.
3
<PAGE>
(10) Includes 60,039 shares subject to options exercisable within 60 days of
September 1, 1999. Mr. Lundt is Vice President of Corporate Research and
Development and Business Development.
4
<PAGE>
(11) Includes 34,919 shares subject to options exercisable within 60 days of
September 1, 1999. Mr. White is Vice President of Sales and Marketing of
the Company, however, he tendered his resignation to the Company on May
21, 1999, effective November 22, 1999.
(12) Includes 47,155 shares subject to options exercisable within 60 days of
September 1, 1999. Mr. Surkamer is Vice President of Technical Support and
Internet Business Unit Manager.
(13) Includes 32,978 shares subject to options exercisable within 60 days of
September 1, 1999. Ms. Rosa is Vice President of Finance and Chief
Financial Officer of the Company.
(14) Includes 30,038 shares subject to options exercisable within 60 days of
September 1, 1999. Mr. Ritchie is Vice President of Operations of the
Company.
PROPOSAL ONE
ELECTION OF CLASS I DIRECTORS
Two Class I Directors are to be elected at the Annual Meeting to serve for a
three-year term or until their successors are duly elected and qualified. The
Company's Board of Directors is divided into three classes. The term of each
class of directors is three years. Unless otherwise instructed, the holders of
proxies solicited by this Proxy Statement will vote the proxies received by them
for the Company's two nominees named below, both of whom are currently serving
the Company as Class I Directors. In the event that a nominee is unable or
declines to serve as a Class I Director at the time of the Annual Meeting, the
proxy holders will vote for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. The Company is not aware of any reason
that either nominee will be unable or will decline to serve as a Class I
Director. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner as will assure the election of as many of the nominees listed below as
possible, and, in such event, the specific nominees to be voted for will be
determined by the proxy holders.
NOMINEES FOR ELECTION AS CLASS I DIRECTORS FOR A TERM EXPIRING IN 2002
STEVEN D. SIMPSON; AGE 52; PRESIDENT AND CHIEF EXECUTIVE OFFICER, EXTENDED
SYSTEMS INCORPORATED. Mr. Simpson has served as the Company's President and
Chief Executive Officer and as a director since January 1996. From January 1995
to January 1996, Mr. Simpson served as the Company's Executive Vice President of
Sales and Marketing. From 1978 to 1994, Mr. Simpson was employed by
Hewlett-Packard Company. From 1991 to 1994, Mr. Simpson was General Manager of
the Boise LaserJet Printer Division.
DOUGLAS B. WINTERROWD; AGE 48; CHIEF ENGINEER. Mr. Winterrowd is a founder
of the Company and has been a Director since October 1995. Previously, he served
as Director of the Company from 1984 to 1992. Mr. Winterrowd has served as Chief
Engineer since February 1994 and, prior to such time, held various positions
with the Company, including Program Manager, Quality Assurance Manager,
Technical Support Manager, Project Manager and Senior Engineer.
INCUMBENT CLASS II DIRECTORS SERVING FOR A TERM EXPIRING IN 2000
GREGORY M. AVIS; AGE 40; GENERAL PARTNER, SUMMIT PARTNERS, L.P. Mr. Avis
has been a Director of the Company since September 1992. He has served as a
General Partner of Summit Partners, L.P., a venture capital partnership, since
1987 and has served as a Managing Partner of Summit Partners, L.P. since 1990.
Mr. Avis is also a director of COMPS.COM, Ditech Communications Corp., Powerwave
Technologies, Inc. and Splash Technology Holdings, Inc.
JOHN M. RUSSELL; AGE 57; RETIRED. Mr. Russell has been a Director of the
Company since April 1998. He is currently retired. From December 1991 to March
1994, Mr. Russell served as Vice President of Finance and Administration, Chief
Financial Officer and Secretary of Cisco Systems, Inc.
5
<PAGE>
INCUMBENT CLASS III DIRECTORS SERVING FOR A TERM EXPIRING IN 2001
RAYMOND A. SMELEK; AGE 64; CHAIRMAN OF THE BOARD OF DIRECTORS, EXTENDED
SYSTEMS INCORPORATED; PRESIDENT AND CHIEF EXECUTIVE OFFICER, THE NETWORK
GROUP. Mr. Smelek has served as the Company's Chairman of the Board of
Directors since June 1995 and has been a Director of the Company since June
1994. From June 1994 to February 1996, he was the Company's President and Chief
Executive Officer. Prior to joining the Company, Mr. Smelek was employed by
Hewlett-Packard Company and held a number of positions, most recently as Vice
President and General Manager of the Mass Storage Group. Mr. Smelek is also a
director of Inference Corporation.
S. SCOTT WALD; AGE 44; PRESIDENT, ROMAR SERVICES, L.L.C. Mr. Wald has been
a Director of the Company since July 1994. He was the founder of ASAP Software
Express, Inc. ("ASAP") and served as President and Chief Executive Officer of
ASAP from September 1985 to June 1998.
VOTE REQUIRED
If a quorum is present and voting, the two nominees who receive the highest
number of affirmative votes will be elected to the Board of Directors as Class I
Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE TWO
NOMINEES FOR CLASS I DIRECTORS NAMED ABOVE.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended June 30, 1999, ("Fiscal 1999") the Board of
Directors held eight meetings (including regularly scheduled and special
meetings). All of the incumbent directors attended 75% or more of the meetings
of the Board of Directors and committees upon which such directors served,
except Mr. Avis, who was present at five of the eight Board meetings and who
missed one committee meeting for each of the Audit Committee and Compensation
Committee. The Company's Board of Directors has an Audit Committee, Compensation
Committee and Nominating Committee.
AUDIT COMMITTEE. The Audit Committee of the Board of Directors reviews and
monitors the corporate financial reporting and external audits of the Company,
including among other things, the Company's internal control functions, the
results and scope of the annual audit and other services provided by the
Company's independent accountants, and the Company's compliance with legal
matters with a significant impact on the Company's financial reports. In
addition, the Audit Committee has the responsibility to consider and recommend
the appointment of the Company's independent accountants. The Audit Committee
also monitors transactions between the Company and its officers, directors and
employees for any potential conflicts of interest. The current members of the
Audit Committee are Gregory M. Avis (Chairman) and John M. Russell. The Audit
Committee held two meeting in Fiscal 1999.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors reviews and makes recommendations to the Board regarding the Company's
compensation policy and all forms of compensation to be provided to executive
officers and directors of the Company, including, among other things, annual
salaries and bonuses, and stock option and other incentive compensation
arrangements. In addition, the Compensation Committee reviews stock compensation
arrangements for all other employees of the Company. As part of the foregoing
responsibilities, the Compensation Committee also administers the Company's 1998
Stock Plan and 1998 Employee Stock Purchase Plan. The current members of the
Compensation Committee are S. Scott Wald (Chairman) and Gregory M. Avis. The
Compensation Committee held three meetings in Fiscal 1999. Certain matters were
approved by the Compensation Committee by unanimous written consent.
NOMINATING COMMITTEE. The Nominating Committee of the Board of Directors
reviews and makes recommendations to the Board regarding annual elections of
directors and potential new directors. The Nominating Committee will consider
qualified nominees for director whose names are submitted in accordance with the
Company's Restated Bylaws. The current members of the Nominating Committee are
Raymond A. Smelek (Chairman), Gregory M. Avis and S. Scott Wald. The Nominating
Committee did not meet in Fiscal 1999.
6
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during Fiscal 1999 consisted of S. Scott Wald and
Gregory M. Avis, neither of whom is or has been an officer or employee of the
Company. No interlocking relationship exists between the Company's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent public accountants to audit the Company's financial
statements for the fiscal year ending June 30, 2000 ("Fiscal 2000"). The Board
of Directors recommends that shareholders vote "FOR" ratification of such
appointment. In the event of a negative vote on ratification, the Board of
Directors will reconsider its selection.
PricewaterhouseCoopers LLP has audited the Company's financial statements
annually since the Company's fiscal year ended June 30, 1984. Representatives of
PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR FISCAL 2000.
7
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned during the Company's
fiscal years ended June 30, 1999, 1998 and 1997, by (i) the Company's Chief
Executive Officer and (ii) the Company's five other most highly compensated
executive officers whose total annual salary and bonus during the fiscal year
exceeded $100,000 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------------------- ----------- ------------ ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Steven D. Simpson................................ 1999 $ 240,000 $ -- 40,000 $ 107,826
President and 1998 217,500 4,922 36,667 43,133
Chief Executive Officer 1997 193,333 4,256 33,333 59,190
Thomas C. White(4)............................... 1999 132,000 30,705(5) 19,000 17,063
Vice President, Sales and Marketing 1998 120,000 41,291(7) 16,667 16,613
1997 110,040 41,402(9) 6,000 16,243
Scott J. Ritchie................................. 1999 142,410 -- 24,500 4,484
Vice President, Operations 1998 132,225 2,997 16,667 5,102
1997 120,450 2,657 6,000 4,256
Bradley J. Surkamer.............................. 1999 127,500 -- 22,000 4,015
Vice President, Technical Support 1998 119,250 2,701 10,667 4,602
and Internet Business Unit Manager 1997 112,050 2,474 4,667 3,959
Karla K. Rosa.................................... 1999 124,230 -- 32,000 3,915
Vice President, Finance 1998 110,100 2,506 25,667 4,166
and Chief Financial Officer 1997 96,150 2,120 8,000 8,037
Holmes T. Lundt.................................. 1999 112,651(13) -- 13,000 3,585
Vice President, Corporate Research 1998 129,300 2,926 8,667 4,998
and Development and Business 1997 122,850 2,711 4,000 4,334
Development
</TABLE>
- --------------------------
(1) Includes $5,792 of contributions by the Company to defined contribution
plans and $102,034 of deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(2) Includes $6,449 of contributions by the Company to defined contribution
plans and $36,684 of deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(3) Includes $5,674 of contributions by the Company to defined contribution
plans and $53,516 of deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(4) Mr. White tendered his resignation to the Company on May 21, 1999,
effective November 22, 1999.
(5) Consists of sales commissions.
(6) Includes $5,130 of contributions by the Company to defined contribution
plans and $11,933 of deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(7) Includes sales commissions of $38,580.
(8) Includes $6,163 of contributions by the Company to defined contribution
plans and $10,450 of deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(9) Includes sales commissions of $38,968.
(10) Includes $4,983 of contributions by the Company to defined contribution
plans and $11,260 of deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
7
<PAGE>
(11) Consists of contributions by the Company to defined contribution plans.
(12) Includes $3,397 of contributions by the Company to defined contribution
plans and $4,640 of deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(13) Mr. Lundt changed his employment status from full-time to part-time on
February 16, 1999.
OPTION GRANTS DURING FISCAL 1999
The following table provides information with respect to grants by the
Company to the Named Executive Officers during Fiscal 1999, of options to
purchase shares of its Common Stock.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDVIDUAL GRANTS ANNUAL RATES OF STOCK
------------------------------------------------------------------ PRICE APPRECIATION FOR
NUMBER OF % OF TOTAL OPTIONS EXERCISE OPTION TERM(2)
SHARES UNDERLYING GRANTED TO EMPLOYEES PRICE PER EXPIRATION ----------------------
NAME OPTIONS GRANTED(1) IN FISCAL 1999 SHARE DATE 5% 10%
- ----------------------------- ------------------- -------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Simpson............ 40,000 5.0% $ 6.19 08/06/08 $ 155,664 $ 394,483
Thomas C. White.............. 12,000 1.5% 4.13 12/23/08 31,130 78,890
7,000 0.9% 4.50 02/02/09 19,810 50,203
Scott J. Ritchie............. 14,500 1.8% 4.13 12/23/08 37,616 95,326
10,000 1.2% 4.50 02/02/09 28,300 71,718
Bradley J. Surkamer.......... 10,000 1.2% 4.13 12/23/08 25,942 65,742
12,000 1.5% 4.50 02/02/09 33,960 86,062
Karla K. Rosa................ 17,000 2.1% 4.13 12/23/08 44,101 111,761
15,000 1.9% 4.50 02/02/09 42,450 107,578
Holmes T. Lundt.............. 3,000 0.4% 4.13 12/23/08 7,783 19,723
10,000 1.2% 4.50 02/02/09 28,300 71,718
</TABLE>
- ------------------------
(1) All options vest over a period of 4 years and have a ten year term.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant, which is 10 years, and is calculated by assuming that
the stock price on the date of grant, which is based on the closing sales
price of the Company's Common Stock on that date as reported by the Nasdaq
National Market System, appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is exercised
and sold on the last day of its term for the appreciated price. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL 1999 OPTION VALUES
The following table sets forth the number of shares acquired upon exercise
of stock options during Fiscal 1999 by each of the Named Executive Officers, and
the value of unexercised options as of June 30, 1999. Also reported are values
of "in-the-money" options that represent the positive "spread" between the
respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock as of June 30, 1999, as determined by the
Board of Directors.
8
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------- --------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Simpson.................. 68,913 $ 282,543 79,332 100,668 $ -- $ --
Thomas C. White.................... 5,334 22,536 33,530 33,017 5,965 6,875
Scott J. Ritchie................... -- -- 28,649 51,851 -- 8,500
Bradley J. Surkamer................ 22,152 20,529 46,266 32,402 -- 6,500
Karla K. Rosa...................... 667 2,901 30,173 54,161 -- 10,375
Holmes T. Lundt.................... -- -- 59,317 22,350 -- 2,750
</TABLE>
- ------------------------------
(1) The value of unexercised "in-the-money" options is calculated based on a
price of $4.63 per share, the closing sales price of the Company's Common
Stock on June 30, 1999, as reported by the Nasdaq National Market System.
Amounts reflected are based on the assumed value minus the exercise price
and do not necessarily indicate that the optionee sold such stock.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
The Company has entered into employment agreements with each Named Executive
Officer. These agreements generally set forth the individual's salary, position
and benefits and requires the officer to give 6-months written notice upon
resignation. In addition, Mr. Simpson's contract with the Company entitles Mr.
Simpson to a continued salary and bonus for a period of 12 months if he is
terminated by the Company without cause or without 12-months written notice.
CERTAIN TRANSACTIONS
On March 31, 1999, the Company loaned Steven D. Simpson, President and Chief
Executive Officer of the Company, the amount of $117,498. The loan is
collateralized by a pledge of Common Stock, bears interest at a rate of 4.83%
annually and is due on the earlier of (i) March 31, 2004 or (ii) the date of his
termination of employment with the Company. As of September 1, 1999, the amount
of indebtedness that remained outstanding was $108,753.
DIRECTOR COMPENSATION
Non-employee directors of the Company (the "Outside Directors") receive no
cash fees as compensation for their services as directors. The Outside Directors
are reimbursed for travel and other expenses incurred in attending meetings of
the Company's Board of Directors and meetings of committees of the Board of
Directors.
The Company's 1998 Director Option Plan (the "Director Plan") was adopted by
the Board of Directors in December 1997 and approved by the shareholders in
January 1998. The Director Plan became effective on March 2, 1998 in conjunction
with the effectiveness of the registration statement relating to the Company's
initial public offering. A total of 250,000 shares of Common Stock were reserved
for issuance under the Director Plan. The Outside Directors are eligible to
participate in the Director Plan. Option grants under the Director Plan are
automatic and non-discretionary, and the exercise price of the options is 100%
of the fair market value of the Common Stock on the grant date. The Director
Plan provides for an initial grant of an option to purchase 15,000 shares of
Common Stock (the "First Option") to each Outside Director on the later of the
date on which such person first becomes an Outside Director or the date of
effectiveness of the Director Plan; provided, however, that an Inside Director
who ceases to be an Inside Director but who remains a Director shall not receive
the First Option. Thereafter, the Company shall automatically grant to each
Outside Director an option to purchase 7,500 shares of Common Stock (a
"Subsequent Option") on the date of the Company's annual meeting of stockholders
of each year; provided, however, that such Outside Director shall have served on
the Board for at least 6 months. Each First Option and each Subsequent Option
shall have a term of 10 years, or shorter upon termination of an Outside
Director's status as a director. The shares subject to each First Option shall
vest and become exercisable in installments at a rate of one-third of the total
of such shares on the first anniversary date of grant and at a rate of 1/36th of
the total of such shares per month thereafter. The
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shares subject to each Subsequent Option shall vest and become exercisable in
full on the first anniversary of the date of grant of that Subsequent Option.
The Director Plan provides that in the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding option under the Director Plan will be assumed or
substituted for by the successor corporation (the "Successor Corporation"). If
the Successor Corporation refuses to assume or substitute for the option, the
optionee shall have the right to exercise all of the optioned stock, including
shares as to which it would not otherwise be exercisable.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION POLICIES
The Company's executive compensation program is designed to: (i) enable the
Company to attract, retain and motivate superior executive personnel (ii) align
compensation with business objectives and performance; and (iii) align
incentives for executive officers with the interests of shareholders in
maximizing shareholder value. The Company's executive compensation program is
based on the same principles applicable to compensation decisions for all
employees of the Company.
The Company is committed to maintaining a compensation program that attracts
and retains the most qualified executives in the industry. To ensure that its
compensation program is competitive, the Company regularly compares its
compensation practices to those of other leading companies and sets its
parameters based on this review.
Employees, including executive officers, are rewarded based on the Company's
performance and the executive's individual performance. The Company's
performance is evaluated by reviewing the extent to which strategic and business
plan goals are met, including such factors as growth, profitability, performance
relative to competitors and timely new product introductions. Individual
performance is evaluated by reviewing organizational and management development
progress against set objectives and the degree to which teamwork and Company
values are fostered. The Company strives to compensate a particular individual
equitably compared to other employees at similar levels both inside the Company
and at comparable companies.
EXECUTIVE OFFICER COMPENSATION PROGRAM
SALARY. The Company sets a base salary range for each executive officer by
reviewing the base salary for comparable positions within a broad peer group,
including companies similar in size and businesses who compete with the Company
in the recruitment and retention of senior personnel. Generally, the Company
sets its competitive salary at the midpoint for an executive officer position
above the median level of those companies that it surveys. The Company then
creates a salary range based on this midpoint. The range is designed to place an
executive officer above or below the midpoint, according to that officer's
overall individual performance. As described above, overall individual
performance is measured against the following factors: long-term strategic
goals, short-term business goals, growth, profitability, the development of
employees and the fostering of teamwork and other Company values. In both
setting goals and measuring an executive officer's performance against those
goals, the Company takes into account the performance of its competitors and
general economic and market conditions. None of the factors included in the
Company's strategic and business goals are assigned a specific weight. Instead,
the Company recognizes that these factors may change in order to adapt to
specific business challenges and to changing economic and marketplace
conditions.
BONUS. The Company has an executive bonus that is designed to reward
executive officers for the Company's financial performance during the fiscal
year. Accordingly, an executive's bonus is calculated as a percentage of the
executive's base salary based on Company performance criteria established at the
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<PAGE>
beginning of each fiscal year, specifically, growth in net revenue and income
from operations. The Company did not pay a bonus to executive officers for
fiscal 1999.
PROFIT-SHARING. Executive officers are also eligible to participate in the
Company's profit-sharing plan. The Company reserves a percentage of income
before income taxes for distribution to all eligible employees worldwide,
including executive officers. Distributions are made at six-month intervals with
individual payments determined pro rata based on the employee's base salary.
EQUITY-BASED COMPENSATION. The purpose of the equity-based compensation
program is to provide employees, including executive officers, additional
incentive to maximize shareholder value. Option grants to executive officers
under the Company's 1998 Stock Plan are designed to further strengthen the link
between executive compensation and shareholder return, to provide additional
incentives to executive officers that are tied to growth of the Company's stock
price over time and encourage continued employment. Options generally vest over
a period of four years and are granted at a price that is equal to the fair
market value of the Company's Common stock on the date of grant.
CEO COMPENSATION
Steven D. Simpson has been President and Chief Executive Officer of the
Company since February 1996. The Committee used the same compensation policy
described above to determine Mr. Simpson's Fiscal 1999 compensation. In setting
both the cash and equity-based elements of Mr. Simpson's compensation, the
Committee made an overall assessment of Mr. Simpson's leadership in achieving
the Company's objectives with respect to financial results and business goals.
CASH COMPENSATION. Mr. Simpson's base salary reflects a consideration of
both competitive forces and the Company's performance. The Committee did not
assign specific weights to these categories. In determining the amount of Mr.
Simpson's salary for Fiscal 1999, the Committee considered the following:
(1) Total cash compensation for chief executive officers at all
manufacturing companies with revenues of less than $100 million as listed
in the RADFORD EXECUTIVE COMPENSATION REPORT, 1998, published by the
Radford Division of Aon Consulting, and cash compensation at other
comparable computer networking companies. In both cases, the Committee
used national data rather than regional data; and
(2) the Company's financial results as compared to other companies within
the high-technology industry and the Company's financial performance for
Fiscal 1998 as compared to Fiscal 1997.
As a result of this review, the Committee concluded that Mr. Simpson's base
salary was in the low end of the competitive market, and his total direct
compensation (including stock incentives) was competitive for Chief Executive
Officers leading companies comparable in size and complexity to the Company.
Through Fiscal 1999, Mr. Simpson's annual salary was $240,000, the amount the
Committee set in July 1998.
EQUITY-BASED COMPENSATION. The Company follows the same policy described
above for other executive officers, to determine Mr. Simpson's incentive awards.
On August 6, 1998, the Committee granted Mr. Simpson an option to purchase
40,000 shares of Common Stock. In granting the option to Mr. Simpson, the
Committee reviewed the financial and operational results of the Company for the
fiscal year ended June 30, 1998 with internal goals and objectives.
QUALIFYING COMPENSATION
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code ("Section 162(m)") adopted under the Federal Revenue
Reconciliation Act of 1993. Section 162(m) disallows a tax deduction for any
publicly held corporation for certain executive officers' compensation
11
<PAGE>
which exceeds $1 million per person in any taxable year unless it is
"performance-based" within the meaning of Section 162(m). Since to date the
non-performance based compensation to the Company's executive officers has been
below the $1 million threshold and since the Committee believes that options
granted under the Company's 1998 Stock Plan will meet the requirements of being
performance-based compensation under the provisions of Section 162(m), the
Committee believes that Section 162(m) will not reduce the tax deduction
available to the Company for Fiscal 1999 or prior fiscal years. The Company's
policy is, to the extent possible, to qualify its executive officers'
compensation for deductibility under the applicable tax laws.
Respectfully submitted,
S. Scott Wald, Chairman
Gregory M. Avis
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
with the Nasdaq Stock Market (U.S.) Index and the Russell 2000 Index for the
period March 4, 1998, the first public trading date of the Company's Common
Stock, to June 30, 1999. The graph assumes that $100 was invested on March 4,
1998 in the Company's Common Stock and on February 28, 1998 in the Nasdaq Stock
Market and the Russell 2000 Index, and that all dividends were reinvested. No
dividends have been declared or paid on the Company's Common Stock. Shareholder
returns over the indicated period illustrated below should not be considered
indicative of future shareholder returns.
COMPARISON OF 16 MONTH CUMULATIVE TOTAL RETURN
Extended Systems Incorporated
The Nasdaq Stock Market (U.S.) Index and
The Russell 2000 Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EXTENDED SYSTEMS INCORPORATED NASDAQ STOCK MARKET (U.S.) RUSSELL 2000
<S> <C> <C> <C>
3/4/98 $100 $100 $100
6/98 $84 $107 $101
6/99 $58 $152 $101
</TABLE>
The information contained in the performance graph shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission (the "Commission"), nor shall such information be incorporated by
reference into any future filing under the Securities Act of 1933, as
12
<PAGE>
amended, or the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates it by reference into such
filing.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's outstanding shares Common Stock to
file with the Commission reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company. Executive officers, directors
and greater than 10% shareholder are required by regulation of the Commission to
furnish the Company with copies of all Section 16(a) forms that they file with
the Commission. Based solely on the Company's review of such forms received by
it, or written representations from certain reporting persons, the Company
believes that during Fiscal 1999 its executive officers and directors and
greater than 10% shareholders complied with all applicable filing requirements,
except for Mr. Gary D. Atkins, a holder of more than 10% of the Company's
outstanding Common Stock during fiscal 1999, who failed to file timely four
Forms 4 reporting sales of shares of the Company's Common Stock by his spouse.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual Meeting.
If any other matters properly come before the Annual Meeting, or any adjournment
thereof, it is the intention of the persons named in the accompanying form of
proxy to vote the shares they represent as the Board of Directors may recommend.
It is important that your shares be represented at the Annual Meeting,
regardless of the number of shares that you hold. You are therefore urged to
execute and return, at your earliest convenience, the accompanying proxy card in
the envelope that has been provided to you.
THE BOARD OF DIRECTORS
Dated: September 24, 1999
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<PAGE>
EXTENDED SYSTEMS INCORPORATED
Dear Shareholder:
Please take note of the important information enclosed with this Proxy
Ballot. You are encouraged to read carefully the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders on
October 27, 1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Extended Systems Incorporated
EXT52B DETACH HERE
PROXY
EXTENDED SYSTEMS INCORPORATED
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 27, 1999
The undersigned, having received notice of the meeting and the proxy
statement therefor, and revoking all prior proxies, hereby appoint(s) Steven
D. Simpson and Karla K. Rosa, and each of them, attorney or attorneys of the
undersigned (with full power of substitution) for and in the name(s) of the
undersigned to attend the Annual Meeting of Shareholders of Extended Systems
Incorporated (the "Company"), to be held at the Boise Centre on the Grove,
850 West Front Street, Boise, Idaho on October 27, 1999 at 9:00 a.m. and any
adjourned or postponed sessions thereof, and to vote and act upon the
following matters in respect of all shares of stock of the Company that the
undersigned will be entitled to vote or act upon, with all powers the
undersigned would possess if personally present.
Attendance of the undersigned at the meeting or at any adjourned or postponed
sessions thereof will not be deemed to revoke this proxy unless the
undersigned shall affirmatively indicate at the meeting the intention of the
undersigned to vote said shares in person. If the undersigned is not the
registered direct holder of his or her shares, the undersigned must obtain
appropriate documentation from the registered holder in order to be able to
vote the shares in person. If the undersigned hold(s) any of the shares of
the Company in fiduciary, custodial or joint capacity or capacities, this
proxy is signed by the undersigned in every such capacity as well as
individually.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THE PROXIES SHALL VOTE
"FOR" PROPOSALS 1 AND 2.
This proxy is solicited on behalf of the Board of Directors of the Company.
- ---------------- ----------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
<PAGE>
<TABLE>
<CAPTION>
EXT52A DETACH HERE
<S><C>
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
A VOTE FOR PROPOSALS 1 AND 2 ARE RECOMMENDED BY THE BOARD OF DIRECTORS.
1. Proposal to elect Steven D. Simpson and Douglas B. Winterrowd FOR AGAINST ABSTAIN
as Class I Directors of the Company to serve for a three-year 2. Proposal to ratify the appointment of / / / / / /
term that expires upon the annual meeting of shareholders in PricewaterhouseCoopers LLP as the
2002, or until his successor is duly elected. independent accountants of the
Company.
VOTE FOR / / WITHHOLD AUTHORITY / /
/ / ____________________________________________________________ In their discretion, the Proxies are authorized to vote
To withhold authority for an individual nominee, write upon such other business as may properly come before the
the nominee's name on the line above. Annual Meeting or any adjournments or postponements thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign this Proxy exactly as your name appears on the
books of the Company. Joint owners should each sign
personally. Trustees and other fiduciaries should indicate
the capacity in which they sign, and, where more than one
name appears, a majority must sign. If a corporation, this
signature should be that of any authorized officer, who
should state his or her title.
</TABLE>
