<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:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
EXTREME NETWORKS, INC.
(Name of Registrant as Specified In Its Charter)
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>
EXTREME NETWORKS, INC.
3585 Monroe Street
Santa Clara, California 95051
October , 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Extreme Networks, Inc. on November 21, 2000 at 10:00 a.m. at the Silicon Valley
Conference Center, 2161 N. First Street, San Jose, California 95131, Pacific
Standard Time.
The matters expected to be acted upon at the meeting are described in detail
in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.
Also enclosed is a copy of the 2000 Extreme Networks, Inc. Annual Report, which
includes audited financial statements and certain other information.
It is important that you use this opportunity to take part in the affairs of
Extreme Networks, Inc. by voting on the business to come before this meeting.
Whether or not you plan to attend the meeting, please complete, sign, date and
return the accompanying proxy promptly in the enclosed postage-prepaid
envelope. Returning the proxy does not deprive you of your right to attend the
meeting and vote your shares in person.
We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Gordon L. Stitt
Gordon L. Stitt
President and Chief Executive
Officer
<PAGE>
[LOGO]
3585 Monroe Street
Santa Clara, California 95051
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 21, 2000
The Annual Meeting of the stockholders of Extreme Networks, Inc. will be
held on Tuesday, November 21, 2000, at 10:00 a.m. Pacific Standard Time, at the
Silicon Valley Conference Center, 2161 N. First Street, San Jose, California
95131, for the following purposes:
1. To elect two class II directors to hold office for a three-year term
and until their respective successors are elected and qualified or until
their earlier resignation or removal.
2. To consider and vote upon a proposal to amend Extreme Networks' 1996
Amended Stock Option Plan to increase automatically on the first trading
day of December of this year and for three years thereafter, the maximum
aggregate number of shares available for issuance under the plan by that
number of shares of common stock equal to 4.9% of the number of shares of
common stock issued and outstanding on the last trading day of the
preceding November.
3. To consider and vote upon a proposal to amend Extreme Networks' 1999
Employee Stock Purchase Plan to increase the number of shares of common
stock available for issuance from 2,000,000 to 4,000,000.
4. To approve an amendment to the Extreme Networks' Certificate of
Incorporation to increase the authorized number of shares of common stock
from 150,000,000 to 750,000,000.
5. To ratify the appointment of Ernst & Young LLP as our independent
accountants for the fiscal year ending July 1, 2001.
6. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on October 20, 2000 are
entitled to notice of, and to vote at, this meeting and any continuations or
adjournments thereof. For ten days prior to the meeting, a complete list of
stockholders entitled to vote at the meeting will be available for examination
by any stockholder for any purpose germane to the meeting during ordinary
business hours at the principal executive offices of Extreme Networks, Inc.,
3585 Monroe Street, Santa Clara, California 95051. Whether or not you plan to
attend the meeting in person, you are urged to sign and promptly mail the
enclosed proxy in the return envelope so that your stock may be represented at
the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Vito E. Palermo
Vito E. Palermo
Secretary
Santa Clara, California
October , 2000
Stockholders are requested to complete, date and sign the enclosed proxy and
return it in the enclosed postage-prepaid envelope. Proxies are revocable, and
any stockholder may withdraw his or her proxy prior to the time it is voted, or
by attending the meeting and voting in person.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information...................................................... 1
Proposal Number One: Election Of Directors............................... 1
Proposal Number Two: Approval of Amendment to the 1996 Amended Stock
Option Plan............................................................. 4
Proposal Number Three: Approval Of Amendment to the 1999 Employee Stock
Purchase Plan........................................................... 8
Proposal Number Four: Approval Of Amendment to Certificate of
Incorporation........................................................... 11
Proposal Number Five: Ratification Of Appointment Of Independent
Auditors................................................................ 12
Security Ownership of Certain Beneficial Owners and Management........... 12
Executive Compensation And Other Matters................................. 15
Report Of The Compensation Committee On Executive Compensation........... 19
Comparison Of Stockholder Return......................................... 20
Stockholder Proposals To Be Presented At Next Annual Meeting............. 20
Transaction Of Other Business............................................ 21
</TABLE>
<PAGE>
EXTREME NETWORKS, INC.
3585 Monroe Street
Santa Clara, California 95051
(408) 579-2800
----------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
----------------
The accompanying proxy is solicited by the board of directors of Extreme
Networks, Inc., a Delaware corporation, for use at the annual meeting of
stockholders to be held on Tuesday, November 21, 2000, or any adjournment
thereof, for the purposes set forth in the accompanying notice of annual
meeting of stockholders. The proxy statement and the enclosed proxy are being
mailed to stockholders on or about October , 2000.
GENERAL INFORMATION
Annual report. An annual report for the fiscal year ended July 2, 2000 is
enclosed with this proxy statement.
Voting securities. Only stockholders of record as of the close of business
on October 20, 2000 will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were [ ] shares of our common stock,
par value $0.001 per share, issued and outstanding. Stockholders may vote in
person or by proxy. Each holder of shares of common stock is entitled to one
(1) vote for each share of stock held on the proposals presented in this proxy
statement. Our Bylaws provide that a majority of all of the shares of stock
entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting.
Solicitation of proxies. We will bear the cost of soliciting proxies. In
addition, we will solicit stockholders by mail through our regular employees.
We will request banks and brokers and other custodians, nominees and
fiduciaries to solicit their customers who own our common stock and will
reimburse them for their reasonable, out-of-pocket costs. We may use the
services of our officers, directors and others to solicit proxies, personally
or by telephone, without additional compensation. In addition, we have retained
ChaseMellon Shareholder Services Inc. to act as a proxy solicitor in
conjunction with the annual meeting. Under the terms of an agreement dated
October 5, 2000, we have agreed to pay $14,500 to ChaseMellon for proxy
solicitation services as well as reimbursement for reasonable expenses.
Voting of proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a stockholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted in favor of the
proposal. A stockholder giving a proxy has the power to revoke his or her
proxy, at any time prior to the time it is voted, by delivery to the Secretary
of Extreme Networks of a written instrument revoking the proxy or a duly
executed proxy with a later date, or by attending the meeting and voting in
person.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
We have a classified board of directors currently consisting of one class I
director, two class II directors and two class III directors, who will serve
until the annual meetings of stockholders to be held in 2002, 2000 and 2001,
respectively, and until their respective successors are duly elected and
qualified. At each annual meeting of stockholders, directors are elected for a
term of three years to succeed those directors whose terms expire on the annual
meeting dates.
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The nominees for election at the 2000 annual meeting to class II of the
board of directors are Lawrence K. Orr and Peter Wolken. If elected, Messrs.
Orr and Wolken will serve as directors until the annual meeting in 2003 and
until their respective successor(s) are elected and qualified or until their
earlier resignation or removal. If a nominee declines to serve or becomes
unavailable for any reason, or if a vacancy occurs before the election,
although management knows of no reason to anticipate that this will occur, the
proxies may be voted for such substitute nominee as the Nominating Committee
may designate.
If a quorum is present and voting, the nominees for director receiving the
highest number of votes will be elected as directors. Abstentions and shares
held by brokers that are present, but not voted because the brokers were
prohibited from exercising discretionary authority, i.e., "broker non-votes,"
will be counted as present in determining if a quorum is present.
The table below sets forth, for Extreme Networks' directors, including the
class II nominees to be elected at the meeting, certain information with
respect to their age and background.
<TABLE>
<CAPTION>
Principal
occupation Director
Name with Extreme Age since
---- ------------ --- --------
<S> <C> <C> <C>
Class II directors to be elected at the 2000 annual meeting
of stockholders:
Lawrence K. Orr Director 43 1996
Peter Wolken Director 66 1996
Class III directors whose terms expire at the 2001 annual
meeting of stockholders:
Charles Carinalli Director 52 1996
Promod Haque Director 52 1996
Class I nominee whose term expires at the 2002 annual meeting
of stockholders:
Gordon L. Stitt Chairman of 44 1996
the Board,
President and
Chief
Executive
Officer
</TABLE>
Business Experience of Directors
Gordon L. Stitt. Mr. Stitt co-founded Extreme in May 1996 and has served as
President, Chief Executive Officer and a director of Extreme since its
inception. From 1989 to 1996, Mr. Stitt worked at another company he co-
founded, Network Peripherals, a designer and manufacturer of high-speed
networking technology. He served first as its Vice President of Marketing, then
as Vice President and General Manager of the OEM Business Unit. Mr. Stitt holds
an MBA from the Haas School of Business of the University of California,
Berkeley and a BSEE/CS from Santa Clara University.
Lawrence K. Orr. Mr. Orr has served as a director of Extreme since May 1996.
Since January 1991, he has been General Partner of Trinity Ventures, the
general partner of a privately held group of venture capital partnerships, and
he was an employee of Trinity Ventures from 1989 to 1991. Mr. Orr currently
serves as a director of Virage, Inc. as well as several privately held
companies. Mr. Orr holds an MBA from Stanford University and a BA in
Mathematics from Harvard University.
Peter Wolken. Mr. Wolken has served as a director of Extreme since May 1996.
He currently serves as General Partner of AVI Management Partners, which
manages various private venture capital limited partnerships. He co-founded AVI
Management Partners in 1981. He serves as a director of Full Time Software and
several privately held technology companies in Silicon Valley. Mr. Wolken
serves as a director of LGC Wireless Inc. and is a General Partner of K-T
Ventures LLC, an affiliated investment arm of KLA-Tencor Corporation. Mr.
Wolken is also a Special Limited Partner of Diamondhead Ventures LP, Menlo
Park,
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<PAGE>
California and Greenstone Venture Associates, Vancouver, B.C., Canada. Mr.
Wolken holds a BFT in International Marketing from the American Graduate School
for International Management and a BS in Mechanical Engineering from the
University of California, Berkeley.
Charles Carinalli. Mr. Carinalli has served as a director of Extreme since
October 1996. Since July 1999, Mr. Carinalli has been Chief Executive Officer
and director of Adaptive Silicon, a developer of semiconductors. From December
1996 to July 1999, Mr. Carinalli served as President, Chief Executive Officer
and a director of Wavespan, a developer of wireless broadband access systems.
From 1970 to 1996, Mr. Carinalli served in various positions and most recently
served as Senior Vice President and Chief Technical Officer for National
Semiconductor. Mr. Carinalli holds an MSEE from Santa Clara University and a
BSEE from the University of California, Berkeley.
Promod Haque. Mr. Haque has served as a director of Extreme since May 1996.
Mr. Haque joined Norwest Venture Partners in November 1990 and is currently
Managing General Partner of Norwest Venture Partners VII and NVP VIII, General
Partner of Norwest Venture Partners VI and General Partner of Norwest Equity
Partners V and IV. Mr. Haque currently serves as a director of Primus
Knowledge, Redback Networks, Showcase Corporation and several privately held
companies. Mr. Haque holds a PhDEE and a MSEE from Northwestern University, an
MM from the J.L. Kellogg Graduate School of Management, Northwestern University
and a BSEE from the University of Delhi, India.
Board meetings. During the fiscal year ended July 2, 2000, the board held
eleven meetings and took action by unanimous written consent six times. No
director serving on the board in fiscal year 2000 attended fewer than 75% of
such meetings of the board and the committees on which he serves.
Committees of the board. In January 1999, we established an audit committee
and a compensation committee. In September 2000, we established a nominating
committee.
The audit committee reviews the results and scope of the annual audit and
other services provided by our independent auditors, reviews and evaluates our
internal audit and control functions, and monitors transactions between us and
our employees, officers and directors. The members of the audit committee
during the fiscal year ended July 2, 2000 were Messrs. Promod Haque and
Lawrence K. Orr. We intend to increase the size of the audit committee to three
members all of whom shall be independent directors. During the fiscal year
ended July 2, 2000, the audit committee held four meetings and did not take any
action by unanimous written consent.
The compensation committee administers our stock option and stock purchase
plans and designates the compensation levels for our executive officers. The
members of the compensation committee during the fiscal year ended July 2, 2000
were Messrs. Charles Carinalli and Peter Wolken. During the fiscal year ended
July 2, 2000, the compensation committee held five meetings and did not take
any action by unanimous written consent. For additional information concerning
the compensation committee, see "REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION."
The nominating committee is responsible for nominating persons for election
as directors. This committee currently consists of Messrs. Gordon Stitt,
Charles Carinalli and Promod Haque.
Vote required and board of directors' recommendation
If a quorum is present and voting at the Annual Meeting, the nominees for
class II directors receiving the highest number of votes will be elected.
Abstentions and broker non-votes will each be counted as present for purposes
of determining the presence of a quorum. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE.
3
<PAGE>
PROPOSAL NUMBER TWO
APPROVAL OF AMENDMENT TO THE 1996 AMENDED STOCK OPTION PLAN
The board of directors adopted the Extreme Networks 1996 Amended Stock
Option Plan, also referred to as the Option Plan, in September, 1996 and the
shareholders approved the adoption of the 1996 Option Plan on the same date.
The Option Plan currently provides a maximum of 38,028,618 shares of Extreme
Networks authorized but unissued or reacquired shares may be issued upon the
exercise of options granted under the Option Plan. As of September 30, 2000,
approximately 2,377,799 shares remained available for future option grants
under the Option Plan.
On September 8, 2000, the board of directors amended the Option Plan,
subject to stockholder approval, to increase automatically on the first trading
day of December of this year and for three years thereafter, the maximum
aggregate number of shares of common stock issuable under the plan by that
number of shares of common stock equal to 4.9% of the number of shares of
common stock issued and outstanding on last trading day of the immediately
preceding November.
The stockholders are now being asked to approve the establishment of the
annual increase in the share reserve. The Company does not believe that the
current share reserve is adequate to its needs. In order to provide an adequate
reserve of shares which will allow the Company to provide long-term equity
incentives under the Option Plan, the Company could seek and receive
stockholder approval for annual increases in the share reserve. To effect the
routine annual increases in the share reserve, expenses would have to be
incurred to obtain the necessary approvals. The board believes that it is in
the best interests of the Company and its stockholders to avoid such expenses
by amending the Option Plan to automatically increase the share reserve. In
addition, the automatic increase proposed here would remove the Option Plan
reserve increase from the annual meeting agenda in future years, thereby
allowing stockholders to focus on other proposals which are not necessarily
routinely approved.
Possible disadvantages of the proposed amendment include, but are not
limited to, a lack of flexibility in the amount of the annual increase in the
share reserve of the Option Plan. Such inflexibility could be remedied by
future proposals to revise up or down the automatic increase in the number of
shares reserved for any particular year. However, such a remedy would require
approval by the stockholders and accordingly, would result in expense for
obtaining such approval. The board believes that the advantages of the proposed
amendment outweigh the possible disadvantages because the proposed annual
increase in the number of shares reserved under the Option Plan would be
sufficient in most years, thereby avoiding the expenses involved in obtaining
the necessary approvals for routine increases in the Option Plan reserve each
year.
The board of directors believes that the Company's stock option program is
an important factor in attracting and retaining the high caliber employees and
consultants essential to the success of the Company in aligning their long-term
interests with those of the stockholders. Because competition for highly
qualified individuals in the Company's industry is intense, management believes
that to successfully attract the best candidates, the Company must offer a
competitive stock option program as an essential component of its compensation
packages. The board of directors further believes that stock options serve an
important role in motivating their holders to contribute to the Company's
continued growth and profitability. The proposed amendment is intended to
ensure that the Option Plan will continue to have available a reasonable number
of shares to meet these needs for the remainder of its term.
In addition to the Option Plan, in March 2000 the board approved the Extreme
Networks 2000 Nonstatutory Stock Option Plan, also referred to as the
Nonstatutory Plan, pursuant to which a maximum of 4,000,000 shares of common
stock may be issued. The Nonstatutory Plan provides for the grant of
nonstatutory stock options to employees and consultants (excluding officers and
directors of Extreme Networks). As of September 30, 2000, options to purchase an
aggregate of [____________] shares were outstanding under the Nonstatutory Plan,
and [____________] shares remained available for future grants under the
Nonstatutory Plan.
Summary of the provisions of the Option Plan
The following summary of the Option Plan is qualified in its entirety by the
specific language of the Option Plan, a copy of which is available to any
stockholder upon request.
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<PAGE>
General. The Option Plan provides for the grant of "incentive stock options"
("ISOs") within the meaning of Section 422 of the Code and for nonstatutory
stock options. As of September 30, 2000, Extreme Networks had outstanding
options to purchase an aggregate of 19,076,301 shares at a weighted average
exercise price of $28.2106. As of September 30, 2000, options to purchase
17,019,830 shares of common stock granted pursuant to the Option Plan had been
exercised, and there were 2,377,799 shares of common stock available for future
grants under the Option Plan.
Shares subject to Plan. Currently, a maximum of 38,028,618 shares of Extreme
Networks' authorized but unissued or reacquired common stock may be issued upon
the exercise of options granted under the Option Plan. The board of directors
has amended the Option Plan, subject to stockholder approval, to automatically
increase on the first trading day of December of this year and for three years
thereafter, the maximum aggregate number of shares of common stock issuable
under the plan by that number of shares of common stock equal to 4.9% of the
number of shares of common stock issued and outstanding on the last trading day
of the immediately preceding November. In order to comply with the Code, the
maximum number of shares which could immediately be issued upon the exercise of
ISO's is 38,028,618. In the event of any stock dividend, stock split, reverse
stock split, recapitalization, combination, reclassification, or similar change
in the capital structure of Extreme Networks, appropriate adjustments will be
made to the shares subject to the Option Plan, the employee grant limit
described below and to outstanding options. To the extent any outstanding option
under the Option Plan expires or terminates prior to exercise in full or if
shares issued upon exercise of an option are repurchased by Extreme Networks,
the shares of common stock for which such option is not exercised or the
repurchased shares are returned to the Option Plan and are available for
issuance under the Option Plan.
Administration. The Option Plan is administered by the board of directors or
a duly appointed committee of the board. With respect to the participation of
individuals whose transactions in Extreme Networks' equity securities are
subject to Section 16 of the Securities Exchange Act of 1934, the Option Plan
will be administered in compliance with the requirements, if any, of Rule 16b-3
under the Exchange Act. Subject to the provisions of the Option Plan, the board
determines the persons to whom options are to be granted, the number of shares
to be covered by each option, whether an option is to be an ISO or a
nonstatutory stock option, the terms of vesting and exercisability of each
option, including the effect thereon of an optionee's termination of service,
the type of consideration to be paid to Extreme Networks upon exercise of an
option, the duration of each option, and all other terms and conditions of the
options. The Option Plan also provides, subject to certain limitations, that
Extreme Networks' will indemnify any director, officer or employee against all
reasonable expenses, including attorneys' fees, incurred in connection with any
legal action arising from such person's action or failure to act in
administering the Option Plan. The board will interpret the Option Plan and
options granted thereunder, and all determinations of the board will be final
and binding on all persons having an interest in the Option Plan or any option.
Eligibility. Generally, all employees, directors and consultants of Extreme
Networks or of any present or future parent or subsidiary corporations of
Extreme Networks are eligible to participate in the Option Plan. As of
September 30, 2000, Extreme Networks had approximately 792 employees, including
nine executive officers and five directors. Any person eligible under the
Option Plan may be granted a nonstatutory stock option. However, only employees
may be granted ISOs. In order to preserve Extreme Networks' ability to deduct
compensation related to options granted under the Option Plan, subject to the
plan, provides that no employee may be granted options for more than 5,000,000
shares during any fiscal year.
Terms and conditions of Options. Each option granted under the Option Plan
is evidenced by a written agreement between Extreme Networks and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the Option Plan.
The exercise price per share must equal at least the fair market value of a
share of Extreme Networks' common stock on the date of grant of an ISO and at
least 85% of the fair market value of a share of the common stock on the date
of grant of a nonstatutory stock option. The exercise price of any ISO granted
to a person who at the time of grant owns stock possessing more than 10% of the
total combined voting power of all classes of stock of Extreme Networks or any
parent or subsidiary corporation of Extreme Networks (a "10%
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Stockholder") must be at least 110% of the fair market value of a share of
Extreme Networks' common stock on the date of grant. The fair market value of
Extreme Networks' common stock is based on the trading price of Extreme
Networks' shares on the Nasdaq National Market.
Generally, the exercise price may be paid in cash, by check or by tender of
shares of Extreme Networks' common stock owned by the optionee having a fair
market value not less than the exercise price, by the assignment of the
proceeds of a sale or a loan with respect to some or all of the shares of
common stock being acquired upon the exercise of the option, by means of a
promissory note, by any lawful method approved by the board or by any
combination of these. The board may nevertheless restrict the forms of payment
permitted in connection with any option grant.
Options granted under the Option Plan will become exercisable and vested at
such times as specified by the board. Generally, options granted under the
Option Plan vest in installments, subject to the optionee's continued
employment or service over a period of four (4) years. The maximum term of an
option granted under the Option Plan is ten years, except that an ISO granted
to a 10% Stockholder may not have a term longer than five years. Options are
nontransferable by the optionee other than by will or by the laws of descent
and distribution and are exercisable during the optionee's lifetime only by the
optionee.
Change in control. The Option Plan provides that a "change in control"
occurs in the event of:
. a sale or exchange by the stockholders of more than 50% of Extreme's
voting stock,
. a merger or consolidation involving Extreme,
. the sale, exchange or transfer of all or substantially all of the assets
of Extreme, or
. a liquidation or dissolution of Extreme,
wherein, upon any such event, the stockholders of Extreme immediately before
such event do not retain direct or indirect beneficial ownership of at least
50% of the total combined voting power of the voting stock of Extreme, its
successor, or the corporation to which the assets of Extreme were transferred.
Upon a change in control, the board may arrange for the acquiring or
successor corporation to assume or substitute new options for the options
outstanding under the Option Plan. To the extent that the options outstanding
under the Option Plan are not assumed, substituted for, or exercised prior to
such event, they will terminate. Notwithstanding the foregoing, upon a change
in control, options granted to executive officers of Extreme Networks partially
accelerate without regard to assumption or replacement by any successor
corporation.
Termination or Amendment. Unless sooner terminated, no options may be
granted under the Option Plan after September 3, 2006. The board of directors
may terminate or amend the Option Plan at any time, but, without stockholder
approval, the board may not amend the Option Plan to increase the total number
of shares of common stock reserved for issuance thereunder, change the class of
persons eligible to receive ISOs, or adopt any other amendment which would
require shareholder approval under any applicable law, regulation or rule. No
amendment may adversely affect an outstanding option without the consent of the
optionee, unless the amendment is required to preserve the option's status as
an ISO or is necessary to comply with any applicable law.
Summary of federal income tax consequences of the Option Plan
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Option Plan and does not attempt to describe all possible federal or other
tax consequences of such participation or tax consequences based on particular
circumstances.
ISOs. An optionee recognizes no taxable income for regular income tax
purposes as the result of the grant or exercise of an ISO. Optionees who do not
dispose of their shares for two years following the date the
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<PAGE>
option was granted or within one year following the exercise of the option will
normally recognize a long-term capital gain or loss equal to the difference, if
any, between the sale price and the purchase price of the shares. If an optionee
satisfies both such holding periods upon a sale of the shares, Extreme Networks
will not be entitled to any deduction for federal income tax purposes. If an
optionee disposes of shares either within two years after the date of grant or
within one year from the date of exercise referred to as a "disqualifying
disposition") the difference between (the fair market value of the shares on the
exercise date) and the option exercise price (not to exceed the gain realized on
the sale if the disposition is a transaction with respect to which a loss, if
sustained, would be recognized) will be taxed as ordinary income at the time of
disposition. Any gain in excess of that amount will be a capital gain. If a loss
is recognized, there will be no ordinary income, and such loss will be a capital
loss. A capital gain or loss will be long-term if the optionee's holding period
is more than 12 months. Any ordinary income recognized by the optionee upon the
disqualifying disposition of the shares generally should be deductible by
Extreme Networks for federal income tax purposes, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder.
The difference between the option exercise price and the fair market value
of the shares on the exercise date of an ISO is an adjustment in computing
the optionee's alternative minimum taxable income and may be subject to an
alternative minimum tax which is paid if such tax exceeds the regular tax for
the year. Special rules may apply with respect to certain subsequent sales of
the shares in a disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on a subsequent
sale of the shares and certain tax credits which may arise with respect to
optionees subject to the alternative minimum tax.
Nonstatutory stock options. Options not designated or qualifying as ISOs will
be nonstatutory stock options. Nonstatutory stock options have no special tax
status. An optionee generally does not recognize taxable income as the result of
the grant of such an option. Upon exercise of a nonstatutory stock option, the
optionee normally recognizes ordinary income in an amount equal to the
difference between the option exercise price and the fair market value of the
shares on the exercise date. If the optionee is an employee, such ordinary
income generally is subject to withholding of income and employment taxes. Upon
the sale of stock acquired by the exercise of a nonstatutory stock option, any
gain or loss, based on the difference between the sale price and the fair market
value on the exercise date, will be taxed as capital gain or loss. A capital
gain or loss will be long-term if the optionee's holding period is more than 12
months. Extreme Networks generally should be entitled to a deduction equal to
the amount of ordinary income recognized by the optionee as a result of the
exercise of a nonstatutory stock option, except to the extent such deduction is
limited by applicable provisions of the Code or the regulations thereunder. No
tax deduction is available to Extreme Networks with respect to the grant of a
nonstatutory stock option or the sale of the stock acquired pursuant to such
grant.
Vote required and board of directors recommendation
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the annual meeting of stockholders at which a
quorum representing a majority of all outstanding shares of our common stock is
present and voting, either in person or by proxy, is required for approval of
this proposal. Abstentions and broker non-votes each will be counted as present
for purposes of determining the presence of a quorum. Abstentions will have the
same effect as a negative vote on this proposal. Broker non-votes will have no
effect on the outcome of this vote.
7
<PAGE>
The board believes that the proposed amendment to the Option Plan to provide
for annual increase in the share reserve, as described above, is in the best
interests of Extreme and the stockholders for the reasons stated above.
THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO AMEND THE OPTION PLAN TO PROVIDE FOR ANNUAL INCREASE IN THE SHARE
RESERVE.
PROPOSAL NUMBER THREE
APPROVAL OF AMENDMENT TO THE 1999 EMPLOYEE STOCK PURCHASE PLAN
The board of directors adopted the Extreme Networks 1999 Employee Stock
Purchase Plan, also referred to as the Stock Purchase Plan, in January 1999,
and the shareholders approved the adoption of the Stock Purchase Plan in
February 1999.
The Stock Purchase Plan permits eligible employees to acquire shares of
Extreme's common stock through periodic payroll deductions of up to 15% of
total compensation. No more than 1,250 shares may be purchased on any purchase
date per employee. Each offering period has a maximum duration of 12 months.
The price at which the common stock may be purchased is 85% of the lesser of
the fair market value of Extreme's common stock on the first day of the
applicable offering period or on the last day of the respective purchase
period.
A total of 2,000,000 shares of common stock have been reserved for issuance
under the Stock Purchase Plan. As of September 30, 2000, 546,680 shares have
been issued under the Stock Purchase Plan. Accordingly, there are 1,453,320
shares available for issuance.
In September 2000, subject to stockholder approval, the board increased the
number of shares authorized for issuance under the Stock Purchase Plan by
2,000,000 shares to a total of 4,000,000 shares.
The stockholders are now being asked to approve this amendment. The board of
directors believes that approval of this amendment is in the best interests of
Extreme Networks and our stockholders because it will allow Extreme Networks
employees to continue to purchase stock under the Stock Purchase Plan. The
Board believes that the availability of an opportunity to purchase shares under
the Purchase Plan at a discount from market price is important to attracting
and retaining qualified employees essential to the success of the Company and
is important to provide such persons with incentives to perform in the best
interest of the Company.
Summary of the provisions of the Stock Purchase Plan
The following summary of the Stock Purchase Plan is qualified in its
entirety by the specific language of the Stock Purchase Plan, a copy of which
is available to any stockholder upon request.
General. The Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Code. Each participant in the
Stock Purchase Plan is granted at the beginning of each offering under the plan
the right to purchase through accumulated payroll deductions up to a number of
shares of the common stock of Extreme Networks determined on the first day of
the offering. The purchase right is automatically exercised on the last day of
each purchase period within the offering unless the participant has withdrawn
from the Stock Purchase Plan prior to such date.
Shares subject to Plan. Currently, a maximum of 2,000,000 of Extreme
Networks' authorized but unissued or reacquired shares of common stock may be
issued under the Stock Purchase Plan, subject to appropriate adjustment in the
event of a stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in Extreme Networks' capital
structure or in the event of any merger, sale of assets or other reorganization
of Extreme Networks. The board has amended the Stock Purchase Plan, subject to
stockholders approval, to increase the share reserve to 4,000,000 shares. If any
purchase right expires or terminates, the shares subject to the unexercised
portion of such purchase right will again be available for issuance under the
Stock Purchase Plan.
8
<PAGE>
Administration. The Stock Purchase Plan is administered by the board.
Subject to the provisions of the Stock Purchase Plan, the board determines the
terms and conditions of purchase rights granted under the Stock Purchase Plan.
The board will interpret the Stock Purchase Plan and purchase rights granted
thereunder, and all determinations of the board will be final and binding on
all persons having an interest in the Stock Purchase Plan or any purchase
rights. The Stock Purchase Plan provides, subject to certain limitations, that
Extreme Networks will indemnify any director, officer or employee against all
reasonable expenses, including attorney's fees, incurred in connection with any
legal action arising from such person's action or failure to act in
administering the Stock Purchase Plan.
Eligibility. Any employee of Extreme Networks or of any present or future
parent or subsidiary corporation of Extreme Networks designated by the board
for inclusion in the Stock Purchase Plan is eligible to participate in an
offering to purchase stock under the Stock Purchase Plan so long as the
employee is customarily employed for at least 20 hours per week and 5 months
per calendar year. However, no employee who owns or holds stock options to
purchase, or as a result of participation in the Stock Purchase Plan would own
or hold options to purchase, five percent or more of the total combined voting
power or value of all classes of stock of Extreme Networks or of any parent or
subsidiary corporation of Extreme Networks is entitled to participate in the
Stock Purchase Plan. As of September 30, 2000 approximately 792 employees were
eligible to participate in the Stock Purchase Plan.
Offerings. Generally, each offering of common stock under the Stock Purchase
Plan is for a period of twelve months. Offering periods commence on the first
day of February, May, August and November of each year and end on the last day
of the following January, April, July and October, respectively. Each offering
period is generally comprised of four three-month purchase periods. Shares are
purchased on the last day of each purchase period. The board may establish a
different term for one or more offerings or purchase periods or different
commencement or ending dates for an offering or a purchase period.
Participation and purchase of shares. Participation in the Stock Purchase
Plan is limited to eligible employees who authorize payroll deductions prior to
the start of an offering period. Payroll deductions may not exceed 15% (or such
other rate as the board determines) of an employee's compensation for any pay
period during the offering period. Once an employee becomes a participant in the
Stock Purchase Plan, that employee will automatically participate in each
successive offering period which begins after the final purchase date until such
time as that employee withdraws from the Stock Purchase Plan, becomes ineligible
to participate in the Stock Purchase Plan, or terminates employment.
Subject to certain limitations, each participant in an offering has a
purchase right equal to the number of whole shares determined by dividing the
participant's aggregate payroll deduction by the applicable purchase price for
the purchase period. During any calendar year, no participant may accrue the
right to purchase under the Stock Purchase Plan shares of Extreme Networks'
common stock having a fair market value exceeding $25,000 (measured by the fair
market value of Extreme Networks' common stock on the first day of the relevant
offering period). In addition, no more than 1,250 shares may be purchased by a
participant on a purchase date, and no more than an aggregate of 200,000 shares
may be purchased by all Stock Purchase Plan participants on a given purchase
date.
At the end of each purchase period, Extreme Networks issues to each
participant in the offering the number of shares of Extreme Networks' common
stock determined by dividing the amount of payroll deductions accumulated for
the participant during that purchase period by the purchase price, subject to
the limitations set forth above. The price per share at which shares are sold
generally equals 85% of the lesser of the fair market value per share of
Extreme Networks' common stock on the first day of the offering period or the
purchase date. The fair market value of the common stock on any relevant date
generally will be the closing price per share on such date as reported on the
Nasdaq National Market. Any payroll deductions under the Stock Purchase Plan
not applied to the purchase of shares will be returned to the participant,
unless the amount remaining is less than the amount necessary to purchase a
whole share of common stock, in which case the remaining amount may be applied
to the next purchase period or offering period.
9
<PAGE>
A participant may withdraw from an offering at any time without affecting
his eligibility to participate in future offerings. However, once a participant
withdraws from an offering, that participant may not again participate in the
same offering.
Change in control. The Stock Purchase Plan provides that, in the event of a
change in control, the acquiring or successor corporation may assume Extreme
Networks' rights and obligations under the Stock Purchase Plan or substitute
substantially equivalent purchase rights for such corporation's stock. If the
acquiring or successor corporation elects not to assume or substitute for the
outstanding purchase rights, the board of directors may accelerate the last day
of the offering period to a date on or before the date of the change in
control. Any purchase rights that are not assumed, substituted for, or
exercised prior to the change in control will terminate.
Termination or amendment. The Stock Purchase Plan will continue until
terminated by the board or until all of the shares reserved for issuance have
been issued. The board may at any time amend or terminate the Stock Purchase
Plan, except that the approval of Extreme Networks' stockholders is required
within twelve months of the adoption of any amendment increasing the number of
shares authorized for issuance under the Stock Purchase Plan, or changing the
definition of the corporations which may be designated by the board as
corporations the employees of which may participate in the Stock Purchase Plan.
Summary of federal income tax consequences of the Stock Purchase Plan
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Stock Purchase Plan and does not attempt to describe all possible federal
or other tax consequences of such participation or tax consequences based on
particular circumstances.
A participant recognizes no taxable income either as a result of commencing
participation in the Stock Purchase Plan or purchasing shares of Extreme
Networks' common stock under the terms of the Stock Purchase Plan.
If a participant disposes of shares purchased under the Stock Purchase Plan
within either two years from the first day of the applicable offering period or
within one year from the purchase date, known as disqualifying dispositions,
the participant will realize ordinary income in the year of such disposition
equal to the amount by which the fair market value of the shares on the
purchase date exceeds the purchase price. The amount of the ordinary income
will be added to the participant's basis in the shares, and any additional gain
or resulting loss recognized on the disposition of the shares will be a capital
gain or loss, which will be long-term if the participant's holding period is
more than twelve months.
If the participant disposes of shares purchased under the Stock Purchase
Plan at least two years after the first day of the applicable offering period
and at least one year after the purchase date, the participant will realize
ordinary income in the year of disposition equal to the lesser of (i) the
excess of the fair market value of the shares on the date of dispositions over
the purchase price or (ii) 15% of the fair market value of the shares on the
first day of the applicable offering period. The amount of any ordinary income
will be added to the participant's basis in the shares, and any additional gain
recognized upon the disposition after such basis adjustment will be a long-term
capital gain. If the fair market value of the shares on the date of disposition
is less than the purchase price, there will be no ordinary income and any loss
recognized will be a long-term capital loss.
If the participant still owns the shares at the time of death, the lesser of
(i) the excess of the fair market value of the shares on the date of death over
the purchase price or (ii) 15% of the fair market value of the shares on the
first day of the offering period in which the shares were purchased will
constitute ordinary income in the year of death.
10
<PAGE>
Extreme Networks should be entitled to a deduction in the year of a
disqualifying disposition equal to the amount of ordinary income recognized by
the participant as a result of the disposition, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder. In all other cases, no deduction is allowed to Extreme Networks.
Vote required and board of directors recommendation.
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the annual meeting at which a quorum representing
a majority of all outstanding shares of our common stock is present and voting,
either in person or by proxy, is required for approval of this proposal.
Abstentions and broker non-votes will each be counted as present for purposes
of determining the presence of a quorum. Abstentions will have the same effect
as a negative vote on this proposal. Broker non-votes will have no effect on
the outcome of the vote.
The board believes that the proposed amendment to the Stock Purchase Plan to
increase the share reserve from 2,000,000 to 4,000,000 is in the best interests
of Extreme Networks and its stockholders is discussed above. THEREFORE, THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND
THE STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
UNDER THE PLAN TO 4,000,000.
PROPOSAL NUMBER FOUR
AMENDMENT OF EXTREME NETWORKS' CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES
Extreme Networks' certificate of incorporation currently authorizes the
issuance of 150,000,000 shares of common stock, $.001 par value, and 2,000,000
shares of preferred stock, $.001 par value. On September 8, 2000, the board of
directors of Extreme Networks adopted a resolution approving an amendment to
the certificate of incorporation to increase the authorized number of shares of
common stock from 150,000,000 to 750,000,000 and resolved to submit the
proposed amendment to the stockholders at the annual meeting.
Purpose and Effect of the Amendment
The general purpose and effect of the proposed amendment to the certificate
of incorporation will be to authorize 600,000,000 additional shares of common
stock. The board of directors believes that it is prudent to have the
additional shares of common stock available for general corporate purposes,
including acquisitions, equity financings, grants of stock options, payment of
stock dividends, stock splits or other recapitalizations.
Extreme Networks currently has 150,000,000 authorized shares of common
stock. As of September 30, 2000, Extreme Networks had 109,925,800 shares issued
and outstanding and of the remaining 40,074,200 authorized but unissued shares,
has reserved approximately [ ] shares in connection with the possible
exercise of outstanding warrants, [ ] shares pursuant to Extreme's
option plans and 1,453,320 shares pursuant to Extreme's Stock Purchase Plan.
Except in connection with the reserved shares described above, Extreme
Networks currently has no arrangements or understandings for the issuance of
additional shares of common stock, although opportunities for acquisitions and
equity financings could arise at any time. If the board of directors deems it
to be in the best interest of Extreme Networks and the stockholders to issue
additional shares of common stock in the future, the board of directors
generally will not seek further authorization by vote of the stockholders,
unless such authorization is otherwise required by law or regulations.
The increase in the authorized number of shares of common stock could have
an anti-takeover effect. If Extreme Networks' board of directors desired to
issue additional shares in the future, such issuance could dilute
11
<PAGE>
the voting power of a person seeking control of Extreme Networks, thereby
deterring or rendering more difficult a merger, tender offer, proxy contest or
an extraordinary corporate transaction opposed by Extreme Networks.
Vote required and board of directors recommendation.
The affirmative vote of a majority of the issued and outstanding shares of
common stock will be required to approve the amendment to the certificate of
incorporation increasing the number of authorized shares of common stock from
150,000,000 to 750,000,000. Abstentions and broker non-votes will each be
counted as present for purposes of determining the presence of a quorum.
Abstention and broker non-votes will have the same effect as a negative vote on
this proposal.
The board believes that the proposed amendment to the certificate of
incorporation is in the best interest of the stockholders and Extreme Networks
for the reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
PROPOSAL NUMBER FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The board of directors has appointed Ernst & Young LLP to serve as
independent auditors to audit the financial statements of Extreme for the
fiscal year ending July 1, 2001. Ernst & Young LLP has acted in such capacity
since its appointment for fiscal year ended June 1997. A representative of
Ernst & Young LLP will be present at the annual meeting of stockholders, will
be given the opportunity to make a statement if the representative desires and
will be available to respond to appropriate questions.
In the event that ratification by the stockholders of the appointment of
Ernst & Young LLP as our independent auditors is not obtained, the board of
directors will reconsider said appointment.
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the annual meeting of stockholders, at which a
quorum representing a majority of all outstanding shares of our common stock is
present and voting, either in person or by proxy, is required for approval of
this proposal. Abstentions and broker non-votes will each be counted as present
for purposes of determining the presence of a quorum. Abstentions will have the
same effect as a negative vote on this proposal. Broker non-votes will have no
effect on the outcome of the vote on this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
ERNST & YOUNG LLP AS EXTREME'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR
ENDING JULY 1, 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of September 30,
2000, with respect to the beneficial ownership of Extreme Networks common stock
by:
. each person known by Extreme Networks to be the beneficial owner of more
than 5% of our common stock,
. each director and director nominee of Extreme Networks,
. the Chief Executive Officer, and the four other highest compensated
executive officers of Extreme Networks whose salary and bonus for the
year ended July 2, 2000 exceeded $100,000, also referred to as the "Named
Executive Officers," and
. all executive officers and directors of Extreme Networks as a group.
12
<PAGE>
Except as otherwise indicated, the address of each beneficial owner is c/o
Extreme Networks, Inc., 3585 Monroe Street, Santa Clara, California 95051.
Except as indicated in the footnotes to the table, Extreme Networks believes
that the persons named in the table have sole voting and dispositive power with
respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws, where applicable. A person is deemed to be
the beneficial owner of securities that can be acquired by such person within
60 days upon the exercise of options. Percentages are based on 109,925,800
shares of common stock outstanding on September 30, 2000. On August 24, 2000,
Extreme Networks effected a two-for-one stock split to stockholders of record
on August 10, 2000.
<TABLE>
<CAPTION>
Shares owned
--------------------
Number of
Name and address of beneficial owners shares Percentage
------------------------------------- --------- ----------
<S> <C> <C>
Named Executive Officers and Directors
Gordon L. Stitt(1)....................................... 4,046,658 3.67%
Stephen Haddock(2)....................................... 2,466,570 2.24%
Vito Palermo(3).......................................... 798,178 *
Herb Schneider(4)........................................ 2,404,440 2.18%
Harry Silverglide(5)..................................... 668,553 *
Charles Carinalli(6)..................................... 429,216 *
1466 Teal Drive
Sunnyvale, CA 94087
Promod Haque............................................. 340,604 *
245 Lytton Avenue, Suite 250
Palo Alto, CA 94025
Lawrence K. Orr (7)...................................... 200,913 *
3000 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Peter Wolken (8)......................................... 6,185,798 5.63%
One First Street, #12
Los Altos, CA 94022
5% Stockholders
AVI Capital Management(9)................................ 6,174,782 5.62%
One First Street, #12
Los Altos, CA 94022
All executive officers and directors as a group (12
persons)................................................18,248,709 16.17%
</TABLE>
--------
* Less than 1%
(1) Includes 485,926 shares held by Gordon and Valori Stitt. Also includes
380,000 shares issuable upon exercise of currently exercisable of options,
of which 191,668 shares are subject to a right of repurchase in favor of
Extreme which lapses over time.
(2) Includes 288,958 shares issuable upon exercise of currently exercisable
options, of which 129,376 shares are subject to a right of repurchase in
favor of Extreme which lapses over time.
(3) Includes 796,958 shares issuable upon exercise of options, of which 541,667
shares are subject to a right of repurchase in favor of Extreme which
lapses over time.
13
<PAGE>
(4) Includes 288,958 shares issuable upon exercise of options, of which 129,376
shares are subject to a right of repurchase in favor of Extreme which
lapses over time.
(5) Includes 192,083 shares issuable upon exercise of options, of which 76,667
shares are subject to a right of repurchase in favor of Extreme which
lapses over time.
(6) Includes 129,216 shares held by Charles Peter Carinalli and/or Connie Sue
Carinalli, Trustees of the Carinalli Living Trust dated April 24, 1996.
Also includes 300,000 shares issuable upon exercise of options, of which
60,000 shares are subject to a right of repurchase in favor of Extreme
which lapses over time.
(7) Includes 423 shares owned by Trinity Ventures. Mr. Orr is a General Partner
of Trinity Ventures.
(8) Peter Wolken is a partner of AVI Management Partners. The shares listed
include 305,028 shares held by Associated Venture Investors III, L.P.;
20,990 shares held by AVI Silicon Valley Partners, L.P.; 5,680,880 shares
held by AVI Capital, L.P.; and 167,884 shares held by AVI Partners Growth
Fund II, L.P.
(9) The shares listed represent 305,028 shares held by Associated Venture
Investors III, L.P.; 20,990 shares held by AVI Silicon Valley Partners,
L.P.; 5,680,880 shares held by AVI Capital, L.P.; and 167,884 shares held
by AVI Partners Growth Fund II, L.P.
14
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
Compensation of executive officers
The following table sets forth information concerning the compensation
during the fiscal years ended July 2, 2000, June 30, 1999 and June 30, 1998 of
the Chief Executive Officer and the four other most highly compensated
executive officers as of July 2, 2000 whose salary and bonus for the fiscal
year ended July 2, 2000 exceeded $100,000. The option numbers have been
adjusted to give affect to the two-for-one stock split effected in August 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long term
Annual compensation compensation
----------------------------------- -----------------
Name and principal Other annual Awards
position Year Salary Bonus compensation option shares (1)
------------------ ---- -------- -------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Gordon L. Stitt......... 2000 $203,333 $176,880 $25,383(2) 300,000
President, Chief 1999 164,167 -- (3) 400,000
Executive 1998 129,167 -- (3) --
Officer and Chairman
Stephen Haddock......... 2000 $168,333 $110,880 $20,768(2) 170,000
Vice President and 1999 140,626 -- (3) 270,000
Chief Technical Officer 1998 117,500 -- (3) --
Vito Palermo............ 2000 $166,666 $104,720 $14,711(2) 50,000
Chief Financial Officer 1999 $73,333 40,000 -- 1,000,000
1998 -- -- -- --
Herb Schneider ......... 2000 $168,333 $161,920 $17,078(2) 170,000
Vice President of 1999 140,626 -- (3) 270,000
Engineering 1998 117,500 -- (3) --
Harry Silverglide....... 2000 $163,333 $ 0 $187,710(2)(4) 140,000
Vice President of Sales 1999 150,000 32,125 $130,417 160,000
1998 100,000 20,000 72,600 --
</TABLE>
--------
(1) Such options were granted pursuant to our Stock Option Plan.
(2) Represents payout for vacation accrued through June 30, 2000.
(3) Total amount of personal benefits paid to this executive officer during the
fiscal year was less than the lesser of (i) $50,000 or (ii) 10% of such
executive officer's total reported salary and bonus.
(4) Other annual compensation includes $168,096 related to commissions paid to
Mr. Silverglide based on total sales and account wins during the fiscal
year.
Stock options granted during fiscal 2000
The following table provides the specified information concerning grants of
options to purchase our common stock made during the fiscal year ended July 2,
2000 to the persons named in the Summary Compensation Table. The option numbers
have been adjusted to give affect to the two-for-one stock split effected in
August 2000.
15
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential realizable
Individual grants in fiscal 2000 value at assumed
--------------------------------------------- annual rates of
Number of % of total stock price
securities options Exercise appreciation for
underlying granted to or base option term(3)
options employees price(2) Expiration --------------------
Name granted(1) in fiscal year ($/Sh) date 10% ($)
---- ---------- -------------- -------- ---------- 5% ($) ----------
<S> <C> <C> <C> <C> <C> <C>
Gordon L. Stitt......... 300,000 2.4 33.3125 12/17/09 6,285,016 15,927,463
Stephen Haddock......... 170,000 1.4 33.3125 12/17/09 3,561,509 9,025,263
Vito Palermo............ 50,000 .4 33.3125 12/17/09 1,047,502 2,654,577
Herb Schneider.......... 170,000 1.4 33.3125 12/17/09 3,561,509 9,025,263
Harry Silverglide....... 140,000 1.1 33.3125 12/17/09 2,933,007 7,432,816
</TABLE>
--------
(1) Options granted in fiscal 2000 under our Stock Option Plan generally vest
over four years, with 25% of the shares vesting after one year and the
remaining shares vesting in equal monthly increments over the following 36
months. Under the option plan, the board of directors retains discretion to
modify the terms, including the price of outstanding options. We have a
right of repurchase as to any unvested shares upon optionee's termination
of employment at their original exercise price. See "EXECUTIVE COMPENSATION
AND OTHER MATTERS-Employment contracts and termination of employment and
change-in-control arrangements."
(2) All options were granted at fair market value on the date of grant.
(3) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, in accordance with the Securities and Exchange Commission's rules.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the common stock, overall market conditions and the option
holders' continued employment through the vesting period. The amounts
reflected in this table may not necessarily be achieved.
Option exercises and fiscal 2000 year-end values
The following table provides the specified information concerning exercises
of options to purchase our common stock in the fiscal year ended July 2, 2000
and unexercised options held as of July 2, 2000 by the persons named in the
Summary Compensation Table. A portion of the shares subject to these options
may not yet be vested and may be subject to repurchase by us at a price equal
to the option exercise price, if the corresponding options were exercised
before such shares had vested.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of securities underlying Value in dollars of unexercised
acquired Value unexercised options at 7/02/00 in-the-money options at 7/02/00
on realized ---------------------------------- -------------------------------
Name exercise ($) Exercisable(1)(2) Unexercisable(3) Exercisable(2) Unexercisable(4)
---- -------- ---------- ----------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Gordon L. Stitt......... 20,000 552,462 146,666 533,334 7,314,967 17,468,783
Stephen Haddock......... 20,000 590,718 113,750 306,250 5,026,484 10,746,641
Vito Palermo............ 144,500 6,790,815 215,916 689,584 10,290,285 32,173,340
Herb Schneider.......... 20,000 551,603 113,750 306,250 5,026,484 10,746,641
Harry Silverglide....... -- -- 84,166 215,834 3,665,123 7,036,127
</TABLE>
--------
(1) Options granted in fiscal 2000 under our Stock Option Plan generally vest
over four years, with 25% of the shares vesting after one year and the
remaining shares vesting in equal monthly increments over the
16
<PAGE>
following 36 months. Under the option plan, the board of directors retains
discretion to modify the terms, including the price of outstanding options.
We have a right of repurchase as to any unvested shares upon optionee's
termination of employment at their original exercise price. See "EXECUTIVE
COMPENSATION AND OTHER MATTERS-Employment contracts and termination of
employment and change-in-control arrangements."
(2) Represents shares which are immediately exercisable and/or vested. Based
on the closing price of $52.75, as reported on the Nasdaq National Market
on June 30, 2000, less the exercise price.
(3) Represents shares which are unvested and/or not immediately exercisable.
(4) Based on the closing price of $52.75, as reported on the Nasdaq National
Market on June 30, 2000, less the exercise price.
Compensation of directors
Directors are entitled to reimbursement of all reasonable out-of-pocket
expenses incurred in connection with their attendance at board and board
committee meetings. All directors are eligible to receive options to purchase
our common stock under our Stock Option Plan.
Employment contracts and termination of employment and change-in-control
arrangements
Shares subject to options granted under our Stock Option Plan will
generally vest over four years, with 25% of the shares vesting after one year
and the remaining shares vesting in equal monthly increments over the
following 36 months. The options and stock purchase agreements granted to our
executive officers and our outside directors provide for accelerated vesting
of the shares in the event of a "transfer of control," as defined in the
option or stock purchase agreement, of Extreme.
This form of agreement provides that if, as of the date of the transfer of
control, less than 75% of the total option shares are vested, the number of
vested shares will be increased, as of the date of the transfer of control, to
the lesser of 75% of the total option shares, or the sum of the number of
vested shares, which are determined under the standard vesting schedule, plus
50% of the unvested shares, which are determined under the standard vesting
schedule. After the transfer of control, the remaining unvested shares will
vest in equal monthly increments over the longer of 50% of the period
beginning on the date of the transfer of control and ending on the date four
years after the option grant date or 12 months.
Compensation committee interlocks and insider participation in compensation
decisions
The compensation committee is composed of Messrs. Carinalli and Wolken. No
interlocking relationships exist between any member of our compensation
committee and any member of any other company's board of directors or
compensation committee. The compensation committee makes recommendations
regarding our employee stock plans and makes decisions concerning salaries and
bonus compensation for executive officers of Extreme Networks.
Certain relationships and related transactions
During the last fiscal year, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which Extreme
Networks was or is to be a party in which the amount involved exceeds $60,000,
and in which any director, executive officer or holder of more than 5% any
class of voting securities of Extreme Networks and members of that person's
immediate family had or will have a direct or indirect material interest other
than the transactions described below.
In January 1999, the board of directors approved a loan to Vito E. Palermo,
our Chief Financial Officer, of $75,000 at an interest rate of 4.51% per
annum. The loan is due in January 2003 but we may forgive this loan if our
Chief Executive Officer determines, in his sole discretion, that we have
attained financial and administrative objectives.
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<PAGE>
In January 1999, Extreme Networks entered into indemnification agreements
with each of the directors and executive officers. Such indemnification
agreements require Extreme Networks to indemnify these individuals to the
fullest extent permitted by law.
Section 16(a) beneficial ownership reporting compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Extreme
Networks' executive officers, directors and persons who beneficially own more
than 10% of our common stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission. These
persons are required by SEC regulations to furnish Extreme Networks with copies
of all Section 16(a) forms that they file, except that a transaction in a
statement of change in beneficial ownership for June Hull, Vice President of
Human Resources, was not timely filed.
Based solely on our review of the forms furnished to us and written
representations from certain reporting persons, we believe that all filing
requirements applicable to our executive officers, directors and persons who
beneficially own more than 10% of our common stock were complied with in fiscal
2000.
The following table sets forth grants of stock options under the Option Plan
during fiscal 2000 by:
. the Named Executive Officers;
. all current executive officers as a group;
. all current directors who are not executive officers as a group; and
. all employees, who are not executive officers, as a group.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Option Plan
-------------------------
No. of
Name and position shares
----------------- Exercise price ----------
<S> <C> <C>
Gordon L. Stitt....................................... 33.3125 300,000
Stephen Haddock....................................... 33.3125 170,000
Vito Palermo.......................................... 33.3125 50,000
Herb Schneider........................................ 33.3125 170,000
Harry Silverglide..................................... 33.3125 140,000
Executive group (9 persons)........................... 33.3125 1,770,000
Non-executive director group (3 persons).............. 0 0
Non-executive officer employee group(160)............. 34.2838 10,533,750
</TABLE>
--------
(1) Average exercise price of options granted to non-executive officer
employees under the Option Plan.
The following table sets forth issuance of stock under the Stock Purchase
Plan during fiscal 2000 by:
. the Named Executive Officers;
. all current executive officers as a group;
. all current directors who are not executive officers as a group; and
. all employees, who are not executive officers, as a group.
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<PAGE>
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Stock Purchase Plan
----------------------------
Name and position Average No. of shares
----------------- Purchase price -------------
<S> <C> <C>
Gordon L. Stitt.................................. 20.7188 1,104
Stephen Haddock.................................. 7.2250 3,624
Vito Palermo..................................... 7.2250 3,624
Herb Schneider................................... 7.2250 4,580
Harry Silverglide................................ 7.2250 3,702
Executive group (9 persons)...................... 8.4762 18,188
Non-executive director group (3 persons)......... 0 0
Non-executive officer employee group (294
persons)........................................ 8.4289 412,750
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation committee is comprised of two outside directors of the
board of directors and is responsible for setting and monitoring policies
governing compensation of executive officers. The compensation committee
reviews the performance and compensation levels for executive officers and sets
salary and bonus levels and option grants under our Stock Option Plan. The
objectives of the committee are to correlate executive compensation with our
business objectives and performance, and to enable us to attract, retain and
reward executive officers who contribute to our long-term success.
Salary
The compensation committee annually assesses the performance and sets the
salary of the President and Chief Executive Officer, Gordon L. Stitt. In turn,
Mr. Stitt annually assesses the performance of all other executive officers and
recommends salary increases which are reviewed and approved by the compensation
committee.
In particular, Mr. Stitt's compensation as President and Chief Executive
Officer is based on compensation levels of President/Chief Executive Officers
of comparable size companies. In addition, the compensation committee considers
certain incentive objectives based on Extreme Networks' performance as it
relates to revenue levels and earnings per share levels.
In determining executive officer salaries, the compensation committee
reviews recommendations from Mr. Stitt which include information from salary
surveys, performance evaluations and the financial condition of Extreme
Networks. The compensation committee also establishes both financial and
operational based objectives and goals in determining executive officer
salaries. These goals and objectives include sales and spending forecasts for
the upcoming year and published executive compensation literature for
comparable sized companies.
For more information regarding the compensation and employment arrangements
of Mr. Stitt and other executive officers, see "EXECUTIVE COMPENSATION AND
OTHER MATTERS--Compensation of executive officers and employment contracts and
termination of employment and change-in-control arrangements."
Stock Options
The compensation committee believes that employee equity ownership provides
significant motivation to executive officers to maximize value for our
stockholders and, therefore, periodically grants stock options under
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<PAGE>
our stock option plan. Stock options are granted at the current market price
and will only have value if our stock price increases over the exercise price.
The compensation committee determines the size and frequency of option
grants for executive officers, after consideration of recommendations from the
Chief Executive Officer. Recommendations for options are based upon the
relative position and responsibilities of each executive officer, previous and
expected contributions of each officer to Extreme Networks and previous option
grants to such executive officers. Generally, option grants vest 25% twelve
months after commencement of employment or after the date of grant and continue
to vest thereafter in equal monthly installments over three years, conditioned
upon continued employment.
COMPENSATION COMMITTEE
Peter L. Wolken
Charles Carinalli
COMPARISON OF STOCKHOLDER RETURN(1)
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on our common stock with the CRSP Total Return
Index for the Nasdaq Stock Market (U.S. Companies) and the Nasdaq Computer
Manufacturer Stocks Index for the period commencing April 9, 1999, the date of
our initial public offering, and ending on June 30, 2000.
[PERFORMANCE GRAPH TO APPEAR HERE]
<TABLE>
<CAPTION>
April 9, 1999 June 30, 1999 June 30, 2000
------------- ------------- -------------
<S> <C> <C> <C>
Extreme Networks, Inc............ $100 $342 $621
Nasdaq Stock Market (U.S.
companies)...................... $100 $104 $154
Nasdaq Computer Manufacturer
Stocks Index.................... $100 $103 $190
</TABLE>
--------
(1) Assumes that $100.00 was invested April 9, 1999 in our common stock and in
each index, and that all dividends were reinvested. Stockholder returns
over the indicated period should not be considered indicative of future
stockholder returns.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
We have an advance notice provision under our bylaws for stockholder
business to be presented at meetings of stockholders. The provision states that
in order for stockholder business to be properly brought before a meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of Extreme. A stockholder proposal, to be timely, must be
received at our principal executive offices not less than 120 calendar days in
advance of the one year anniversary of the date our proxy statement was
released to stockholders in connection with the previous year's annual meeting
of stockholders; except that
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<PAGE>
notice must be received not later than the close of business on the tenth day
following the day on which notice of the date of the meeting was mailed or
public disclosure of the meeting date was made:
. if no annual meeting was held in the previous year,
. if the date of the annual meeting has been changed by more than 30
calendar days from the date contemplated at the time of the previous
year's proxy statement, or
. in the event of a special meeting.
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders:
. must be received by us at our offices at 3585 Monroe Street, Santa Clara,
California 95051-1450 no later than June 27, 2001, and
. must satisfy the conditions established by the Securities and Exchange
Commission for stockholder proposals to be included in our proxy
statement for that meeting.
TRANSACTION OF OTHER BUSINESS
The board of directors knows of no other business that will be conducted at
the 2000 annual meeting of stockholders, other than as described in this proxy
statement. If any other matter or matters are properly brought before the
meeting, or any adjournment thereof, it is the intention of the persons named
in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors,
/s/ Vito E. Palermo
Vito E. Palermo
Secretary
October , 2000
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<PAGE>
EXTREME NETWORKS, INC.
Proxy for 2000 Annual Meeting of Stockholders
solicited by the Board of Directors
The undersigned hereby revokes all previous proxies and appoints Gordon
Stitt and Vito Palermo, and each of them, with full power of substitution to
represent the undersigned and to vote all of the shares of stock in Extreme
Networks, Inc. which the undersigned is entitled to vote at the 2000 Annual
Meeting of Stockholders to be held at the Silicon Valley Conference Center at
2161 N. First Street, San Jose, California 95131 on November 21, 2000 at 10:00
a.m. Pacific Standard Time, and at any adjournment thereof (1) as hereinafter
specified upon the proposals listed below and as more particularly described in
Extreme Network's proxy statement, receipt of which is hereby acknowledged and
(2) in their discretion upon such other matters as may properly come before the
meeting.
A vote FOR the following proposals is recommended by the board of
directors:
1. To elect the directors listed below.
Nominees: Lawrence K. Orr
Peter Wolken
[_] FOR [_] WITHHELD
[_] -------------------------------------------------------------
INSTRUCTION: To withhold authority to vote for the nominee,
mark the above box and list the name of the nominee in the
space provided.
2. To approve an amendment to Extreme Networks' 1996 Amended Stock Option
Plan to increase automatically on the first trading day of December of
this year, and for three years thereafter, the maximum aggregate
number of shares available for issuance under the plan by that number
of shares of common stock equal to 4.9% of the number of shares of
common stock issued and outstanding on the last trading day of the
preceding November.
[_] FOR [_] WITHHELD [_] ABSTAIN
3. To approve an amendment to Extreme Networks' 1999 Employee Stock
Purchase Plan to increase the number of shares of common stock
available for issuance from 2,000,000 to 4,000,000.
[_] FOR [_] WITHHELD [_] ABSTAIN
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<PAGE>
4. To approve an amendment to the Extreme Networks' Certificate of
Incorporation to increase the authorized number of shares of common
stock from 150,000,000 to 750,000,000.
[_] FOR [_] WITHHELD [_] ABSTAIN
5. To ratify the appointment of Ernst & Young LLP as our independent
accountants for the fiscal year ending July 1, 2001.
[_] FOR [_] WITHHELD [_] ABSTAIN
6. To act on such other matters as may properly come before the meeting
or any adjournments or postponements thereof.
The shares represented hereby shall be voted as specified. If no
specification is made, such shares shall be voted FOR proposals 1, 2, 3, 4 and
5.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF EXTREME
NETWORKS, INC.
Dated ___________________, 2000
(Be sure to date Proxy)
------------------------------------
Signatures(s)
------------------------------------
Print Name(s)
Sign exactly as your name(s) appears on your stock certificate. If shares
of stock stand on 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 the above proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the President or Vice President and
the Secretary or Assistant Secretary, and the corporate seal should be affixed
thereto. Executors or administrators or other fiduciaries who execute the above
proxy for a deceased stockholder should give their full title. Please date the
proxy.
Even if you are planning to attend the meeting in person, you are urged to
sign and mail the proxy in the return envelope so that your stock may be
represented at the meeting.
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