<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
VA Linux Systems, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[VA LINUX LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 6, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of VA Linux
Systems, Inc. (the "Company"), a Delaware corporation, will be held on
Wednesday, December 6, 2000 at 9:00 a.m., local time, at the Westin Hotel
located at 5101 Great America Parkway, Santa Clara, California, 95054, for the
following purposes:
1. To elect two (2) Class I directors to serve for a three year term and
until their successors are duly elected and qualified (Proposal One);
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants to the Company for the fiscal year ending July 27, 2001 (Proposal
Two); and
3. To transact such other business as may properly be brought before the
meeting and any adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on October 10, 2000
are entitled to notice of and to vote at the meeting.
Sincerely,
/s/ JUDITH M. O'BRIEN
----------------------------------------
Judith M. O'Brien
Secretary
Fremont, California
October 25, 2000
YOUR VOTE IS IMPORTANT
THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE COMPANY, ON BEHALF OF THE BOARD OF DIRECTORS, FOR THE 2000 ANNUAL
MEETING OF STOCKHOLDERS. THE PROXY STATEMENT AND THE RELATED PROXY FORM ARE
BEING DISTRIBUTED ON OR ABOUT NOVEMBER 6, 2000. YOU CAN VOTE YOUR SHARES USING
ONE OF THE FOLLOWING METHODS:
- VOTE THROUGH THE INTERNET AT THE WEBSITE SHOWN ON THE PROXY CARD
- VOTE BY TELEPHONE USING THE TOLL-FREE NUMBER SHOWN ON THE PROXY CARD
- COMPLETE AND RETURN A WRITTEN PROXY CARD
- ATTEND THE COMPANY'S 2000 ANNUAL MEETING OF STOCKHOLDERS AND VOTE
VOTES SUBMITTED THROUGH THE INTERNET OR BY TELEPHONE MUST BE RECEIVED BY
4:00 P.M., EASTERN TIME, ON DECEMBER 5, 2000. INTERNET AND TELEPHONE VOTING ARE
AVAILABLE 24 HOURS PER DAY; IF YOU VOTE VIA INTERNET OR TELEPHONE, YOU DO NOT
NEED TO RETURN A PROXY CARD.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING, HOWEVER, TO
ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE VIA THE
INTERNET OR TELEPHONE, OR MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
ANY STOCKHOLDER ATTENDING THE MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE HAS
VOTED VIA THE INTERNET OR TELEPHONE, OR RETURNED A PROXY CARD.
<PAGE> 3
VA LINUX SYSTEMS, INC.
47071 Bayside Parkway
Fremont, California 94538
-------------------
PROXY STATEMENT
-------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of VA
Linux Systems, Inc. (which we will refer to as the "Company" throughout this
Proxy Statement) for use at the Annual Meeting of Stockholders to be held at the
Westin Hotel located at 5101 Great America Parkway, Santa Clara, California,
95054, on Wednesday, December 6, 2000, at 9:00 a.m., local time, and at any
adjournment(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Company's principal
executive offices are located at the address listed at the top of the page and
the telephone number is (510) 687-7000.
The Company's Annual Report, containing financial statements for the fiscal
year ended July 28, 2000, is being mailed together with these proxy solicitation
materials to all stockholders entitled to vote. This Proxy Statement, the
accompanying Proxy and the Company's Annual Report will first be mailed on or
about November 6, 2000 to all stockholders entitled to vote at the meeting.
THE COMPANY SHALL PROVIDE WITHOUT CHARGE TO EACH STOCKHOLDER SOLICITED BY THESE
PROXY SOLICITATION MATERIALS A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K,TOGETHER WITH THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
REQUIRED TO BE FILED WITH THE ANNUAL REPORT, UPON REQUEST OF THE STOCKHOLDER
MADE IN WRITING TO VA LINUX SYSTEMS, INC., 47071 BAYSIDE PARKWAY, FREMONT,
CALIFORNIA, 94538, ATTN: DIRECTOR, INVESTOR RELATIONS.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on October 10, 2000 (which
we will refer to as the "Record Date" throughout this Proxy Statement) are
entitled to notice of and to vote at the meeting and at any adjournment(s)
thereof. The Company has one series of Common Shares issued and outstanding,
designated as Common Stock, $0.001 par value per share and one series of
undesignated Preferred Stock, $0.001 per share. As of the Record Date,
250,000,000 shares were authorized and 52,687,142 shares of the Company's Common
Stock were issued and outstanding. As of the Record Date, 10,000,000 shares were
authorized and no shares of the Company's Preferred Stock were outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by (A) delivering to the Company at its
principal offices (Attention: Director, Investor Relations) (i) a written notice
of revocation or (ii) a duly executed proxy bearing a later date or (B)
attending the meeting and voting in person.
VOTING
On all matters, each share has one vote. See Proposal One -- Election of
Two Class I Directors -- Vote Required.
1
<PAGE> 4
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of ADP Brokerage Services Group ("ADP") to aid in the
solicitation of proxies from brokers, bank nominees and other institutional
owners. The Company estimates that it will pay ADP a fee not to exceed $28,000
for its services and will reimburse it for certain out of pocket expenses
estimated to be $25,000. In addition, the Company may reimburse brokerage firms
and other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, personally or by telephone or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Votes cast by proxy or in person at the Annual Meeting ("Votes Cast") will
be tabulated by the Inspector of Elections (the "Inspector") who will be an
employee of the Company. The Inspector will also determine whether or not a
quorum is present. Except in certain specific circumstances, the affirmative
vote of a majority of shares present in person or represented by proxy at a duly
held meeting at which a quorum is present is required under Delaware law for
approval of proposals presented to stockholders. In general, Delaware law
provides that a quorum consists of a majority of shares entitled to vote and
present or represented by proxy at the meeting.
The Inspector will treat shares that are voted WITHHELD or ABSTAIN as being
present and entitled to vote for purposes of determining the presence of a
quorum but will not be treated as votes in favor of approving any matter
submitted to the stockholders for a vote. When proxies are properly dated,
executed and returned, the shares represented by such proxies will be voted at
the Annual Meeting in accordance with the instructions of the stockholder. If no
specific instructions are given, the shares will be voted for (i) the election
of the nominees for directors set forth herein; (ii) the ratification of Arthur
Andersen LLP, as independent public accountants of the Company for the fiscal
year ending July 27, 2001; and (iii) upon such other business as may properly
come before the Annual Meeting or any adjournment thereof but will not be voted
in the election of directors.
If a broker indicates on the enclosed proxy or its substitute that such
broker does not have discretionary authority as to certain shares to vote on a
particular matter (broker non-votes), those shares will not be considered as
present with respect to that matter. The Company believes that the tabulation
procedures to be followed by the Inspector are consistent with the general
statutory requirements in Delaware concerning voting of shares and determination
of a quorum.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that while broker non-votes may be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
votes cast with respect to the particular proposal on which the broker has
expressly not voted. Broker non-votes with respect to proposals set forth in
this Proxy Statement will therefore not be considered "Votes Cast" and,
accordingly, will not affect the determination as to whether the requisite
majority of Votes Cast has been obtained with respect to a particular matter.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the Company's bylaws and the
rules established by the Securities and Exchange Commission, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Proposals of
stockholders of the Company that are intended to be presented by such
stockholders at the Company's 2001 Annual Meeting of Stockholders must be
received by the Company no later than July 10, 2001, in order that they may be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a stockholder intends to
submit a proposal at the Company's 2001 Annual
2
<PAGE> 5
Meeting of Stockholders that is not eligible for inclusion in the proxy
statement relating to the meeting, and the stockholder fails to give the Company
notice in accordance with the requirements set forth in the Exchange Act no
sooner than June 9, 2001 and no later than September 22, 2001, then the proxy
holders will be allowed to use their discretionary authority when and if the
proposal is raised at the Company's Annual Meeting in 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 29, 2000, certain
information with respect to the beneficial ownership of the Company's Common
Stock by (i) any person (including any group as that term is used in
Section 13(d)(3) of the Exchange Act), known by the Company to be the beneficial
owner of more than 5% of the Company's voting securities, (ii) each director and
each nominee for director to the Company, (iii) each of the executive officers
named in the Summary Compensation Table appearing herein, and (iv) all current
executive officers and directors of the Company as a group. The number and
percentage of shares beneficially owned are based on the aggregate of 52,687,142
shares of Common Stock outstanding as of October 10, 2000. The Company does not
know of any arrangements, including any pledge by any person of securities of
the Company, the operation of which may at a subsequent date result in a change
of control of the Company.
<TABLE>
<CAPTION>
PERCENT
OF COMMON
NUMBER OF STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES OUTSTANDING
---------------------------------------- --------- -----------
<S> <C> <C>
Larry M. Augustin(2) ..................................... 6,377,488 12.1%
Douglas Leone(3) ......................................... 4,883,980 9.3%
Entities affiliated with Sequoia Capital Funds(3) ........ 4,752,569 9.0%
3000 Sand Hill Road, Building 4, Suite 280
Menlo Park, California 94025
Intel Corporation ........................................ 3,543,741 6.7%
2200 Mission College Blvd. Mail Stop RN6-46
Santa Clara, CA 95052
John T. Hall(4) .......................................... 2,819,000 5.4%
Gregg E. Zehr(5) ......................................... 576,475 1.1%
Bruce Twickler(6)......................................... 355,231 *
Carl Redfield(7) ......................................... 311,300 *
Jeffry R. Allen(8) ....................................... 275,000 *
Carol A. Bartz(9) ........................................ 201,812 *
Eric S. Raymond(8) ....................................... 162,952 *
Todd B. Schull(10) ....................................... 157,803 *
Robert Russo(11) ......................................... 92,107 *
All directors and officers as a group (19 persons)(12) ... 18,825,725 35.6%
</TABLE>
----------
* Represents less than 1% of the outstanding shares common stock.
(1) Unless otherwise indicated, the address of each officer, director or 5%
stockholder is c/o VA Linux Systems, Inc., Attention: Director, Investor
Relations, 47071 Bayside Parkway, Fremont, California 94538.
(2) Includes 82,500 shares subject to the Company's right of repurchase, which
lapses over time, and an option exercisable for 1,155,000 shares, of which
all 1,155,000 shares may be exercised by Mr. Augustin and upon exercise
will become subject to the Company's right of repurchase, which lapses over
time. Also includes 373,000 shares owned by Alice Kitsuta Augustin,
Mr.Augustin's wife, and 100,000 shares held in the Larry M. Augustin 1999
Grantor Retained Annuity Trust, dated November 30, 1999 in which Larry M.
Augustin is the trustee.
3
<PAGE> 6
(3) Includes 3,884,626 shares held by Sequoia Capital VIII, 257,175 shares held
by Sequoia International Technology Partners VIII(Q), 85,725 shares held by
CMS Partners LLC, 49,292 shares held by Sequoia International Technology
Partners VIII, 9,429 shares held by Sequoia 1997, 419,690 shares held by
Sequoia Capital Franchise Fund, and 46,632 shares held by Sequoia Capital
Franchise Partners. Mr. Leone is the managing member of Sequoia
International Technology Partners VIII, Sequoia Capital VIII, Sequoia
International Technology Partners VIII(Q), Sequoia Capital Franchise Fund
and Sequoia Capital Franchise Partners, and has signature authority for CMS
Partners LLC and Sequoia 1997. Mr. Leone disclaims beneficial ownership of
shares held by these entities except to the extent of his pecuniary
interest in these entities.
(4) Includes 668,938 shares subject to the Company's right of repurchase, which
lapses over time. Also includes 5,000 shares owned by Jennifer E. Hall, Mr.
Hall's sister, 5,000 shares owned by Patrick J. Hall, Mr. Hall's brother,
and 40,000 shares owned by John T. Hall, Sr., and Carolyn E. Hall, Mr.
Hall's parents. Mr. Hall disclaims beneficial ownership of shares held by
his sister, brother and parents.
(5) Includes 388,448 shares subject to the Company's right of repurchase, which
lapses over time.
(6) Includes 68,110 shares subject to options that are exercisable within sixty
days of September 29, 2000.
(7) Includes 161,300 shares held in the Carl Redfield Annuity Trust 1 dated
11/29/99 and 81,250 shares subject to the Company's right of repurchase,
which lapses over time.
(8) Includes 81,250 shares subject to the Company's right of repurchase, which
lapses over time.
(9) Includes 106,250 shares subject to the Company's right of repurchase, which
lapses over time.
(10) Includes 109,859 shares held in the Todd and Julie Schull 1999 Family
Trust, dated 11/6/99, and 47,944 shares subject to options that are
exercisable within sixty days of September 29, 2000.
(11) Includes 59,375 shares subject to options that are exercisable within sixty
days of September 29, 2000.
(12) Includes the shares beneficially owned by the directors and officers set
forth on the above table, shares in footnote (3), as well as 1,480,358
shares subject to options that are exercisable within sixty days of
September 29, 2000.
4
<PAGE> 7
PROPOSAL ONE
ELECTION OF TWO CLASS I DIRECTORS
NOMINEES
The Company's Board of Directors has seven authorized directors and
currently consists of six members. The Company has a classified Board of
Directors, which is divided into three classes and whose terms expire at
different times. The three classes are currently comprised of the following
directors:
-- Class I consists of Larry M. Augustin and Douglas Leone, who will
serve until the annual meeting of stockholders to be held in 2000;
-- Class II consists of Eric S. Raymond and Carl Redfield, who will serve
until the annual meeting of stockholders to be held in 2001; and
-- Class III consists of Jeffry R. Allen and Carol A. Bartz, who will
serve until the annual meeting of stockholders to be held in 2002, and
a currently vacant director position that the Company expects will be
filled pursuant to election at the annual meeting of stockholders to
be held in 2002.
At each annual meeting of stockholders beginning with the 2000 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's two nominees named below, each of whom is
currently a director of the Company. Each nominee has consented to be named a
nominee in the proxy statement and to continue to serve as a director if
elected. If any nominee becomes unable or declines to serve as a director or if
additional persons are nominated at the meeting, the proxy holders intend to
vote all proxies received by them in such a manner as will assure the election
of as many of the nominees listed below as possible (or, if new nominees have
been designated by the Board of Directors, in such a manner as to elect such
nominees), and the specific nominees to be voted for will be determined by the
proxy holders.
The Company is not aware of any reason that any nominee will be unable or
will decline to serve as a director. The term of office of each person elected
as a director will continue until the Company's Annual Meeting of Stockholders
held in 2003 or until a successor has been elected and qualified. There are no
arrangements or understandings between any director or executive officer and any
other person pursuant to which he is or was to be selected as a director or
officer of the Company.
The following table sets forth for each Class I Director, each Class II
Director, each Class III Director and the executive officers of the Company,
their ages and present positions with the Company as of the Record Date.
5
<PAGE> 8
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Larry M. Augustin 38 President, Chief Executive Officer and Class I Director
Robert Russo 55 General Manager and Senior Vice President, Worldwide Field Operations
Brian D. Biles 42 Vice President, Business Development
William G. Cobert 47 Managing Director, European Field Operations
John T. Hall 28 Vice President, Strategic Planning
Ali Jenab 37 General Manager and Senior Vice President, Systems Division
McKinley Littlejohn 54 Vice President, Human Resources
Greg Orzech 43 Vice President, North American Sales
Paul Papageorge 40 Vice President, Marketing
Todd B. Schull 42 Vice President, Finance and Chief Financial Officer
Daniel R. Shore 36 Vice President, Operations
Bruce Twickler(1) 54 President, Open Source Development Network (OSDN)
Gregg E. Zehr 47 Vice President, Engineering
Leonard N. Zubkoff 42 Chief Technical Officer
Jeffry R. Allen(2) 48 Class III Director
Carol A. Bartz(3) 52 Class III Director
Douglas Leone(3) 43 Class I Director
Eric S. Raymond 42 Class II Director
Carl Redfield(2) 53 Class II Director
</TABLE>
----------
(1) Mr. Twickler has resigned his employment with the Company, effective
October 31, 2000. The Company has entered into a severance agreement with
Mr. Twickler. See "Executive Compensation--Change in Control and Severance
Agreements."
(2) Member of the audit committee.
(3) Member of the compensation committee.
There is no family relationship between any director or executive officer
of the Company.
Larry M. Augustin, one of the Company's founders, has served as our
President and Chief Executive Officer and as a member of our Board of Directors
since March 1995. From September 1989 through December 1995, Mr. Augustin was a
consultant for Fintronic USA, Inc., a provider of high performance electronic
design automation tools, and was a research associate at Stanford University.
Mr. Augustin is a director of Linux International, a Linux vendor and advocacy
association.
Robert Russo has served as the Company's General Manager and Senior Vice
President, Worldwide Field Operations since October 1999. He was senior vice
president, worldwide field operations at Synopsys, Inc., from February 1993
through October 1999.
Brian D. Biles has served as the Company's Vice President, Business
Development since June 2000. He was our Vice President, Marketing from March
1999 through June 2000 and a consultant to various companies from June 1998 to
March 1999. Prior to that, Mr. Biles was director of marketing, enterprise
network products group at Sun Microsystems, where he worked from September 1987
to April 1998.
William G. Cobert has served as the Company's Managing Director, European
Field Operations since December 1999. From July 1997 through November 1999, Mr.
Cobert was regional director, Southern-Europe for Silicon Graphics, Inc. From
January 1996 through June 1997, Mr. Cobert was Silicon Graphic's country
manager, the Netherlands. From May 1995 through December 1995, Mr. Cobert was
Silicon Graphic's marketing director, multi-country region, Switzerland. From
May 1989 through May 1995, Mr. Cobert was Silicon Graphic's country manager,
Belgium.
John T. Hall has served as the Company's Vice President, Strategic Planning
since June 2000. He was our Vice President, Support and Professional Services
from August 1998 through June 2000 and our Vice President, Finance from August
1997 through August 1998. Prior to that, Mr. Hall was chief executive officer
and a founder of Stanford Student Enterprises, a student-managed company that
provides campus
6
<PAGE> 9
services through its subsidiaries, from January 1996 through June 1997. From May
1995 to June 1997, Mr. Hall was the head counselor at the Bridge, a suicide
prevention and counseling center in Palo Alto, California.
Ali Jenab has served as the Company's Senior Vice President and General
Manager, Systems Division since August 2000. From 1983 through August 2000, Mr.
Jenab held various positions at Amdahl Corporation, a provider of high-end
integrated computing solutions. From October 1999 through August 2000, he was
group president of Amdahl's technology division. From October 1998 through
October 1999, Mr. Jenab was Amdahl's vice president of strategic business, and
from January 1997 through October 1998, Mr. Jenab was vice president of
worldwide marketing. From July 1995 through January 1997, Mr. Jenab was director
of marketing at Amdahl.
McKinley Littlejohn has served as the Company's Vice President, Human
Resources since August 2000. From April 1996 through August 2000, Mr. Littlejohn
was senior vice president, human resources and administrative services for
WorldSpace Corporation, a provider of digital satellite communication. Mr.
Littlejohn was vice president, human resources for Metcalf & Eddy, Inc., an
environmental consulting engineering company, from March 1994 through April
1996.
Greg Orzech has served as the Company's Vice President, North American
Sales since July 2000, and as Director, Strategic Planning from November 1999
through June 2000. From August 1999 through November 1999, Mr. Orzech was vice
president, worldwide territories for Synopsis, Inc. From October 1998 through
August 1999, Mr. Orzech was Synopsis's senior director, central area, and from
October 1997 through October 1998, Mr. Orzech was director, northern area. From
October 1995 through October 1997, Mr. Orzech was Synopsis's region manager,
central region.
Paul Papageorge has served as the Company's Vice President, Marketing since
June 2000. From September 1999 through June 2000, Mr. Papageorge was our Vice
President, Corporate Marketing. Mr. Papageorge was vice president, Europe at
USWeb/CKS from September 1996 through September 1999. From June 1984 through
August 1996, Mr. Papageorge was worldwide senior manager, consumer marketing at
Apple Computer.
Todd B. Schull has served as the Company's Vice President, Finance and
Chief Financial Officer since June 1999. He was vice president and chief
financial officer at Repeater Technologies, Inc., a wireless infrastructure
company, from January 1997 through May 1999. From December 1987 through December
1996, Mr. Schull held various positions at Solectron Corporation, most recently
vice president of finance, North America and corporate controller.
Daniel R. Shore has served as the Company's Vice President, Operations
since November 1998. He was director of operations, digital video group at
Philips Consumer Electronics from November 1997 through October 1998. Mr. Shore
held various positions, including business unit general manager and product
marketing manager for the AccuTouch and TouchMonitor business unit, at Elo
TouchSystems, Inc., a supplier of touch screen computers, from June 1990 through
November 1997.
Bruce Twickler has served as the Company's President, OSDN since June 2000.
From 1992 through June 7, 2000, the closing date of the Company's acquisition of
Andover.Net, Mr. Twickler was a member of the Andover.Net board of directors, as
well as its president and chief executive officer.
Gregg E. Zehr has served as the Company's Vice President, Engineering since
December 1998. He was a founder and executive vice president, engineering at
Ridge Technologies, a provider of external RAID storage for NT servers, from
July 1997 to May 1998. Mr. Zehr was director, desktop hardware engineering, then
vice president, PowerBook engineering at Apple Computer, Inc. from October 1988
to July 1997.
Leonard N. Zubkoff has served as the Company's Chief Technical Officer
since July 1998. He was a member of the principal technical staff at Oracle
Corporation from December 1993 to June 1998.
Jeffry R. Allen has served on the Company's Board of Directors since
October 1998. He has been with
7
<PAGE> 10
Network Appliance, Inc., since December 1996, where he currently serves as
executive vice president, finance and operations, chief financial officer and
secretary. Prior to December 1996, Mr. Allen served in various capacities,
including senior vice president of operations and vice president and controller
of Bay Networks, Inc., a networking company, from October 1994 to December 1996.
Carol A. Bartz has served on the Company's Board of Directors since
September 1999. She has served as chief executive officer and chairman of the
board of Autodesk Inc. since May 1992. Ms. Bartz served as President of Autodesk
from May 1992 through September 1996, and from June 1999 to the present. Ms.
Bartz is a director of Network Appliance, Inc., BEA Systems, Inc., Cadence
Design Systems, Inc., and Cisco Systems, Inc.
Douglas Leone has served on the Company's Board of Directors since October
1998. He has been at Sequoia Capital, a venture capital firm, since July 1988
and has been a general partner since 1993. He is a member of the board of
directors of Scient Corporation and several other private corporations.
Eric S. Raymond has served on the Company's Board of Directors since
October 1998. He has served as technical director at Chester County InterLink, a
nonprofit Internet service provider, since September 1993. Mr. Raymond is also
the president of the Open Source Initiative, author of seminal papers on
software development, and a theorist and spokesperson for the Open Source
community.
Carl Redfield has served on the Company's Board of Directors since October
1998. He has served as senior vice president, manufacturing and logistics of
Cisco Systems, Inc. since February 1997. From September 1993 through February
1997, Mr. Redfield was vice president of manufacturing of Cisco Systems. Mr.
Redfield serves on the boards of CTC Communications, Inc. and iBASIS Inc., both
of which are competitive local exchange carriers.
DIRECTOR COMPENSATION
The Company reimburses its directors who are not officers or employees for
expenses incurred in attending any Board of Directors or committee meeting.
Directors who are also the Company's officers or employees are not reimbursed
for expenses incurred in attending Board of Directors or committee meetings.
The Company's non-employee directors are eligible to participate in the
Company's 1999 Director Option Plan. Each non-employee director who joins the
Company's Board of Directors following December 9, 1999 will automatically
receive a grant of an option to purchase 40,000 shares of the Company's common
stock on the date on which such person becomes a director. The shares subject to
the options granted to non-employee directors will vest over a four year period
following the date of grant with 1/4 vesting one year from the date of grant and
1/48 vesting each month thereafter. Additionally, beginning at the Company's
annual meeting of stockholders to be held in December 2000 and at each
successive annual stockholder meeting, each non-employee director who has
previously served at least six consecutive months prior thereto (including the
Company's current non-employee directors) will receive an option to purchase
16,000 shares of the Company's common stock. The shares subject to the options
granted to non-employee directors will vest over a four year period following
the date of grant with 1/4 vesting one year from the date of grant and 1/4
vesting each year thereafter. The vesting of these options will automatically
accelerate upon a change of control of the Company. The exercise price per share
for all options automatically granted to directors under the Company's 1999
Director Option Plan will be equal to the market price of the Company's common
stock on the date of grant and will have a ten year term, but will generally
terminate within a specified time, as defined in the 1999 Director Option Plan,
following the date the option holder ceases to be a director or consultant.
Employee directors who meet the eligibility requirements may participate
in the Company's 1999 Employee Stock Purchase Plan and receive discretionary
grants under the Company's 1998 Stock Plan.
The Company has renewed its directors and officers indemnification
insurance coverage. This insurance covers directors and officers individually.
These policies run from December 10, 1999, through December 10, 2001, at a total
cost of $857,287.30. The primary carrier is National Union Fire Insurance
Company.
8
<PAGE> 11
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 13 meetings during
the fiscal year ended July 28, 2000. No director serving throughout fiscal year
2000 attended fewer than 75% of the aggregate of all meetings of the Board of
Directors and the committees of the Board upon which such director served. Mr.
Augustin attended all meetings of the Board of Directors. Mr. Leone attended at
least 92% of the aggregate of all meetings of the Board of Directors and the
committees of the Board upon which Mr. Leone served. The Board of Directors has
two standing committees: the Audit Committee and the Compensation Committee. The
Board of Directors does not have a standing Nominating Committee.
The Audit Committee consists of Messrs. Allen and Redfield. The Audit
Committee reviews the Company's internal accounting procedures, consults with
and reviews the services provided by the Company's independent accountants and
makes recommendations to the Board of Directors regarding the selection of
independent accountants. The Audit Committee held three meetings during fiscal
2000. The Compensation Committee consists of Ms. Bartz and Mr. Leone. The
Compensation Committee reviews and recommends to the Board of Directors the
salaries, incentive compensation and benefits of the Company's officers and
employees and administers the Company's stock plans and employee benefit plans.
The Compensation Committee did not meet independently of the Board of Directors
during fiscal 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors established the Compensation Committee in
October 1999. Prior to establishing the Compensation Committee, the Company's
Board of Directors as a whole performed the functions delegated to the
Compensation Committee. Ms. Bartz, a member of the Company's Compensation
Committee, serves as a member of the board of directors and compensation
committee of Network Appliance, Inc., of which Mr. Allen is an executive
officer. No other member of the Company's Compensation Committee has served 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. Since the formation of the Company's
Compensation Committee, none of its members has been its officer or employee.
VOTE REQUIRED
Directors will be elected by a plurality vote of the shares of the
Company's Common Stock present or represented and entitled to vote on this
matter at the meeting. Accordingly, the two candidates receiving the highest
number of affirmative votes of shares represented and voting on this proposal at
the meeting will be elected directors of the Company. Votes withheld from a
nominee and broker non-votes will be counted for purposes of determining the
presence or absence of a quorum but, because directors are elected by a
plurality vote, will have no impact once a quorum is present. See "Quorum;
Abstentions; Broker Non-Votes."
THE CLASS II AND III DIRECTORS
RECOMMEND THAT STOCKHOLDERS VOTE
FOR THE CLASS I NOMINEES LISTED ABOVE.
9
<PAGE> 12
----------
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE FISCAL YEAR ENDING JULY 27, 2001
The Board of Directors has selected Arthur Andersen LLP, independent public
accountants, to audit the financial statements of the Company for the fiscal
year ending July 27, 2001, and recommends that stockholders vote for
ratification of such appointment. Although action by stockholders is not
required by law, the Board of Directors has determined that it is desirable to
request approval of this selection by the stockholders. Notwithstanding the
selection or a ratification, the Board of Directors, in its discretion, may
direct the appointment of new independent public accountants at any time during
the year, if the Board of Directors determines that such a change would be in
the best interest of the Company and its stockholders. In the event of a
negative vote or ratification, the Board of Directors will reconsider its
selection.
Arthur Andersen LLP has audited the Company's financial statements since
the fiscal year ended July 31, 1997. Representatives of Arthur Andersen LLP are
expected to be present at the meeting and will be afforded the opportunity to
make a statement if they desire to do so. The representatives of Arthur Andersen
LLP are also expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING JULY 27, 2001.
----------
10
<PAGE> 13
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued during
fiscal years 2000, 1999 and 1998 to the Company's President and Chief Executive
Officer, and each of the Company's four other most highly compensated executive
officers whose annual compensation exceeded $100,000 for fiscal year 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
FISCAL ------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ------ -------- -------- --------- ------------
<S> <C> <C>
Larry M. Augustin.................... 2000 $148,114 -- -- --
President and Chief 1999 $ 96,133 $ 6,199 1,155,000 $13,294(1)
Executive Officer 1998 $ 62,000 -- -- --
Gregg E. Zehr........................ 2000 $177,884 $ 19,751 -- --
Vice President, 1999 $116,667 $ 31,250 665,910 --
Engineering 1998 -- -- -- --
Todd B. Schull....................... 2000 $176,538 $ 1,000 50,000 --
Vice President, Finance and 1999 30,538 -- 499,434 --
Chief Financial Officer 1998 -- -- -- --
Bruce Twickler....................... 2000 $156,667(2) $ 37,700(2) 42,500(3) --
President, OSDN 1999 $114,000(2) $6,000(2) 62,798(3) --
1998 $108,000(2) -- -- --
Robert Russo......................... 2000 $124,516 $115,000 950,000 --
GM & Sr. VP Worldwide 1999 -- -- -- --
Field Operations 1998 -- -- -- --
</TABLE>
-----------
(1) In fiscal 1999, VA Linux forgave a loan in the principal amount of $13,294
to Mr. Augustin.
(2) Mr. Twickler's salary and bonus for fiscal years 1998, 1999 and 2000 were
set by Andover.Net, Inc. prior to the June 7, 2000 closing of the
Andover.Net, Inc. acquisition.
(3) Upon the June 7, 2000 closing of the Andover.Net, Inc. acquisition, the
Company assumed these stock options, which were granted to Mr. Twickler
under Andover.Net, Inc.'s 1995 and 1999 Stock Option Plans. These shares
reflect the conversion ratio of such acquisition.
The following table sets forth information concerning grants of stock
options to each of the executive officers named in the Company compensation
table above during fiscal year 2000. With the exception of Mr. Twickler, all
options granted to these executive officers in the last fiscal year were granted
under the Company's 1998 Stock Plan. With the exception of the shares subject to
the options granted to Mr. Russo, 1/48 of which vest each month from the date of
grant, one-quarter of the shares subject to each option vest and become
exercisable on the first anniversary of the date of grant, and an additional
1/48 of the shares subject to each option vest each month thereafter. The
percent of the total options set forth below is based on an aggregate of
5,465,563 options granted to employees during fiscal year 2000. All options were
granted at the then fair market value as determined by the Company's Board of
Directors on the date of grant.
Potential realizable value represents hypothetical gains that could be
achieved for the options if exercised at the end of the option term assuming
that the fair market value of the common stock on the date of grant appreciates
at 5% and 10% over the option term (ten years) and that the option is exercised
and sold on the last day of its option term for the appreciated stock price. The
assumed 5% and 10% rates of
11
<PAGE> 14
stock price appreciation are provided in accordance with rules of the Securities
and Exchange Commission and do not represent the Company's estimate or
projection of the Company's future common stock price. The calculation includes
the difference, if any, between the fair market value on the date of grant and
the exercise price for such options. Actual gains, if any, on stock option
exercises will depend on the future performance of the Company's common stock.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OPTIONS ANNUAL RATES OF STOCK
OF GRANTED TO STOCK APPRECIATION
SECURITIES EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS DURING PRICE EXPIRATION ------------------------
NAME GRANTED PERIOD PER SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Larry W. Augustin ........... -- -- -- -- -- --
Gregg E. Zehr................ -- -- -- -- -- --
Todd B. Schull............... 50,000 0.91% $12.00 12/1/2009 $ 377,337 $ 956,245
Bruce Twickler............... 42,500 0.78% $39.12 6/2/2010 $1,041,717 $2,643,516
Robert Russo (1)............. 950,000 17.38% $ 6.00 10/27/2009 $3,584,699 $9,084,332
</TABLE>
----------
(1) These options are subject to a change of control provision. One-fourth of
the shares originally granted vest and become immediately exercisable upon
the occurrence of both a change of control and involuntary termination of
Mr. Russo's service with the Company within six months of the change of
control.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises in
fiscal 2000 and exercisable and unexercisable stock options held by the
Company's executive officers named in the summary compensation table at July 28,
2000. The value of unexercised in-the-money options is based on a value of
$31.125 per share, the fair market value of the Company's common stock as of
July 28, 2000, less the actual per share exercise prices, multiplied by the
number of shares underlying the option. With the exception of Mr. Twickler,
whose options were granted under Andover.Net, Inc.'s 1995 and 1999 Stock Option
Plans, all options were granted under the Company's 1998 Stock Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
UNDER THE COMPANY'S 1998 STOCK PLAN
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JULY 28, 2000 AT JULY 28, 2000
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry W. Augustin......... -- -- 1,155,000 -- $35,949,375 --
Gregg E. Zehr............. -- -- -- -- -- --
Todd B. Schull............ 124,859 $3,959,829 20,809 403,766 $ 637,276 $11,790,334
Bruce Twickler (2)........ -- -- -- -- -- --
Robert Russo.............. 138,548 $4,380,377 39,584 771,868 $ 994,548 $19,393,183
</TABLE>
----------
(1) Total value of vested options based on the fair market value of Company's
Common Stock of $31.125 per share as of July 28, 2000.
(2) Mr. Twickler did not become an executive officer of the Company until after
the June 7, 2000 closing of the Andover.Net, Inc. acquisition, and,
accordingly, has never received options under the Company's 1998 Stock
Plan, or its predecessors. The information under this table is inapplicable
to Mr. Twickler.
12
<PAGE> 15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
UNDER ANDOVER.NET, INC.'S 1995 STOCK PLAN AND 1999 STOCK PLAN
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JULY 28, 2000 AT JULY 28, 2000(1)
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry W. Augustin (2)..... -- -- -- -- -- --
Gregg E. Zehr (2)......... -- -- -- -- -- --
Todd B. Schull (2)........ -- -- -- -- -- --
Bruce Twickler............ -- -- 62,798 42,500 $1,950,908 --
Robert Russo (2).......... -- -- -- -- -- --
</TABLE>
----------
(1) Total value of vested options based on fair market value of Company's Common
Stock of $31.125 per share as of July 28, 2000.
(2) Messrs. Augustin, Zehr, Schull and Russo have been executive officers of the
Company, and, accordingly, have never received options under any
Andover.Net, Inc. stock option plan. The information under this table is
inapplicable to them.
CHANGE OF CONTROL AND SEVERANCE AGREEMENTS
In October 1998 the Company entered into stock option agreements, which
were exercised in April 1999 pursuant to restricted stock purchase agreements
under the Company's 1998 Stock Plan with each of Messrs. Hall and Zubkoff that
include change of control provisions. In addition, the Company granted Mr. Zehr
a stock option in February 1999, which he exercised in April 1999, which
included a change of control provision. Each of these foregoing agreements
provides that if the officer is terminated without cause or involuntarily
terminated upon a change of control, he will receive one year accelerated
vesting of all of his stock options (or an accelerated lapsing of the repurchase
right applicable to the common stock issued upon an early exercise of the
option). If the officer voluntarily resigns or is terminated for cause he is not
entitled to this acceleration.
In October 1998, the Company entered into a Founder's Stock Repurchase
Agreement with Mr. Augustin. Pursuant to this agreement, the Company has the
right to repurchase shares from Mr. Augustin that have not been released from
the Company's repurchase option. Sixty percent of Mr. Augustin's shares were
released from the repurchase option upon execution of the agreement; 1/24 of the
remaining shares are released each month starting in November 1998. This
agreement provides that if Mr. Augustin is terminated without cause or
involuntarily terminated, 50% of the remaining unreleased shares will be
released from the Company's repurchase right. If Mr. Augustin voluntarily
resigns, is terminated for cause or is terminated for any other reason, he is
not entitled to this accelerated release of shares.
In October 1998, the Company entered into an employment agreement with
Mr.Shore that provides that if he is involuntarily terminated for any reason, he
will receive a severance package equal to the higher of either one month's
salary for every year of service or three months' salary. In December 1998, the
Company entered into an employment agreement with Mr. Zehr that provides that if
he is involuntarily terminated for any reason, he will receive a severance
package equal to his salary for six months. In May 1999, the Company entered
into an agreement with Mr. Schull that provides that, if he is involuntarily
terminated for any reason, he will receive a severance package equal to the
higher of either one month's salary for every year of service or three
months' salary. The Company will pay these amounts on a salary continuation
basis with medical benefits coverage during the severance period.
In October 1999, the Company entered into an employment agreement with Mr.
Russo that provides that if he is involuntarily terminated, he will receive
three months' salary and three months' continued
13
<PAGE> 16
vesting of stock options. In addition, in the event of a change of control where
Mr. Russo's employment is terminated within six months of such change in
control, he will receive an additional twelve months' vesting of his original
option grant.
In August 2000, the Company entered into an employment agreement with Mr.
Jenab that provides that he will receive a loan in the amount of $400,000, with
the outstanding principal amount and accrued interest forgiven on a declining
basis each month over a two-year term. In the event that Mr. Jenab leaves the
Company prior to the expiration of such two-year term, the outstanding principal
and interest shall be due and payable, except that if Mr. Jenab is involuntarily
terminated for any reason, outstanding interest on the loan shall be forgiven.
In September 2000, the Company entered into a severance agreement with Mr.
Twickler, which provides that if Mr. Twickler's employment with the Company is
terminated for any reason he will receive a severance package equal to
approximately $148,000, plus accelerated vesting of approximately 5,300 of his
options to purchase the Company's Common Stock. Mr. Twickler has resigned his
employment with the Company, effective October 31, 2000.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The following is the report of the Compensation Committee of the Board of
Directors with respect to the compensation paid to the Company's executive
officers during the fiscal year ended July 28, 2000. Actual compensation earned
during fiscal 2000 by the named executive officers is shown in the Summary
Compensation Table above under "Executive Compensation."
INTRODUCTION
The Compensation Committee of the Board of Directors establishes the
general compensation policies of the Company, and establishes the compensation
plans and specific compensation levels for executive officers. The Committee
strives to ensure that the Company's executive compensation programs will enable
the Company to attract and retain key people and motivate them to achieve or
exceed certain key objectives of the Company by making individual compensation
directly dependent on the Company's achievement of certain financial goals, such
as profitability and asset management and by providing rewards for exceeding
those goals.
COMPENSATION PROGRAMS
Base Salary. The Committee establishes base salaries for executive
officers. Base pay increases vary according to individual contributions to the
Company's success and comparisons to similar positions within the Company and at
other comparable companies.
Bonuses. Each executive officer is evaluated individually to determine a
bonus for the fiscal year based on performance criteria given to each executive
officer prior to the fiscal year. These criteria include milestones in such
executive's area of responsibility as well as with respect to the Company's
financial performance generally.
Stock Options. The Committee believes that stock options provide additional
incentive to officers to work towards maximizing stockholder value. The
Committee views stock options as one of the more important components of the
Company's long-term, performance-based compensation philosophy. These options
are provided through initial grants at or near the date of hire and through
subsequent periodic grants. The Company generally grants options that become
exercisable over a four year period as a means of encouraging executives and
other employees to remain with the Company and to promote its success. Options
granted by the Company to its executive officers and other employees have
exercise prices equal to the fair market value at the time of grant. This
approach is designed to focus executives on the enhancement of stockholder value
over the long term and encourage equity ownership in the Company. Options vest
and
14
<PAGE> 17
become exercisable at such time as determined by the Board. The initial option
grant is designed to be competitive with those of comparable companies for the
level of the job that the executive holds and motivate the executive to make the
kind of decisions and implement strategies and programs that will contribute to
an increase in the Company's stock price over time. Periodic additional stock
options within the comparable range for the job are granted to reflect the
executives' ongoing contributions to the Company, to create an incentive to
remain at the Company and to provide a long-term incentive to achieve or exceed
the Company's financial goals.
Other. In addition to the foregoing, officers participate in compensation
plans available to all employees, such as participation in both the Company's
401(k) retirement plan and employee stock purchase plan. The Company does not
make matching contributions to either the 401(k) or employee stock purchase
plans.
COMPENSATION LIMITATIONS
The Company has considered the potential future effects of Section 162(m)
of the Internal Revenue Code on the compensation paid to the Company's executive
officers. Under Section 162(m) of the Internal Revenue Code, adopted in August
1993, and regulations adopted thereunder by the Internal Revenue Service,
publicly-held companies may be precluded from deducting certain compensation
paid to an executive officer in excess of $1.0 million in a year. The
regulations exclude from this limit performance-based compensation and stock
options provided certain requirements, such as stockholder approval, are
satisfied. The Company plans to take actions, as necessary, to ensure that its
stock option plans and executive annual cash bonus plans qualify for exclusion.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Larry M. Augustin, a founder of the Company, is the Chief Executive
Officer, President and a Director of the Company. The Committee's criteria for
determining Mr. Augustin's compensation are driven by several factors: the
competitive marketplace, the Company's position in the rapidly evolving
technology sector in which it operates, his relative ownership interest in the
Company and, most importantly, his performance.
The Committee believes that Mr. Augustin's performance throughout fiscal
year 2000 was outstanding. He continues to demonstrate highly effective
leadership and vision in a marketplace of unique complexity and rapid change.
During the last fiscal year, Mr. Augustin led the Company through its successful
initial public offering and presided over successive rapid increases in revenue
for each quarter following the offering, which resulted in improved financial
results in each quarter. However, given Mr. Augustin's significant stock
ownership of the Company, the Committee did not grant him a bonus or any
additional incentive stock options in fiscal 2000.
The terms of Mr. Augustin's restricted stock purchase agreement, including
provisions for acceleration of vesting, are described in the section entitled,
"Change of Control and Severance Agreements."
Respectfully Submitted By:
MEMBERS OF THE
COMPENSATION COMMITTEE
Carol A. Bartz
Douglas Leone
Dated: October 25, 2000
15
<PAGE> 18
PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative return to the stockholders of the Company's Common Stock with the
cumulative return of the Nasdaq Index and of the Chase Hambrecht & Quist ("Chase
H&Q") Technology Index for the period commencing December 9, 1999 and ending on
July 28, 2000. Returns for the indices are weighted based on market
capitalization at the beginning of each measurement point.
COMPARISON OF HISTORICAL CUMULATIVE TOTAL RETURN(*)
AMONG VA LINUX SYSTEMS, INC., NASDAQ COMPOSITE
INDEX AND CHASE H&Q TECHNOLOGY INDEX
[PERFORMANCE GRAPH]
(*) The graph assumes that $100 was invested on December 9, 1999, in the
Company's Common Stock, at the offering price of $30.00 per share, and
$100 was invested on November 30, 1999, in the Nasdaq Composite Index
and the Chase H&Q Technology Index, and that all dividends were
reinvested. The Company has not declared or paid any dividends on the
Company's Common Stock. Stockholder returns over the indicated period
should not be considered indicative of future stockholder returns.
CUMULATIVE TOTAL RETURN AT PERIOD ENDED
<TABLE>
<CAPTION>
12/9/99 1/31/00 4/30/00 7/31/00
<S> <C> <C> <C> <C>
VA Linux Systems, Inc. 100.00 384.17 138.75 103.75
NASDAQ Composite Index 100.00 117.48 115.14 112.64
Chase H&Q Technology Index 100.00 121.23 127.51 120.18
</TABLE>
The information contained above under the captions "Report of the
Compensation Committee of the Board of Directors" and "Performance Graph" shall
not be deemed to be soliciting material or to be filed with the Securities and
Exchange Commission, nor shall such information be incorporated by reference
into any future filing under the Securities Act of 1933, as amended, (the
"Securities Act") or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
16
<PAGE> 19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Such
officers, directors and ten-percent stockholders are also required by SEC rules
to furnish the Company with copies of all forms that they file pursuant to
Section 16(a). Based solely on its review of the copies of such forms received
by it, or written representations from certain reporting persons, the Company
believes that during fiscal 2000 all executive officers and directors of the
Company complied with all applicable filing requirements.
RELATED PARTY TRANSACTIONS
In the Company's last fiscal year, there has not been nor is there
currently proposed any transaction or series of similar transactions to which
the Company was or is to be a party in which the amount involved exceeds $60,000
and in which any director, executive officer, holder of more than 5% of the
Common Stock of the Company or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interest other
than (1) compensation agreements and other arrangements, which are described
where required in "Change of Control and Severance Agreements" and (2) the
transactions described below.
INVESTOR RIGHTS AGREEMENT
The Company has entered into an agreement with the former holders of the
Company's preferred stock, including entities affiliated with Sequoia Capital
VIII, Intel Corporation, Jeffry R. Allen, Carol A. Bartz, Carl Redfield, Eric S.
Raymond and Larry Augustin, pursuant to which former preferred stockholders will
have registration rights with respect to their shares of Common Stock. The
registration rights provide that if the Company proposes to register any
securities under the Securities Act, either for the Company's own account or for
the account of other security holders exercising registration rights, they are
entitled to notice of the registration and are entitled to include shares of
their Common Stock in the registration. This right is subject to conditions and
limitations, including the right of the underwriters in an offering to limit the
number of shares included in the registration. The holders of these shares may
also require the Company to file up to two registration statements under the
Securities Act at the Company's expense with respect to their shares of Common
Stock. The Company is required to use its best efforts to effect these
registrations, subject to conditions and limitations. Furthermore, the holders
of these shares may require the Company to file additional registration
statements on Form S-3, subject to conditions and limitations. These rights
terminate on the earlier of five years after the effective date of the Company's
December 9, 1999 initial public offering, the date on which all shares subject
to these registration rights have been sold to the public, or when a holder is
able to sell all its shares pursuant to Rule 144 under the Securities Act in any
90-day period.
Upon the completion of the Company's initial public offering, all shares of
the Company's outstanding preferred stock were automatically converted into an
equal number of shares of Common Stock. CMS Partners LLC, Sequoia International
Technology Partners VIII(Q), Sequoia Capital VIII, Sequoia International
Technology Partners VIII, Sequoia 1997, Sequoia Capital Franchise Fund and
Sequoia Capital Franchise Partners are affiliated entities and together are
considered a 5% stockholder. Mr. Leone, one of the Company's directors, is the
managing member of the general partner of Sequoia International Technology
Partners VIII(Q), Sequoia Capital VIII, Sequoia International Technology
Partners VIII, Sequoia Capital Franchise Fund and Sequoia Capital Franchise
Partners, and has signature authority for CMS Partners LLC and Sequoia 1997. Mr.
Leone disclaims beneficial ownership of the securities held by such entities,
except for his proportional interest in the entities. Mr. Augustin is the
Company's President, Chief Executive Officer, one of the Company's directors and
a 5% stockholder. The Company's director Ms. Bartz is the beneficial owner of
limited partnership interests of Sequoia International Technology Partners
VIII(Q) and Sequoia Franchise Partners. The Company's director Mr. Redfield is
the beneficial owner of limited partnership interests of Sequoia Franchise
Partners.
17
<PAGE> 20
STOCK OPTION GRANTS TO OFFICERS AND DIRECTORS
During fiscal 2000, with the exception of Mr. Twickler who received his
option grant listed below under the Andover.Net, Inc. 1999 Stock Option Plan
prior to the June 7, 2000 closing of the Andover.Net acquisition, the Company
granted the following options to purchase the Company's Common Stock to its
officers, directors and stockholders who beneficially own 5% or more of its
Common Stock.
<TABLE>
<CAPTION>
EXERCISE PRICE
NAME DATE OF GRANT OPTIONS PER SHARE
---- ------------- ------- --------------
<S> <C> <C> <C>
Robert Russo............... 10/27/1999 950,000 $ 6.00
Paul Papageorge............ 10/07/1999 140,000 $ 6.00
Greg Orzech................ 12/01/1999 50,000 $12.00
5/17/2000 40,000 $52.63
William G. Cobert.......... 12/03/1999 75,000 $29.00
Todd B. Schull............. 12/01/1999 50,000 $12.00
Brian D. Biles............. 12/01/1999 50,000 $12.00
Bruce Twickler............. 6/02/2000 42,500 $39.12
</TABLE>
INDEMNIFICATION, CHANGE OF CONTROL AND EMPLOYMENT AGREEMENTS
The Company has entered into indemnification agreements with each of its
directors and officers. Such indemnification agreements will require the Company
to indemnify its directors and officers to the fullest extent permitted by
Delaware law.
AGREEMENT WITH INTEL
The Company has entered into an agreement with Intel for the Company to
adapt the Linux operating system to work with Intel's series of next generation
microprocessors used in computers. The term of this agreement is until February
2002, and will be automatically renewed for additional one-year periods unless
terminated by either party.
The agreement contemplates the release of this adaptation under an open
source license no later than six months following the release by Intel of its
series of next generation microprocessors. The Company is also subject to a
restriction on Intel's underlying proprietary technology, under which the
Company would need Intel's written permission, which shall not be unreasonably
withheld, before making a modification to this adaptation for Intel's series of
next generation microprocessors on behalf of a third party during the term of
the agreement. Under the Company's agreement with Intel, the Company has also
granted Intel the right to purchase or license the Company's products, without
right to sublicense or distribute such products, at a price not to exceed the
lowest price the Company charges for such products. In addition, the Company has
agreed not to sue Intel for any patent rights relating to Intel's products as
long as Intel does not sue the Company for similar rights on the Company's
products, until the earlier of February 2004 or the date on which Intel ceases
to hold at least half of its current investment in the Company.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form Proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: October 25, 2000
18
<PAGE> 21
[VA LINUX SYSTEMS LOGO]
VA LINUX SYSTEMS,INC.
C/O PROXY SERVICES
P.O.BOX 9112
FARMINGDALE,NY 11735
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions. Have your proxy card in hand when you
call. You will be prompted to enter your 12-digit
Control Number which is located below and then
follow the simple instructions the Vote Voice
provides you.
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
instructions. Have your proxy card in hand when you
access the web site. You will be prompted to enter
your 12-digit Control Number which is located below
to vote your proxy.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in
the postage-paid envelope we have provided, or
return it to VA Linux Systems, Inc., c/o ADP, 51
Mercedes Way, Edgewood, NY 11717.
VOTE IN PERSON
Attend the Company's Annual Meeting of Stockholders
on December 6, 2000 at 9:00 a.m., local time, at the
Westin Hotel located at 5101 Great America
Parkway, Santa Clara, California, 95054, and vote in
person at the meeting.
<TABLE>
<S> <C>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: LINUX 1 KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
</TABLE>
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
VA LINUX SYSTEMS,INC.
VOTE ON DIRECTORS
<TABLE>
<S> <C> <C>
1. To elect two (2) Class I directors to serve for a For Withhold For All To withhold authority to vote,mark "For All Except"
three year term and until their successors are duly All All Except and write the nominee's number on the line below.
elected and qualified (Proposal One); [ ] [ ] [ ]
---------------------------------------------------
01) Larry M.Augustin
02) Douglas Leone
Vote On Proposal
2. To ratify the appointment of Arthur Andersen LLP as independent public For Against Abstain
accountants to the Company for the fiscal year ending July 27, 2001 (Proposal [ ] [ ] [ ]
Two); and
3. To transact such other business as may properly be brought before the meeting
and any adjournment(s) thereof.
</TABLE>
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice. Only stockholders of record at the close of business
on October 10, 2000 are entitled to notice of and to vote at the meeting.
Sincerely,
Judith M. O'Brien
Secretary
Fremont, California
October 25, 2000
---------------------------------- ------ ----------------------- -----
---------------------------------- ------ ----------------------- -----
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
<PAGE> 22
VA LINUX SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 6, 2000
YOUR VOTE IS IMPORTANT
THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES
BY THE COMPANY, ON BEHALF OF THE BOARD OF DIRECTORS, FOR THE 2000 ANNUAL MEETING
OF STOCKHOLDERS. THE PROXY STATEMENT AND THE RELATED PROXY FORM ARE BEING
DISTRIBUTED ON OR ABOUT NOVEMBER 6, 2000. YOU CAN VOTE YOUR SHARES USING ONE OF
THE FOLLOWING METHODS:
O VOTE THROUGH THE INTERNET AT THE WEBSITE SHOWN ON THE PROXY CARD
O VOTE BY TELEPHONE USING THE TOLL-FREE NUMBER SHOWN ON THE PROXY CARD
O COMPLETE AND RETURN A WRITTEN PROXY CARD
O ATTEND THE COMPANY'S 2000 ANNUAL MEETING OF STOCKHOLDERS AND VOTE
VOTES SUBMITTED THROUGH THE INTERNET OR BY TELEPHONE MUST BE RECEIVED BY 4:00
P.M., EASTERN TIME, ON DECEMBER 5, 2000. INTERNET AND TELEPHONE VOTING ARE
AVAILABLE 24 HOURS PER DAY; IF YOU VOTE VIA THE INTERNET OR TELEPHONE, YOU DO
NOT NEED TO RETURN A PROXY CARD.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING, HOWEVER, TO ENSURE
YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE VIA THE INTERNET OR
TELEPHONE, OR MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY
STOCKHOLDER ATTENDING THE MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE HAS VOTED
VIA THE INTERNET OR TELEPHONE, OR RETURNED A PROXY CARD.
================================================================================
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 6, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of VA Linux
Systems, Inc. (the "Company"), a Delaware corporation, will be held on
Wednesday, December 6, 2000 at 9:00 a.m., local time, at the Westin Hotel
located at 5101 Great America Parkway, Santa Clara, California, 95054, for the
purposes stated on the reverse side of this proxy card.
The signatory on the reverse side of this proxy card (the "Signatory"), revoking
all prior proxies,hereby appoints Larry M. Augustin and Todd B. Schull, and each
of them, as proxies and attorneys-in-fact, with full power of substitution, to
represent and vote on the matters set forth in this proxy any and all shares of
the common stock of the Company held or owned by or standing in the name of the
Signatory on the Company's books that the Signatory would be entitled to vote at
the Annual Meeting of Stockholders of the Company to be held on December 6,
2000, at 9:00 a.m. local time at the Westin Hotel located at 5101 Great America
Parkway, Santa Clara, California 95054 and any continuation or adjournment
thereof, with all powers the Signatory would possess if personally present at
the meeting.
The Signatory hereby directs and authorizes said Proxies and each of them, or
their substitute or substitutes, to vote as specified with respect to the
proposals listed on the reverse side of this proxy card, or, if no specification
is made, to vote in favor thereof. The Signatory hereby further confers upon
said Proxies, and each of them, or their substitute or substitutes,
discretionary authority to vote with respect to all other matters that may
properly come before the meeting or any continuation or adjournment thereof.
The Signatory hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders, Proxy Statement and Annual Report.
