<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:
[_] Confidential,]for Use of the
[_] Preliminary Proxy Statement Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Cacheflow, Inc.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF CACHEFLOW INC.]
----------------
CACHEFLOW INC.
650 Almanor Avenue
Sunnyvale, CA 94086
----------------
August 4, 2000
TO THE STOCKHOLDERS OF CACHEFLOW INC.
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
CacheFlow Inc. (the "Company"), which will be held at the Company's
headquarters located at 650 Almanor Avenue, Sunnyvale, California 94086 on
Wednesday, August 30th, 2000, at 10:00 a.m. Pacific Daylight Time.
Details of the business to be conducted at the Annual Meeting are given in
the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
It is important that your shares be represented and voted at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY ALSO VOTE BY TELEPHONE OR VIA THE INTERNET BY FOLLOWING THE
ENCLOSED INSTRUCTIONS. Returning the proxy does NOT deprive you of your right
to attend the Annual Meeting. If you decide to attend the Annual Meeting and
wish to change your proxy vote, you may do so automatically by voting in
person at the meeting.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We
look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Brian NeSmith
Brian NeSmith
President and Chief Executive
Officer
<PAGE>
CACHEFLOW INC.
650 Almanor Avenue
Sunnyvale, California 94086
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held August 30, 2000
----------------
The Annual Meeting of Stockholders (the "Annual Meeting") of CacheFlow Inc.
(the "Company") will be held at the Company's headquarters located at 650
Almanor Avenue, Sunnyvale, California 94086, on Wednesday, August 30th, 2000,
at 10:00 a.m. Pacific Daylight Time for the following purposes:
1. To elect six directors of the Board of Directors to serve until the
next Annual Meeting or until their successors have been duly elected
and qualified;
2. To approve an amendment to the Company's 1999 Stock Incentive Plan
to increase the total number of shares of Common Stock reserved for
issuance thereunder by 2,000,000 shares;
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending April 30,
2001; and
4. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the attached
Proxy Statement accompanying this notice.
Only stockholders of record at the close of business on July 7, 2000 are
entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the Company's headquarters located at 650 Almanor
Avenue, Sunnyvale, California, during ordinary business hours for the ten-day
period prior to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Michael Johnson
Michael Johnson
Secretary
Sunnyvale, California
August 4, 2000
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE
ANNUAL MEETING. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO
CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT
THE MEETING.
<PAGE>
[LOGO OF CACHEFLOW INC.]
CACHEFLOW INC.
650 Almanor Avenue
Sunnyvale, California 94086
----------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To be held August 30, 2000
----------------
GENERAL INFORMATION
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of CacheFlow Inc., a Delaware corporation
(the "Company"), for the Annual Meeting of Stockholders (the "Annual Meeting")
to be held at the Company's headquarters located at 650 Almanor Avenue,
Sunnyvale, California 94086, on Wednesday, August 30th, 2000, at 10:00 a.m.
Pacific Daylight Time, and at any adjournment or postponement of the Annual
Meeting. These proxy materials were first mailed to stockholders on or about
August 4, 2000.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy
Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to vote at
the Annual Meeting. On July 7, 2000, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were 39,008,680
shares of Common Stock outstanding. Each stockholder of record on July 7, 2000
is entitled to one vote for each share of Common Stock held by such
stockholder on July 7, 2000. All votes will be tabulated by the inspector of
elections appointed for the meeting, who will separately tabulate affirmative
and negative votes, abstentions and broker non-votes.
Quorum Required
The Company's bylaws provide that the holders of a majority of the
Company's Common Stock issued and outstanding and entitled to vote at the
Annual Meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at the Annual Meeting. Abstentions and
broker non-votes will be counted as present for the purpose of determining the
presence of a quorum.
Votes Required
Proposal 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person, or represented by proxy, and entitled
to vote at the Annual Meeting. The six nominees for director receiving the
highest number of affirmative votes will be elected. Abstentions and broker
non-votes will not be counted toward a nominee's total.
<PAGE>
Proposal 2. Approval of the amendment to the Company's 1999 Stock Incentive
Plan requires the affirmative vote of a majority of those shares present in
person, or represented by proxy, and cast either affirmatively or negatively
at the Annual Meeting. Abstentions are not affirmative votes and, therefore,
will have the same effect as votes against the proposal. Broker non-votes will
not be treated as entitled to vote on the matter and thus will not affect the
outcome of voting on the proposal.
Proposal 3. Ratification of the appointment of Ernst & Young LLP as the
Company's independent public accountants for the fiscal year ending April 30,
2001 requires the affirmative vote of a majority of those shares present in
person, or represented by proxy, and cast either affirmatively or negatively
at the Annual Meeting. Abstentions and broker non-votes will not be counted as
having been voted on the proposal.
Proxies
Whether or not you are able to attend the Company's Annual Meeting, you are
urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your
proxy when properly completed. In the event no directions are specified, such
proxies will be voted FOR the Nominees of the Board of Directors (as set forth
in Proposal No. 1), FOR Proposal No. 2, FOR Proposal No. 3, and in the
discretion of the proxy holders as to other matters that may properly come
before the Annual Meeting. You may also revoke or change your proxy at any
time before the Annual Meeting. To do this, send a written notice of
revocation or another signed proxy with a later date to the Secretary of the
Company at the Company's principal executive offices before the beginning of
the Annual Meeting. You may also automatically revoke your proxy by attending
the Annual Meeting and voting in person. All shares represented by a valid
proxy received prior to the Annual Meeting will be voted.
Solicitation of Proxies
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the
proxy, and any additional solicitation material furnished to stockholders.
Copies of solicitation material will be furnished to brokerage houses,
fiduciaries, and custodians holding shares in their names that are
beneficially owned by others so that they may forward this solicitation
material to such beneficial owners. In addition, the Company may reimburse
such persons for their costs of forwarding the solicitation material to such
beneficial owners. The original solicitation of proxies by mail may be
supplemented by solicitation by telephone, telegram, or other means by
directors, officers, employees or agents of the Company. No additional
compensation will be paid to these individuals for any such services.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The directors who are being nominated for reelection to the Board of
Directors (the "Nominees"), their ages as of July 1, 2000, their positions and
offices held with the Company and certain biographical information are set
forth below. The proxy holders intend to vote all proxies received by them in
the accompanying form FOR the Nominees listed below unless otherwise
instructed. In the event any Nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who may be designated by the present Board of Directors to fill the
vacancy. As of the date of this Proxy Statement, the Board of Directors is not
aware of any Nominee who is unable or will decline to serve as a director. The
six (6) nominees receiving the highest number of affirmative votes of the
shares entitled to vote at the Annual Meeting will be elected directors of the
Company to serve until the next Annual Meeting or until their successors have
been duly elected and qualified.
<TABLE>
<CAPTION>
Nominees Age Positions and Offices Held with the Company
-------- --- -------------------------------------------
<S> <C> <C>
Brian M. NeSmith........... 38 President, Chief Executive Officer and Director
Marc Andreessen............ 29 Director
David W. Hanna(1).......... 61 Director
Michael A. Malcolm......... 55 Chairman of the Board, Director
Stuart G. Phillips(1)(2)... 42 Director
Andrew S. Rachleff(2)...... 41 Director
</TABLE>
--------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Brian M. NeSmith has served as President and Chief Executive Officer and a
director of the Company since March 1999. From December 1997 to March 1999,
Mr. NeSmith served as Vice President of Nokia IP, Inc., a security router
company, which acquired Ipsilon Networks, Inc., an IP switching company, where
Mr. NeSmith served as Chief Executive Officer from May 1995 to December 1997.
From October 1987 to April 1995, Mr. NeSmith held several positions at
Newbridge Networks Corporation, a networking equipment manufacturer, including
vice president and general manager of the VIVID group. Mr. NeSmith holds a
B.S. in electrical engineering from the Massachusetts Institute of Technology.
Marc Andreessen has served as a director of the Company since October 1999.
Mr. Andreessen has served as the Chairman of Loudcloud, Inc., a provider of
Internet services to electronic commerce companies, since October 1999. From
March 1999 to September 1999, Mr. Andreessen served as Chief Technology
Officer of America Online, Inc., an Internet technology and interactive
services company. Mr. Andreessen co-founded Netscape Communications Corp., a
provider of software and Website resources, in April 1994. From September 1994
to March 1999, when Netscape Communications Corp. was acquired by America
Online, Inc., Mr. Andreessen served as a director and Executive Vice President
of Products of Netscape Communications Corp. Mr. Andreessen holds a B.S. in
computer science from the University of Illinois.
David W. Hanna has served as a director of the Company since October 1996.
From December 1998 to March 1999, Mr. Hanna also served as the Company's
President and Chief Executive Officer. From March 1998 to March 2000, Mr.
Hanna served as President and Chief Executive Officer of Sage Software, Inc.,
a financial software company. Mr. Hanna served as President and Chief
Executive Officer of State of the Art, Inc., a financial software developer,
from November 1993 until March 1998. Mr. Hanna currently serves as President
of The Hanna Group, which provides operational and strategic consulting to
both small, high-tech companies and to larger organizations requiring growth
restoration and restructuring. In addition, Mr. Hanna serves as Chairman of
Hanna Capital Management Inc., which provides financial management services to
high-net-worth individuals. He is also Chief Executive Officer of Hanna
Ventures, which invests in networking, communications, and Internet/intranet
companies. Mr. Hanna also serves on the boards of directors of several
privately held companies. Mr. Hanna holds a B.S. in business administration
from the University of Arizona.
3
<PAGE>
Michael A. Malcolm has served as Chairman of the Board of Directors of the
Company since March 1996. From June 1997 to December 1998, Mr. Malcolm also
served as our President and Chief Executive Officer. From April 1992 to
October 1994, Mr. Malcolm served as President and Chief Executive Officer of
Network Appliance Inc., a network filer company. Mr. Malcolm holds a B.S. in
mechanical engineering from the University of Denver and M.A. and Ph.D.
degrees in computer science from Stanford University.
Stuart G. Phillips has served as a director of the Company since January
1997. Since June 1997, Mr. Phillips has been a General Partner at U.S. Venture
Partners, a venture capital firm. From October 1993 to June 1997, Mr. Phillips
served as Vice President of Central Engineering at Cisco Systems Inc., an
internetworking company. Mr. Phillips also serves on the boards of directors
of several privately held companies. He holds a B.S. in electronics from the
University of Wales at Cardiff, U.K.
Andrew S. Rachleff has served as a director of the Company since October
1997. In May 1995, Mr. Rachleff co-founded Benchmark Capital, a venture
capital firm, and has served as a general partner since that time. Prior to
co-founding Benchmark Capital, Mr. Rachleff spent ten years as a general
partner with Merrill, Pickard, Anderson & Eyre, a venture capital firm. Mr.
Rachleff also serves on the boards of directors of NorthPoint Communications
Group, Inc., a competitive local exchange carrier, and several privately held
companies. Mr. Rachleff holds a B.S. in economics from the University of
Pennsylvania and an M.B.A. from Stanford University.
Board of Directors Meetings and Committees
During the fiscal year ended April 30, 2000, the Board of Directors held
ten (10) meetings and acted by written consent in lieu of a meeting on twelve
(12) occasions. For the fiscal year, each of the directors during the term of
their tenure attended or participated in at least 75% of the aggregate of (i)
the total number of meetings or actions by written consent of the Board of
Directors and (ii) the total number of meetings held by all committees of the
Board of Directors on which each such director served. The Board of Directors
has two (2) standing committees: the Audit Committee and the Compensation
Committee.
During the fiscal year ended April 30, 2000, the Compensation Committee of
the Board of Directors held no meetings and acted by written consent in lieu
of a meeting on five (5) occasions. The Compensation Committee reviews the
performance of the executive officers of the Company, establishes compensation
programs for the officers, and reviews the compensation programs for other key
employees, including salary and cash bonus levels and option grants under the
1999 Stock Incentive Plan and the 2000 Supplemental Stock Option Plan. The
members of the Compensation Committee are Messrs. Hanna and Phillips.
During the fiscal year ended April 30, 2000, the Audit Committee of the
Board of Directors held one (1) meeting. The Audit Committee reviews, acts on
and reports to the Board of Directors with respect to various auditing and
accounting matters, including the selection of the Company's accountants, the
scope of the annual audits, fees to be paid to the Company's accountants, the
performance of the Company's accountants and the accounting practices of the
Company. During the fiscal year ended April 30, 2000, the members of the Audit
Committee were Messrs. Phillips and Rachleff.
Director Compensation
Except for grants of stock options, directors of the Company generally do
not receive compensation for services provided as a director. The Company also
does not pay compensation for committee participation or special assignments
of the Board of Directors.
Non-employee Board members are eligible for option grants under the
Company's 1999 Director Option Plan. Each individual who first becomes a non-
employee Board member after the date of the Company's initial public offering
will be granted an option to purchase 25,000 shares on the date such
individual joins the Board, provided such individual has not been in the prior
employ of the Company. In addition, at each
4
<PAGE>
Annual Meeting of Stockholders, each individual who will continue to be a
director after that Annual Meeting will receive an additional option grant to
purchase 5,000 shares of Common Stock. The option price for each option grant
under the Company's 1999 Director Option Plan will be equal to the fair market
value per share of Common Stock on the automatic grant date. Each initial
automatic grant shall become exercisable for 25% of the shares upon the
optionee's completion of 12 months of service from the date of grant and as to
the balance of the shares in annual installments over the three-year period
thereafter; each annual automatic grant shall become exercisable in full on
the first anniversary of the grant date. Directors who are also employees of
the Company are eligible to receive options and be issued shares of Common
Stock directly under the 1999 Stock Incentive Plan and are also eligible to
participate in the Company's Employee Stock Purchase Plan.
Mr. Malcolm was granted an option on October 13, 1999 to purchase 100,000
shares of Common Stock at an exercise price of $6.00 per share. Mr. Andreessen
received an option to purchase 25,000 shares of Common Stock on October 13,
1999 at an exercise price of $4.00 per share in connection with his service as
a member of the Company's board of directors. Both of these options are
immediately exercisable. The shares purchasable upon exercise of these options
are subject to repurchase by the Company at the original exercise price paid
per share upon the optionee's cessation of service prior to vesting in these
shares. The repurchase right lapses as to 25% of the option shares on the one
year anniversary of the grant date, and lapses in a series of 36 equal monthly
installments thereafter. Each of Messrs. Hanna, Phillips and Rachleff received
an option to purchase 25,000 shares of Common Stock on November 12, 1999 at an
exercise price of $12.00 per share. The options are immediately exercisable.
The shares purchasable upon exercise of these options are subject to
repurchase by the Company at the original exercise price paid per share upon
the optionee's cessation of service prior to vesting in these shares. The
repurchase right lapses in a series of 48 equal monthly installments after the
grant date.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED HEREIN.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 31, 2000, certain information
with respect to shares beneficially owned by (i) each person who is known by
the Company to be the beneficial owner of more than five percent of the
Company's outstanding shares of Common Stock, (ii) each of the Company's
directors and the executive officers named in the Summary Compensation Table
and (iii) all current directors and executive officers as a group. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act. Under this rule, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option or warrant) within sixty (60) days of
the date as of which the information is provided. Shares issuable pursuant to
stock options and warrants are deemed outstanding for computing the percentage
of the person holding the options and warrants but are not outstanding for the
percentage of any other person. As a result, the percentage ownership of
outstanding shares of any person as shown in the following table does not
necessarily reflect the person's actual voting power at any particular date.
<TABLE>
<CAPTION>
Shares Beneficially
Owned as of May 31,
2000(1)(2)
---------------------
Number of Percentage
Beneficial Owner Shares of Class
---------------- ---------- ----------
<S> <C> <C>
Entities affiliated with
Benchmark Capital(3)................................... 4,757,388 13.1%
2480 Sand Hill Road, Suite 200
Menlo Park, California 94025
Michael A. Malcolm...................................... 3,809,599 10.2
Entities affiliated with
U.S. Venture Partners(4)............................... 3,136,546 8.6
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Joseph Pruskowski(5).................................... 2,450,243 6.8
18109 236th Avenue NE
Woodinville, Washington 98072
Brian M. NeSmith(6)..................................... 2,146,000 5.9
Entities affiliated with
Technology Crossover Ventures(7)....................... 1,998,948 5.5
575 High Street, Suite 400
Palo Alto, California 94301
Nai-Ting Hsu............................................ 420,000 1.2
Michael Johnson(8)...................................... 199,375 *
Alan L. Robin(9)........................................ 331,375 *
William S. Warner(10)................................... 491,250 1.4
Rangaswamy Vasudevan(11)................................ 402,000 1.1
Marc Andreessen(12)..................................... 983,333 2.7
David W. Hanna(13)...................................... 1,325,556 3.7
Stuart G. Phillips(14).................................. 3,331,546 9.2
Andrew S. Rachleff(15).................................. 4,785,544 13.2
All current directors and executive officers as a group
(9 persons)(16)........................................ 17,332,328 46.9
</TABLE>
6
<PAGE>
--------
*Less than 1% of the outstanding shares of Common Stock.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have,
to the Company's knowledge, sole voting and investment power with respect
to all shares of Common Stock. Unless otherwise indicated, the address of
each individual listed in the table is c/o CacheFlow Inc., 650 Almanor
Avenue, Sunnyvale, California 94086.
(2) The percentage of beneficial ownership is based on 36,241,768 shares of
Common Stock outstanding as of May 31, 2000. The number of shares of
Common Stock deemed outstanding for each individual shareholder includes
shares issuable pursuant to stock options that may be exercised within
sixty (60) days after May 31, 2000.
(3) Consists of 4,176,178 shares held by Benchmark Capital Partners, L.P. and
581,210 shares held by Benchmark Founders' Fund, L.P. Mr. Rachleff, one
of our directors, is a managing member of Benchmark Capital Management
Co., L.L.C., which is the general partner of each of Benchmark Capital
Partners, L.P. and Benchmark Founders' Fund, L.P. Mr. Rachleff disclaims
beneficial ownership of the shares held by Benchmark Capital Partners,
L.P. and Benchmark Founders' Fund, L.P. except to the extent of his
economic interest in the funds. The persons having voting or investment
power with respect to the securities held by entities affiliated with
Benchmark Capital include David M. Beirne, Bruce W. Dunlevie, Kevin R.
Harvey, Robert C. Kagle, Andrew S. Rachleff and Steven M. Spurlock.
(4) Consists of 2,822,888 shares held by U.S. Venture Partners V, L.P.,
156,828 shares held by USVP V International, L.P., 87,824 shares held by
2180 Associates Fund V, L.P. and 69,006 shares held by
USVP V Entrepreneur Partners, L.P. Mr. Phillips, one of our directors, is
a general partner of Presidio Management Group V, L.L.C., which is the
general partner of each of U.S. Venture Partners V, L.P., USVP V
International, L.P., 2180 Associates Fund V, L.P. and USVP V Entrepreneur
Partners, L.P. Mr. Phillips disclaims beneficial ownership of the shares
held by U.S. Venture Partners V, L.P., USVP V International L.P., 2180
Associates Fund V, L.P. and USVP V Entrepreneur Partners, L.P., except to
the extent of his economic interest in the funds. The persons having
voting or investment power with respect to the securities held by
entities affiliated with U.S. Venture Partners include Irwin Federman,
Marc A. Friend, Jason E. Green, Steven M. Krausz, Lucio L. Lanza, Stuart
R. Phillips, Jonathan D. Root and Philip M. Young.
(5) Includes 33,100 shares held by Mr. Pruskowski's wife.
(6) Includes options immediately exercisable for 146,000 shares.
(7) Consists of 14,516 shares held by TCV III (GP), 68,946 shares held by TCV
III, L.P., 1,832,502 shares held by TCV III (Q), L.P. and 82,984 shares
held by TCV III Strategic Partners, L.P. Jay C. Hoag and Richard H.
Kimball are the managing members of Technology Crossover Management III,
L.L.C., which is the general partner of each of TCV III (GP), TCV III,
L.P., TCV III (Q), L.P. and TCV III Strategic Partners, L.P. Messrs. Hoag
and Kimball each disclaim beneficial ownership of the shares held by TCV
III (GP), TCV III, L.P., TCV III (Q), L.P. and TCV III Strategic
Partners, L.P., except to the extent of their respective economic
interest in the funds. The persons having voting or investment power with
respect to the securities held by entities affiliated with Technology
Crossover Ventures are Messrs. Hoag and Kimball.
(8) Consists of options immediately exercisable for 190,000 shares and 9,375
shares issuable pursuant to stock options that may be exercised within
sixty (60) days of May 31, 2000.
(9) Includes options immediately exercisable for 281,375 shares.
(10) Includes 1,250 shares issuable pursuant to stock options that may be
exercised within sixty (60) days of May 31, 2000.
(11) Includes 20,000 shares held by Mr. Vasudevan as custodian for Gautam
Vasudevan, 20,000 shares held as custodian for Vijay Vasudevan, 2,000
shares held as Trustee for the Jyothi Sarangarajan Trust and
360,000 shares held by the Vasudevan Family Trust.
(12) Consists of 983,333 shares held by the Andreessen 1996 Living Trust.
7
<PAGE>
(13) Consists of 928,384 shares owned individually by Mr. Hanna and includes
options immediately exercisable for 25,000 shares held by Mr. Hanna. Also
includes 3,200 shares held by K-H Investors (1996-B), L.P., 711 shares
held by K-H Investors (1998-A), L.P., 1,865 shares held by Hanna
Ventures-CacheFlow III, L.P., 90,487 shares held by Kelly, Hanna Capital
Management, Inc., 23,471 shares held by Hanna Ventures L.L.C., 8,976
shares held by Hanna Ventures-CacheFlow IPO, L.P, 15,262 shares held by
Hanna Group Profit Sharing Plan, 155,474 shares held by the David William
Hanna Trust dated October 30, 1989, 20,000 shares held by Hanna 1999
Annuities Trust dated 11/15/99 and 52,726 shares held by Mr. Hanna's
spouse. Mr. Hanna, one of our directors, is an affiliate of K-H Investors
(1996-B), L.P., K-H Investors (1998-A), L.P., Hanna Ventures-CacheFlow
III, L.P., Kelly, Hanna Capital Management Hanna Ventures, L.L.C and
Hanna Ventures-CacheFlow IPO, L.P. Mr. Hanna disclaims beneficial
ownership of the shares held by these entities, except to the extent of
his economic interest in the funds.
(14) Includes 170,000 shares owned individually by Mr. Phillips and includes
options immediately exercisable for 25,000 shares held by Mr. Phillips.
Also includes 2,822,888 shares held by U.S. Venture Partners V, L.P.,
156,828 shares held by USVP V International, L.P., 87,824 shares held by
2180 Associates Fund V, L.P. and 69,006 shares held by USVP V
Entrepreneur Partners, L.P. Mr. Phillips, one of our directors, is a
general partner of Presidio Management Group V, L.L.C., which is the
general partner of each of U.S. Venture Partners V, L.P., USVP V
International, L.P., 2180 Associates Fund V, L.P. and USVP V Entrepreneur
Partners, L.P. Mr. Phllips disclaims beneficial ownership of the shares
held by U.S. Venture Partners V, L.P., USVP V International, L.P., 2180
Associates Fund V, L.P. and USVP V Entrepreneur Partners, L.P., except to
the extent of his economic interest in the funds.
(15) Includes 3,156 shares owned individually by Mr. Rachleff and includes
options immediately exercisable for 25,000 shares held by Mr. Rachleff.
Also includes 4,176,178 shares held by Benchmark Capital Partners, L.P.
and 581,210 shares held by Benchmark Founders' Fund, L.P. Mr. Rachleff,
one of our directors, is a managing member of Benchmark Capital
Management Co., L.L.C., which is the general partner of each of Benchmark
Capital Partners, L.P. and Benchmark Founders' Fund, L.P. Mr. Rachleff
disclaims beneficial ownership of the shares held by Benchmark Capital
Partners, L.P. and Benchmark Founders' Fund, L.P. except to the extent of
his economic interest in the funds. The persons having voting or
investment power with respect to the securities held by entities
affiliated with Benchmark Capital include David M. Beirne, Bruce W.
Dunlevie, Kevin R. Harvey, Robert C. Kagle, Andrew S. Rachleff, and
Steven M. Spurlock.
(16)Includes options immediately exercisable for 701,750 shares.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee" or the "Committee") has the exclusive authority to
establish the level of base salary payable to the Chief Executive Officer
("CEO") and certain other executive officers of the Company and has the
authority to administer the Company's 1999 Stock Incentive Plan, 2000
Supplemental Stock Option Plan, and Employee Stock Purchase Plan. In addition,
the Committee has the responsibility for approving the individual bonus
programs to be in effect for the CEO and certain other executive officers and
other key employees each fiscal year.
For the fiscal year ended April 30, 2000, the process utilized by the
Committee in determining executive officer compensation levels was based on
the subjective judgment of the Committee. Among the factors considered by the
Committee were the recommendations of the CEO with respect to the compensation
of the Company's key executive officers. However, the Committee made the final
compensation decisions concerning such officers.
General Compensation Policy. The Committee's fundamental policy is to offer
the Company's executive officers competitive compensation opportunities based
upon overall Company performance, their individual contribution to the
financial success of the Company and their personal performance. It is the
Committee's objective to have a substantial portion of each officer's
compensation contingent upon the Company's
8
<PAGE>
performance, as well as upon his or her own level of performance. Accordingly,
each executive officer's compensation package consists of: (i) base salary,
(ii) cash bonus awards and (iii) long-term stock-based incentive awards.
Base Salary. The base salary for each executive officer is set on the basis
of general market levels and personal performance. Each individual's base pay
is positioned relative to the total compensation package, including cash
incentives and long-term incentives.
In preparing the performance graph for this Proxy Statement, the Company
has selected the Chase H&Q Technology Index. The companies included in the
Company's informal survey are not necessarily those included in the Chase H&Q
Technology Index, because they were determined not to be competitive with the
Company for executive talent or because compensation information was not
available.
Annual Cash Bonuses. The annual pool of bonuses for executive officers is
distributed on the basis of the Company's achievement of the financial
performance targets established at the start of the fiscal year and personal
objectives established for each executive. Actual bonuses paid generally
reflect an individual's accomplishment of both corporate and functional
objectives and are based on a percentage of the individual's base salary. No
bonuses were paid to the executive officers for the fiscal year ended April
30, 2000, as there was no bonus plan at that time. A bonus was paid to Mr.
Robin pursuant to the term of his employment agreement.
Long-Term Incentive Compensation. During the fiscal year ended April 30,
2000, the Committee, in its discretion, made option grants to Messrs. Hsu,
Johnson, NeSmith and Robin under the 1996 Stock Option Plan and option grants
to Messrs. Johnson and Robin under the 1999 Stock Incentive Plan. Generally, a
significant grant is made in the year that an officer commences employment and
no grant is made in the second year. Thereafter, option grants may be made at
varying times and in varying amounts in the discretion of the Committee.
Generally, the size of each grant is set at a level that the Committee deems
appropriate to create a meaningful opportunity for stock ownership based upon
the individual's position with the Company, the individual's potential for
future responsibility and promotion, the individual's performance in the
recent period and the number of unvested options held by the individual at the
time of the new grant. The relative weight given to each of these factors will
vary from individual to individual at the Committee's discretion. Applying
these principles, a significant grant was made to Messrs. Johnson, Hsu and
Robin in connection with the commencement of employment with the Company and a
smaller grant was made to Mr. NeSmith. Subsequent grants were also made to
Messrs. Johnson and Hsu.
Each grant allows the officer to acquire shares of the Company's Common
Stock at a fixed price per share (the market price on the grant date) over a
specified period of time. The option vests in periodic installments over a two
to four year period, contingent upon the executive officer's continued
employment with the Company. The vesting schedule and the number of shares
granted are established to ensure a meaningful incentive in each year
following the year of grant. Accordingly, the option will provide a return to
the executive officer only if he or she remains in the Company's employ, and
then only if the market price of the Company's Common Stock appreciates over
the option term.
CEO Compensation. The annual base salary for Mr. NeSmith, the Company's
President and Chief Executive Officer, was established by the Committee in
connection with his commencement of employment. No bonus was paid to Mr.
NeSmith for the fiscal year ended April 30, 2000.
The option grant made to Mr. NeSmith during the fiscal year ended April 30,
2000 was based on the factors discussed above.
Tax Limitation. Under the Federal tax laws, a publicly-held company such as
the Company will not be allowed a federal income tax deduction for
compensation paid to certain executive officers to the extent that
compensation exceeds $1 million per officer in any year. To qualify for an
exemption from the $1 million deduction limitation, the stockholders approved
a limitation under the Company's 1999 Stock Incentive Plan on
9
<PAGE>
the maximum number of shares of Common Stock for which any one participant may
be granted stock options per calendar year. Because this limitation was
adopted, any compensation deemed paid to an executive officer when he
exercises an outstanding option under the 1999 Stock Incentive Plan with an
exercise price equal to the fair market value of the option shares on the
grant date will qualify as performance-based compensation that will not be
subject to the $1 million limitation. Since it is not expected that the cash
compensation to be paid to the Company's executive officers for the fiscal
year ended April 30, 2000 will exceed the $1 million limit per officer, the
Committee will defer any decision on whether to limit the dollar amount of all
other compensation payable to the Company's executive officers to the $1
million cap.
COMPENSATION COMMITTEE
David Hanna
Stuart Phillips
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was formed
in September 1999, and the members of the Compensation Committee are Messrs.
Hanna and Phillips. Mr. Phillips was not at any time an officer or employee of
ours; Mr. Hanna served as the Company's President and Chief Executive Officer
from December 11, 1998 to March 2, 1999. No executive officer of the Company
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.
10
<PAGE>
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Company's Common Stock between November 19, 1999 (the date the
Company's Common Stock commenced public trading) and April 30, 2000 with the
cumulative total return of (i) the Total Return Index for the Nasdaq Stock
Market (U.S. Companies) (the "Nasdaq Stock Market--U.S. Index") and (ii) the
Chase H&Q Technology Index (the "Chase H&Q Technology Index"), over the same
period. This graph assumes the investment of $100.00 on November 19, 1999 in
the Company's Common Stock, the Nasdaq Stock Market--U.S. Index and the Chase
H&Q Technology Index, and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data.
The Company cautions that the stock price performance shown in the graph below
is not indicative of, nor intended to forecast, the potential future
performance of the Company's Common Stock. Information used in the graph was
obtained from Chase H&Q LLC, a source believed to be reliable, but the Company
is not responsible for any errors or omissions in such information.
[CHART]
<TABLE>
<CAPTION>
11/19/99 1/00 4/00
-------- ------- -------
<S> <C> <C> <C>
CacheFlow Inc......................................... $100.00 $362.50 $309.38
Nasdaq Stock Market--U.S. Index....................... $100.00 $116.33 $114.52
Chase H&Q Technology Index............................ $100.00 $117.67 $123.76
</TABLE>
The Company effected its initial public offering of Common Stock on
November 19, 1999 at a price of $24.00 per share.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate this
Proxy Statement or future filings made by the Company under those statutes,
the Compensation Committee Report and Stock Performance Graph shall not be
deemed filed with the Securities and Exchange Commission and shall not be
deemed incorporated by reference into any of those prior filings or into any
future filings made by the Company under those statutes.
11
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer and the three other most highly
compensated executive officers who were serving as such at the end of the
fiscal year ended April 30, 2000 and two other individuals who ceased to be
executive officers prior to April 30, 2000 (collectively, the "Named
Officers"), each of whose salary and bonus for the fiscal year ended April 30,
2000 exceeded $100,000 for services rendered in all capacities to the Company
and its subsidiaries for that fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
-------------------- ------------
Number of
Securities
Underlying
Name and Principal Position Year Salary Bonus Options
--------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Brian M. NeSmith..................... 2000 $175,000 $ 0 200,000
President and Chief Executive 1999 $ 28,494(1) $ 0 2,000,000
Officer and Director
Michael J. Johnson................... 2000 $137,199 $ 0 490,000
Vice President, Chief Financial 1999 $ 0(1) $ 0 0
Officer and Secretary
Alan L. Robin........................ 2000 $115,385 $471,523(2) 622,000
Senior Vice President, Sales 1999 $ 0(1) $ 0 0
Nai-Ting Hsu......................... 2000 $ 98,157 $ 0 420,000
Senior Vice President, CacheFlow 1999 $ 0(1) $ 0 0
Ventures
William S. Warner.................... 2000 $150,000 $ 48,085(3) 20,000
Vice President, Business Development 1999 $149,889 $ 40,000 0
Rangaswamy Vasudevan................. 2000 $150,000 $ 0 120,000
Chief Technical Officer 1999 $149,907 $ 0 0
</TABLE>
--------
(1) Mr. NeSmith commenced employment in March 1999. Mr. Johnson and Mr. Robin
commenced employment in July 1999. Mr. Hsu commenced employment in October
1999.
(2) Includes commissions of $121,521.
(3) Includes commissions of $28,085.
12
<PAGE>
The following table contains information concerning the stock option grants
made to each of the Named Officers for the fiscal year ended April 30, 2000.
No stock appreciation rights were granted to these individuals during such
year.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants(1) Potential
------------------------------------------ Realizable Value at
Number of % of Total Assumed
Securities Options Annual Rates of
Underlying Granted to Exercise Stock Price
Options Employees Price Expiration Appreciation
Granted in FY 2000 Per Share Date for Option Term(2)
---------- ---------- --------- ---------- -------------------
Name 5% 10%
---- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Brian M. NeSmith........ 90,000 0.83% $ 5.50 9/23/2009 311,303 788,903
110,000 1.01% $ 5.50 9/23/2009 380,481 964,214
Michael J. Johnson...... 250,000(3) 2.30% $ 2.00 7/25/2009 314,447 796,871
65,000(3) 0.60% $ 2.00 7/25/2009 81,756 207,187
25,000(3) 0.23% $12.00 11/11/2009 188,668 478,123
150,000(3) 1.38% $30.50 4/16/2010 2,877,193 7,291,372
Alan L. Robin........... 250,000 2.30% $ 2.00 7/25/2009 314,447 796,871
222,000 2.04% $ 2.00 7/25/2009 279,229 707,622
150,000(4) 1.38% $30.50 4/16/2010 2,877,193 7,291,372
Nai-Ting Hsu............ 420,000(5) 3.87% $ 6.00 10/12/2009 1,584,814 4,016,231
William S. Warner....... 20,000(6) .18% $30.50 4/16/2010 383,626 972,183
Rangaswamy Vasudevan.... 120,000(7) 1.11% $30.50 4/16/2010 2,301,754 5,833,097
</TABLE>
--------
(1) The options disclosed in the table were granted 10 years prior to the
expiration date shown. Except as otherwise noted, the options listed in
the table are immediately exercisable except to the extent necessary to
satisfy the $100,000 limitation applicable to incentive options and the
option shares vest 25% after one year from the grant date and monthly
thereafter for three years. The exercise price for each option may be paid
in cash, in shares of Common Stock valued at fair market value on the
exercise date or through a cashless exercise procedure involving a same-
day sale of the purchased shares. The Company may also finance the option
exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares, together with any federal and state income
tax liability incurred by the optionee in connection with such exercise.
The plan administrator has the discretionary authority to reprice the
options through the cancellation of those options and the grant of
replacement options with an exercise price based on the fair market value
of the option shares on the regrant date. The options have a maximum term
of 10 years measured from the option grant date, subject to earlier
termination in the event of the optionee's cessation of service with the
Company. Under each of the options, the option shares will vest upon an
acquisition of the Company by merger or asset sale, unless the acquiring
company assumes the options. The options will also become fully vested in
the event that the optionee's service is involuntarily terminated
following a change in control.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the
option grants made to the executive officers.
(3) The vesting commencement date for the first two grants to Mr. Johnson is
July 12, 1999. The option shares under the 25,000-share grant to Mr.
Johnson vest 4,166 shares on July 12, 2000 and monthly thereafter for the
next 40 months. The option shares under the 150,000-grant to Mr. Johnson
become exercisable for 3/48th of the shares on July 12, 2000 and monthly
thereafter for the next 45 months.
13
<PAGE>
(4) The option shares under the 150,000-grant to Mr. Robin become exercisable
for 3/48th of the shares on July 26, 2000 and monthly thereafter for the
next 45 months.
(5) The vesting commencement date for the grant to Mr. Hsu is October 11,
1999.
(6) The options under this grant to Mr. Warner vests in 48 monthly
installments beginning April 17, 2000
(7) The options under this grant to Mr. Vasudevan vest in 24 monthly
installments beginning August 1, 2001.
The following table sets forth information concerning option exercises
during the fiscal year ended April 30, 2000 and option holdings as of the end
of the fiscal year ended April 30, 2000 with respect to each of the Named
Officers. No stock appreciation rights were outstanding at the end of that
year.
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Value Realized Unexercised Options In-the-Money Options
Shares (Market Price at at FY-End At FY-End(1)
Acquired on Exercise Less ------------------------- -------------------------
Name Exercise Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian M. NeSmith........ 0 $ 0 146,000 54,000 $10,037,500 $ 3,712,500
Michael J. Johnson...... 0 $ 0 190,000 300,000 $13,447,500 $17,400,000
Alan L. Robin........... 50,000 $500,000 272,000 300,000 $19,652,000 $17,400,000
Nai-Ting Hsu............ 420,000 $ 0 0 0 $ 0 $ 0
William S. Warner....... 0 $ 0 0 20,000 $ 0 $ 875,000
Rangaswamy Vasudevan.... 0 $ 0 0 120,000 $ 0 $ 5,250,000
</TABLE>
--------
(1) Based on the fair market value of the Company's Common Stock at year-end
$74.25 per share less the exercise price payable for such shares.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The compensation committee of the board of directors, as plan administrator
of the 1999 Stock Incentive Plan and 2000 Supplemental Stock Option Plan, has
the authority to provide for accelerated vesting of the shares of Common Stock
subject to outstanding options held by the officers named in the Summary
Compensation Table and any other person in connection with certain changes in
control of the Company. In connection with the adoption of the 1999 Stock
Incentive Plan and 2000 Supplemental Stock Option Plan, the Company has
provided that upon a change in control of the Company, each outstanding option
and all shares of restricted stock will generally become fully vested unless
the surviving corporation assumes the option or award or replaces it with a
comparable award. In addition, an option or award will become fully
exercisable and fully vested if the holder's employment or service is
involuntarily terminated within 18 months following the change in control.
Except for Mr. NeSmith, Mr. Johnson, and Mr. Robin, none of the officers
named in the Summary Compensation Table has an employment agreement with the
Company, and their employment may be terminated at any time. CacheFlow has
entered into an agreement with Mr. NeSmith, dated February 24, 1999, which
provides that his salary shall be $175,000 per year. The agreement provides
for the grant of an option to Mr. NeSmith to purchase shares of the Company's
Common Stock at the fair market value on the grant date. The agreement also
provides that the Company will extend a loan to Mr. NeSmith of up to $800,000.
The agreement also provides for acceleration of vesting of option shares as if
Mr. NeSmith remained employed for one additional year in the event of a change
in control of the Company.
The Company has entered into an agreement with Mr. Johnson, the Company's
Vice President and Chief Financial Officer, dated June 4, 1999, which provides
that his salary shall be $170,000 per year. The agreement
14
<PAGE>
provides for the grant of an option to Mr. Johnson to purchase shares of
Common Stock at the fair market value on the grant date. The agreement also
provides for acceleration of vesting of option shares as if Mr. Johnson
remained employed for one additional year in the event that he is not offered
the same or similar position following a change in control of CacheFlow.
The Company has entered into an agreement with Mr. Robin, the Company's
Senior Vice President of Sales, dated July 12, 1999, which provides for a
salary of $150,000 per year and a target commission of up to $125,000 per
year. Under the agreement, he is also eligible for cash bonuses of $200,000
each payable 60 days after his start date and on August 1, 2000. The agreement
provides for the grant of an option to Mr. Robin to purchase shares of the
Company's Common Stock at the fair market value on the grant date. The
agreement also provides for payment of severance pay in the amount of six
months base salary plus bonus in the event that Mr. Robin's employment is
terminated without cause. The agreement also provides for acceleration of
vesting of option shares as if Mr. Robin remained employed for one additional
year in the event that his employment is terminated without cause; after three
years of employment, vesting acceleration declines by one month for each month
of service and does not apply after four years of employment. The agreement
also provides for acceleration of vesting of option shares as if Mr. Robin
remained employed for one additional year in the event that he is not offered
the same or similar position following a change in control of the Company.
PROPOSAL NO. 2
AMENDMENT OF THE 1999 STOCK INCENTIVE PLAN
The stockholders are being asked to approve an amendment to the CacheFlow
Inc. 1999 Stock Incentive Plan (the "Incentive Plan"). The Board of Directors
("Board") amended the Incentive Plan on July 28, 2000 to increase the share
reserve by 2,000,000 shares to an aggregate of 8,794,013 shares, as discussed
below. The Board believes that equity awards under the Incentive Plan play an
important role in the Company's efforts to attract, employ and retain
employees, directors and consultants of outstanding ability.
The Company established the Incentive Plan on September 24, 1999 as a
successor to the 1996 Stock Option Plan ("Predecessor Plan") to provide a
means whereby eligible individuals may be given an opportunity to acquire
shares of Common Stock and to benefit from increases in value of the Common
Stock. The Incentive Plan was approved by the stockholders on November 1,
1999.
The principal terms and provisions of the Incentive Plan are summarized
below. The summary, however, is not intended to be a complete description of
all the terms of the Incentive Plan. A copy of the Incentive Plan will be
furnished by the Company to any stockholder upon written request to the
Corporate Secretary at the executive offices in Sunnyvale, California.
Structure. The Incentive Plan is divided into four separate components: (i)
the Discretionary Option Grant Program, under which eligible individuals may,
at the discretion of the plan administrator, be granted options to purchase
shares of Common Stock at an exercise price not less than 85% of the fair
market value on the grant date, (ii) the Stock Issuance Program, under which
such persons may, in the plan administrator's discretion, be issued shares of
Common Stock directly through the purchase of such shares at a price not less
than eighty-five percent (85%) of their fair market value at the time of their
issuance or as a bonus tied to the performance of services, (iii) the Stock
Appreciation Rights Program, under which such persons may, in the plan
administrator's discretion, be granted a stock appreciation right ("SAR") at a
price that varies in accordance with a predetermined formula while the SAR is
outstanding and (iv) the Stock Units Program, under which such persons may, in
the plan administrator's discretion, be issued stock units for no cash
consideration. In addition, the Incentive Plan permits the Board to implement
a fee deferral program for the outside directors.
Administration. The Compensation Committee of the Board, which is comprised
of two (2) or more Board members, administers the Incentive Plan. Committee
members serve for such period of time as the Board may
15
<PAGE>
determine. The Incentive Plan may also be administered with respect to
optionees who are not executive officers subject to the short-swing profit
rules of the federal securities laws by the Board or a secondary committee
comprised of one or more Board members.
The Committee (or Board or secondary committee to the extent acting as plan
administrator) has full authority (subject to the express provisions of the
Incentive Plan) to determine the eligible individuals who are to receive
awards under the Incentive Plan, the number of shares to be covered by each
granted option or other award, the date or dates on which the option is to
become exercisable or the award is to vest, the maximum term for which the
option or award is to remain outstanding, whether the granted option will be
an incentive stock option ("Incentive Option") that satisfies the requirements
of Section 422 of the Internal Revenue Code (the "Code") or a non-statutory
option not intended to meet such requirements and the remaining provisions of
the option grant or award.
Eligibility. Employees (including officers) and consultants who render
services to the Company or its subsidiary corporations (whether now existing
or subsequently established) are eligible to receive option grants under the
Discretionary Option Grant Program, share issuances under the Stock Issuance
Program, SARs under the Stock Appreciation Rights Program and stock units
under the Stock Units Program. A non-employee member of the Board or of the
board of directors of any parent or subsidiary corporation of the Company is
also eligible for option grants under the Discretionary Option Grant Program,
the Stock Issuance Program, the Stock Appreciation Rights Program and the
Stock Units Program.
As of May 31, 2000, approximately 321 persons (including four (4) executive
officers) were eligible to participate in the Incentive Plan.
Securities Subject to Incentive Plan. The maximum number of shares of
Common Stock that may be issued over the term of the Incentive Plan shall not
exceed 9,308,525 shares, assuming approval of this Proposal No. 2. The number
of shares of Common Stock available for issuance under the Incentive Plan
shall automatically increase on the first trading day of each calendar year
during the term of the Incentive Plan, beginning January 1, 2001, by an amount
equal to five percent (5%) of the shares of Common Stock outstanding on
December 31 of the immediately preceding calendar year, not to exceed
2,000,000 shares in any calendar year. In addition, 3,000,000 shares of Common
Stock have been reserved for issuance under the Company's 2000 Supplemental
Stock Option Plan.
No one person participating in the Incentive Plan may receive options and
direct stock issuances for more than 1,500,000 shares of Common Stock per
calendar year, beginning with the 1999 calendar year; provided that for the
calendar year in which such person first commences services, the limit shall
be 2,000,000 shares.
Should an option expire or terminate for any reason prior to exercise in
full, including options incorporated from the Predecessor Plan, the shares
subject to the portion of the option not so exercised will be available for
subsequent option grants under the Incentive Plan.
Discretionary Option Grant Program
Price and Exercisability. The option exercise price per share in the case
of an Incentive Option may not be less than one hundred percent (100%) of the
fair market value of the Common Stock on the grant date and, in the case of a
non-statutory option, eighty-five percent (85%) of the fair market value of
the Common Stock on the grant date. Options granted under the Discretionary
Option Grant Program become exercisable at such time or times and during such
period as the Committee may determine and set forth in the instrument
evidencing the option grant.
The exercise price may be paid in cash or in shares of Common Stock.
Options may also be exercised through a same-day sale program, pursuant to
which a designated brokerage firm is to effect the immediate sale of the
shares purchased under the option and pay over to the Company, out of the sale
proceeds on the settlement
16
<PAGE>
date, sufficient funds to cover the exercise price for the purchased shares
plus all applicable withholding taxes. The Committee may also assist any
optionee (including an officer or director) in the exercise of his or her
outstanding options by (a) authorizing a Company loan to the optionee or (b)
permitting the optionee to pay the exercise price in installments over a
period of years. The terms and conditions of any such loan or installment
payment will be established by the Committee in its sole discretion. The
Committee has the discretionary authority to reprice options through the
cancellation of those options and the grant of replacement options with an
exercise price based on the fair market value of the option shares on the
regrant date.
No optionee is to have any stockholder rights with respect to the option
shares until the optionee has exercised the option, paid the exercise price
and become a holder of record of the shares. Options are not assignable or
transferable other than by will or the laws of descent and distribution, and
during the optionee's lifetime, the option may be exercised only by the
optionee.
Termination of Service. Any option held by the optionee at the time of
cessation of service will not remain exercisable beyond the designated post-
service exercise period. Under no circumstances, however, may any option be
exercised after the specified expiration date of the option term. Each such
option will normally, during such limited period, be exercisable only to the
extent of the number of shares of Common Stock in which the optionee is vested
at the time of cessation of service. The Committee has complete discretion to
extend the period following the optionee's cessation of service during which
his or her outstanding options may be exercised and/or to accelerate the
exercisability of such options in whole or in part. Such discretion may be
exercised at any time while the options remain outstanding, whether before or
after the optionee's actual cessation of service.
The shares of Common Stock acquired upon the exercise of one or more
options may be subject to repurchase by the Company at the original exercise
price paid per share upon the optionee's cessation of service prior to vesting
in such shares. The Committee has complete discretion in establishing the
vesting schedule to be in effect for any such unvested shares and may cancel
the Company's outstanding repurchase rights with respect to those shares at
any time, thereby accelerating the vesting of the shares subject to the
canceled rights.
Incentive Options. Incentive Options may only be granted to individuals who
are employees of the Company or its parent or subsidiary corporation. During
any calendar year, the aggregate fair market value (determined as of the grant
date(s)) of the Common Stock for which one or more options granted to any
employee under the Incentive Plan (or any other Incentive Plan of the Company
or its parent or subsidiary corporations) may for the first time become
exercisable as incentive stock options under Section 422 of the Code shall not
exceed $100,000.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price per share
not less than eighty-five percent (85%) of fair market value, payable in cash
or through a promissory note payable to the Company. Shares may also be issued
solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Committee will, however, have the discretionary
authority at any time to accelerate the vesting of any and all unvested shares
outstanding under the Incentive Plan.
Stock Appreciation Rights Program.
One or more eligible individuals may, at the discretion of the Committee,
be granted stock appreciation rights either in tandem with or independent of
their option grants under the Incentive Plan. Upon exercise of an independent
stock appreciation right, the individual will be entitled to a cash
distribution from the Company in an amount per share equal to the excess of
(i) the fair market value per share of Common Stock over (ii) the exercise or
base price. Tandem stock appreciation rights provide the holders with the
right to surrender their
17
<PAGE>
options for an appreciation distribution from the Company equal in amount to
the excess of (a) the fair market value of the vested shares of Common Stock
subject to the surrendered option over (b) the aggregate exercise price
payable for such shares. An appreciation distribution may, at the discretion
of the Committee, be made in cash or in shares of Common Stock.
Stock Units Program
Stock units may be awarded for no cash consideration. Stock units may also
be granted in consideration of a reduction in the recipient's other
compensation or in consideration of services rendered. Each award of stock
units may or may not be subject to vesting and vesting, if any, shall occur
upon satisfaction of the conditions specified by the Committee. Settlement of
vested stock units may be made in the form of cash, shares of Common Stock or
a combination of both.
General Provisions
Acceleration of Options/Termination of Repurchase Rights. Upon the
occurrence of a "Change in Control" (as defined below) each outstanding option
under the Incentive Plan will, immediately prior to the effective date of the
Change in Control, become fully exercisable for all of the shares at the time
subject to such option. However, an outstanding option shall not accelerate if
and to the extent such option is, in connection with the Change in Control,
either to be assumed by the successor corporation (or parent) or to be
replaced with a comparable option to purchase shares of the capital stock of
the successor corporation (or parent). Immediately following the consummation
of the Change in Control, all outstanding options will terminate and cease to
be exercisable, except to the extent assumed by the successor corporation. A
Change in Control includes:
(i) the sale, transfer, or other disposition of all or substantially all
of the Company's assets,
(ii) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons different
from the persons holding those immediately prior to such transaction, or
(iii) a proxy contest that results in the replacement of more than one-
half of the Company's Board of Directors over a 24-month period.
Also upon a Change in Control, the Company's outstanding repurchase rights
applicable to options or shares issued directly will terminate automatically
unless assigned to the successor corporation.
Any options that are assumed or replaced in the Change in Control and do
not otherwise accelerate at that time shall automatically accelerate (and any
of the Company's outstanding repurchase rights that do not otherwise terminate
at the time of the Change in Control shall automatically terminate and the
shares of Common Stock subject to those terminated rights shall immediately
vest in full) in the event the optionee's service should subsequently
terminate by reason of an involuntary termination within eighteen (18) months
following the effective date of such Change in Control. Involuntary
termination includes discharge without cause and certain voluntary
resignations following a reduction in compensation or responsibility or a
relocation.
The Committee also has the discretion to accelerate outstanding options
and/or terminate the Company's outstanding repurchase rights upon a Change in
Control, which acceleration or termination may or may not be conditioned upon
the subsequent termination of the optionee's service within a specified period
following the transaction. The acceleration of options in the event of a
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt, or other efforts
to gain control of the Company.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the Incentive Plan, the fair market value of a share
of Common Stock on any relevant date will be the closing price per share of
Common Stock on that date, as such price is reported on the Nasdaq National
Market. The market value of the Common Stock as reported on the Nasdaq Stock
Market as of May 31, 2000 was $55.00 per share.
18
<PAGE>
Changes in Capitalization. In the event any change is made to the Common
Stock issuable under the Incentive Plan by reason of any stock split, stock
dividend, combination of shares, exchange of shares, or other change affecting
the outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the Incentive Plan, (ii) the maximum
number and/or class of securities for which any one person may be granted
options and direct stock issuances per calendar year, (iii) the maximum number
and/or class of securities for which the share reserve is to increase
automatically each year, and (iv) the number and/or class of securities and
the exercise price per share in effect under each outstanding option
(including any option incorporated from the Predecessor Plan) in order to
prevent the dilution or enlargement of benefits thereunder.
Each outstanding option that is assumed in connection with a Change in
Control will be appropriately adjusted to apply and pertain to the number and
class of securities that would otherwise have been issued, in consummation of
such Change in Control, to the option holder had the option been exercised
immediately prior to the Change in Control. Appropriate adjustments will also
be made to the option price payable per share and to the class and number of
securities available for future issuance under the Incentive Plan on both an
aggregate and a per-participant basis.
Incentive Plan Amendments. The Board may amend or modify the Incentive Plan
in any and all respects whatsoever. The approval of the Company's stockholders
will be obtained to the extent required by applicable law.
The Board may, at any time and for any reason, terminate the Plan. Any
options outstanding at the time of such termination will remain in force in
accordance with the provisions of the instruments evidencing such grants.
As of May 31, 2000, options covering 3,705,312 shares were outstanding
under the Incentive Plan, 3,088,701 shares remained available for future
option grant, without giving effect to the increase which is the subject of
this Proposal No. 2, and no shares have been issued under the Incentive Plan.
The expiration dates for all such options range from January 18, 2010 to May
29, 2010.
19
<PAGE>
New Plan Benefits and Option Grant Table
Because the Incentive Plan is discretionary, benefits to be received by
individual optionees are not determinable. The table below shows, as to each
of the executive officers named in the Summary Compensation Table and the
various indicated groups, (i) the number of shares of Common Stock for which
options have been granted under the Incentive Plan, for the one (1)-year
period ended April 30, 2000 plus the period through May 31, 2000 and (ii) the
weighted average exercise price per share. No direct stock issuances have been
made under the Incentive Plan to date.
<TABLE>
<CAPTION>
Weighted
Average Exercise
Number Of Price Of
Name And Position Option Shares Granted Options
----------------- ------------- ----------------
<S> <C> <C>
Brian M. NeSmith................................ 200,000 $ 5.50
President, Chief Executive Officer and Director
Michael J. Johnson.............................. 490,000 $11.23
Vice President, Chief Financial Officer and
Secretary
Alan L. Robin................................... 622,000 $ 8.87
Senior Vice President, Sales
Nai-Ting Hsu.................................... 420,000 $ 6.00
Senior Vice President, CacheFlow Ventures
William S. Warner............................... 20,000 $30.50
Vice President, Business Development
Rangaswamy Vasudevan............................ 120,000 $30.50
Chief Technical Officer
All current executive officers as a group (4
persons)....................................... 1,732,000 $ 8.45
All current directors (other than executive
officers) as a group (5 persons)............... 877,380 $4.912
All employees, including current officers who
are not executive officers, as a group (2
persons)....................................... 9,253,750 $22.94
</TABLE>
Federal Income Tax Consequences of Options Granted under the Incentive Plan
Options granted under the Incentive Plan may be either incentive stock
options that satisfy the requirements of Section 422 of the Code or non-
statutory options that are not intended to meet such requirements. The federal
income tax treatment for the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the excess of the fair market value
of the purchased shares on the exercise date over the exercise price paid for
the shares generally is includable in alternative minimum taxable income. The
optionee will recognize taxable income in the year in which the purchased
shares are sold or otherwise made the subject of disposition.
For federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two (2)
years after the grant date of the option and more than one (1) year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over
(ii) the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of
those shares on the date the option was exercised over (ii) the exercise price
paid for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.
20
<PAGE>
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the
purchased shares. The Company anticipates that any compensation deemed paid by
the Company upon one or more disqualifying dispositions of incentive stock
option shares by the Company's executive officers will remain deductible by
the Company and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-statutory option if the purchased shares are subject
to repurchase by the Company. These special provisions may be summarized as
follows:
(i) If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (a) the
fair market value of the shares on the date such repurchase right lapses
with respect to such shares over (b) the exercise price paid for the
shares.
(ii) The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise
of the non-statutory option an amount equal to the excess of (a) the fair
market value of the purchased shares on the exercise date (determined as if
the shares were not subject to the Company's repurchase right) over (b) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for
the taxable year of the Company in which such ordinary income is recognized by
the optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options with exercise prices equal
to the fair market value of the option shares on the grant date will remain
deductible by the Company and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the
amount of the appreciation distribution. The Company will be entitled to a
business expense deduction equal to the appreciation distribution for the
taxable year of the Company in which the ordinary income is recognized by the
optionee.
Stock Issuances. The tax principles applicable to direct stock issuances
under the Incentive Plan will be substantially the same as those summarized
above for the exercise of non-statutory option grants.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE 1999 STOCK INCENTIVE PLAN
21
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the appointment of Ernst &
Young LLP as the Company's independent public accountants for the fiscal year
ending April 30, 2001. The affirmative vote of the holders of a majority of
shares present or represented by proxy and voting at the Annual Meeting will
be required to ratify the appointment of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the appointment is ratified,
the Board of Directors, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Directors feels that such a change would be in the Company's and its
stockholders' best interests.
Ernst & Young LLP has audited the Company's financial statements since
1999. Its representatives are expected to 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.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP TO SERVE AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING APRIL 30, 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty
as directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company has also entered into indemnification agreements
with its officers and directors containing provisions that may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers and to advance their expenses incurred as a result of
any proceeding against them as to which they could be indemnified.
The following table summarizes the shares of Preferred Stock purchased by
Named Executive Officers, directors and 5% stockholders of the Company and
persons and entities associated with them.
<TABLE>
<CAPTION>
Shares of Shares of
Series C Series D
Preferred Preferred
Investor(1) Stock Stock
----------- --------- ---------
<S> <C> <C>
Entities affiliated with
Benchmark Capital(2)... 738,068 --
Entities affiliated with
U.S. Venture
Partners(3)............ 455,622 --
Entities affiliated with
Technology Crossover
Ventures(4)............ 1,890,816 --
Michael A. Malcolm...... 801,116 --
Persons and entities
affiliated with David
W. Hanna(5)............ 209,432 --
Entities affiliated with
Marc Andreessen......... -- 280,953
</TABLE>
22
<PAGE>
--------
(1) Shares held by affiliated persons and entities has been aggregated. See
"Principal Stockholders."
(2) Includes shares held by Benchmark Capital Partners, L.P. and Benchmark
Founders' Fund, L.P.
(3) Includes shares held by U.S. Venture Partners V, L.P. USVP V Entrepreneur
Partners, USVP V International, L.P., and 2180 Associates Fund V, L.P.
(4) Includes shares held by TCV III (6P), TCV (III) Q., L.P. TCV III Strategic
Partners, L.P., TCV III, L.P.
(5) Includes shares held by Carol A. Johnston, Trustee of the Hanna 1999
Annuity Trust dated 11/15/99, Hanna Ventures CacheFlow III, L.P. and the
David William Hanna Trust dated 10/30/89.
The shares of Series C Preferred Stock were issued and sold in a private
transaction on May 28, 1999, to a limited number of individuals and
institutional investors at a per share purchase price of $4.575, resulting in
aggregate proceeds to us of $20.0 million. The shares of Series D Preferred
Stock were issued and sold in a private transaction to an entity affiliated
with Marc Andreessen at a per share purchase price of $11.00, resulting in
aggregate proceeds to us of $3.1 million.
The Company loaned $999,900 to Brian M. NeSmith, the Company's President
and Chief Executive Officer, on April 13, 1999, pursuant to a full-recourse
promissory note that is due April 12, 2004 and bears interest at the rate of
4.99% per annum. The largest aggregate amount of indebtedness outstanding
under this note during the fiscal year ended April 30, 2000 was $1,052,351 and
the amount outstanding on May 31, 2000 was $1,056,709. The Company also loaned
$800,000 to Mr. NeSmith on August 31, 1999 to purchase a primary residence,
pursuant to a promissory note that is due August 30, 2004. The largest
aggregate amount of indebtedness outstanding during the fiscal year ended
April 30, 2000 was $800,000 and the amount outstanding on May 31, 2000 was
$800,000. The $800,000 note is secured by Mr. NeSmith's primary residence.
Both promissory notes are also secured by 2,000,000 shares of the Company's
Common Stock owned by Mr. NeSmith. All principal and accrued interest under
the $999,900 loan was repaid by June 26, 2000 and all principal under the
$800,000 loan was repaid by July 11, 2000.
The Company loaned $2,519,958 to Nai-Ting Hsu, the Company's Senior Vice
President, CacheFlow Ventures, on October 18, 1999, pursuant to a full-
recourse promissory note that is due October 18, 2004 and bears interest at
the rate of 5.54% per annum. The promissory note is secured by 420,000 shares
of the Company's Common Stock owned by Mr. Hsu. The largest aggregate amount
of indebtedness outstanding under this note during the fiscal year ended April
30, 2000 was $2,589,761 and the amount outstanding on May 31, 2000 was
$2,601,395.
On October 13, 1999, the Company entered into a consulting agreement with
Mr. Andreessen. Mr. Andreessen will serve as an independent contractor to the
Company and will consult with the Company in areas to be agreed upon by Mr.
Andreessen and Mr. NeSmith. All of the intellectual property developed by Mr.
Andreessen during his consultancy will belong to the Company. In connection
with entering into the consulting agreement, Mr. Andreessen was granted an
option to purchase 677,380 shares of Common Stock. The option has an exercise
price of $4.00 per share.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to us than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company, the Company's officers, directors, principal stockholders and
their affiliates will be approved by a majority of the board of directors,
including a majority of the independent and disinterested outside directors on
the board of directors, and will continue to be on terms no less favorable to
us than could be obtained from unaffiliated third parties.
23
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file
reports with respect to their ownership of the Company's Common Stock and
their transactions in such Common Stock. Based upon (i) the copies of Section
16(a) reports that the Company received from such persons for transactions in
the Common Stock and their Common Stock holdings for the year ending April 30,
2000 and (ii) the written representations received from one or more of such
persons that no annual Form 5 reports were required to be filed by them for
the year ending April 30, 2000, the Company believes that all reporting
requirements under Section 16(a) for such fiscal year were met in a timely
manner by its executive officers, Board members and greater than ten-percent
stockholders, except that Messrs. Hanna, Johnson, Phillips, Rachleff and Robin
filed a Form 3 reporting one transaction late and Bret Lawson filed a Form 3
late. Mr. Vasudevan did not file a Form 5 nor did he certify to the Company
that it was not necessary for him to file a Form 5.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S FORM 10-K REPORT FOR THE FISCAL YEAR ENDED APRIL 30, 2000, INCLUDING
THE FINANCIAL STATEMENTS, SCHEDULES AND LIST OF EXHIBITS. REQUESTS SHOULD BE
SENT TO CACHEFLOW INC., 650 ALMANOR AVENUE, SUNNYVALE, CALIFORNIA 94086, ATTN:
INVESTOR RELATIONS.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 2001 Annual
Meeting that are eligible for inclusion in the Company's proxy statement and
related proxy materials for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company no later
than June 6, 2001, in order to be included. Such stockholder proposals should
be addressed to CacheFlow Inc., 650 Almanor Avenue, Sunnyvale, California
94086, Attn: Susan Hovatter Thornton, Vice President and General Counsel.
OTHER MATTERS
The Board knows of no other matters to be presented for stockholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Michael Johnson
Michael Johnson
Secretary
Sunnyvale, California
August 4, 2000
24
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE
ANNUAL MEETING. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO
CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT
THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
25
<PAGE>
1955-PS-00
<PAGE>
PROXY CACHEFLOW INC. PROXY
650 Almanor Avenue, Sunnyvale, California 94086
This Proxy is Solicited on Behalf of the Board of Directors of CacheFlow Inc.
for the Annual Meeting of Stockholders to be held August 30, 2000
The undersigned holder of Common Stock, par value $.0001, of CacheFlow
Inc. (the "Company") hereby appoints Brian NeSmith and Michael Johnson, or
either of them, proxies for the undersigned, each with full power of
substitution, to represent and to vote as specified in this Proxy all Common
Stock of the Company that the undersigned stockholder would be entitled to vote
if personally present at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Wednesday August 30th, 2000 at 10:00 a.m. local time,
located at the headquarters of the Company at 650 Almanor Avenue, Sunnyvale,
California, 94086, and at any adjournments or postponements of the Annual
Meeting. The undersigned stockholder hereby revokes any proxy or proxies
heretofore executed for such matters.
This proxy, when properly executed, will be voted in the manner as
directed herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS, FOR PROPOSAL 2, FOR
PROPOSAL 3, AND IN THE DISCRETION OF THE PROXIES AS TO ANY OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE MEETING. The undersigned stockholder may revoke
this proxy at any time before it is voted by delivering to the Corporate
Secretary of the Company either a written revocation of the proxy or a duly
executed proxy bearing a later date, or by appearing at the Annual Meeting and
voting in person.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
DIRECTORS, "FOR" PROPOSAL 2, "FOR" PROPOSAL 3.
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
RETURN ENVELOPE. If you receive more than one proxy card, please sign and
return ALL cards in the enclosed envelope.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
(Reverse)
CACHEFLOW INC.
[X] Please mark votes
as in this example
<TABLE>
<S> <C> <C> <C> <C>
1. To elect the following directors to serve for a term 2. To approve an amendment to the FOR AGAINST ABSTAIN
upon the 2001 Annual Meeting of Stockholders or until Company's 1999 Stock Incentive [_] [_] [_]
their successors are elected and qualified: Plan to increase the number of
shares of Common Stock authorized
Nominees: Brian M. NeSmith, Marc Andreessen, David W. for issuance by 2,000,000 shares.
Hanna, Michael A. Malcolm, Stuart Phillips, Andrew Rachleff.
FOR WITHHELD For all nominees, except for
nominees written below. 3. To ratify the appointment of FOR AGAINST ABSTAIN
Ernst & Young LLP as the Company's [_] [_] [_]
[_] [_] [_] independent accountants for the
fiscal year ending April 30, 2001.
-----------------------
Nominee exception(s)
</TABLE>
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting.
The undersigned acknowledges receipt of the accompanying Notice of Annual
Meeting of Stockholders and Proxy Statement.
Signature:________________Signature (if held jointly:_______________Date:_______
_________,2000
Please date and sign exactly as your name(s) is (are) shown on the share
certificate(s) to which the Proxy applies. When shares are held as joint-
tenants, both should sign. When signing as an executor, administrator, trustee,
guardian, attorney-in fact or other fiduciary, please give full title as such.
When signing as a corporation, please sign in full corporate name by President
or other authorized officer. When signing as a partnership, please sign in
partnership name by an authorized person.
<PAGE>
<TABLE>
<CAPTION>
[Vote by Telephone] [Vote by Internet]
----------------- ----------------
<S> <C>
It's fast convenient, and immediate! It's fast, convenient, and your vote is immediately
Call Toll-Free on a Touch-Tone Phone confirmed and posted.
1-877-PRX-VOTE (1-877-779-8683)
--------------------------------------------------------------------------------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Proxy Card Statement/Prospectus and Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/cflo
3. Enter your 14-digit Voter Control Number 3. Enter your 14-digit Voter Control Number
located on your Proxy Card above your name. located on your Proxy Card above your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
--------------------------------------------------------------------------------------------------------------
Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/cflo anytime!
------------------------------
</TABLE>
Do not return your Proxy Card if you are voting by Telephone or Internet
