<PAGE> 1
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the 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
Auspex 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
AUSPEX SYSTEMS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 18, 1999
TO THE STOCKHOLDERS OF AUSPEX SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of AUSPEX SYSTEMS, INC., a Delaware corporation (the "Company"), will
be held at 9:00 a.m., local time, on Thursday, November 18, 1999, at the
Company's headquarters, 2300 Central Expressway, Santa Clara, California 95050,
for the following purposes:
1. To elect one (1) Class II director of the Company to serve for a
two-year term.
2. To approve an amendment to the Company's 1993 Employee Stock
Purchase Plan to increase the shares reserved for issuance thereunder by
800,000 shares.
3. To approve an amendment to the Company's 1997 Stock Plan to
increase the shares reserved for issuance thereunder by 500,000 shares.
4. To ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending June 30, 2000.
5. To transact such other business as may come properly before the
meeting or any postponements or adjournments 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 1, 1999 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person; however, to ensure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the postage prepaid envelope enclosed for that purpose. YOU MAY REVOKE YOUR
PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME
BEFORE IT HAS BEEN VOTED AT THE ANNUAL MEETING. ANY STOCKHOLDER ATTENDING THE
ANNUAL MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY.
By Order of the Board of Directors,
/s/ HENRY P. MASSEY, JR.
Henry P. Massey, Jr.
Secretary
Santa Clara, California
October 8, 1999
<PAGE> 3
AUSPEX SYSTEMS, INC.
------------------------
PROXY STATEMENT FOR THE
1999 ANNUAL MEETING OF STOCKHOLDERS
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
AUSPEX SYSTEMS, INC., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held on Thursday,
November 18, 1999 at 9:00 a.m., local time, or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at the
Company's headquarters at 2300 Central Expressway, Santa Clara, California
95050. The telephone number at that location is (408) 566-2000. When proxies are
properly dated, executed and returned, the shares they represent 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 one (1) Class II nominee for director set forth herein; (ii) the
amendment to the 1993 Employee Stock Purchase Plan increasing the number of
shares of Common Stock reserved for issuance thereunder by 800,000 shares to a
total of 2,100,000 shares; (iii) the amendment to the 1997 Stock Plan increasing
the number of shares of Common Stock reserved for issuance thereunder by 500,000
shares to a total of 1,750,000 shares; (iv) the ratification of the appointment
of Arthur Andersen LLP as independent auditors; and (v) at the discretion of the
proxy holders, upon such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
These proxy solicitation materials and the Annual Report to Stockholders
for the fiscal year ended June 30, 1999, including financial statements, were
first mailed on or about October 11, 1999, to all stockholders entitled to vote
at the meeting.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on October 1, 1999 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 27,472,620 shares of the Company's Common Stock, $.001 par
value, were issued and outstanding. 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 it is voted. Proxies may be revoked by: (i) filing
with the Secretary of the Company at or before the taking of the vote at the
Annual Meeting a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting, or (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be delivered to the principal executive offices of the
Company at Auspex Systems, Inc., 2300 Central Expressway, Santa Clara,
California 95050, Attention: Secretary, or hand-delivered to the Secretary of
the Company at or before the taking of the vote at the Annual Meeting.
VOTING AND SOLICITATION
On all matters, each share has one vote.
The cost of soliciting proxies will be borne by the Company. The Company
has retained Corporate Investor Communications, a proxy solicitation firm, to
assist in its solicitation of proxies from brokers,
<PAGE> 4
nominees, institutions and individuals and estimates that such service will cost
approximately $7,500. Arrangements will be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such custodians, nominees and fiduciaries. The
Company will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in connection therewith. In addition, proxies may be solicited
by directors, officers and employees of the Company in person or by telephone,
telegram or other means of communication. No additional compensation will be
paid for such services.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR",
"AGAINST", or "WITHHELD FROM" on a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both: (i) the presence or absence
of a quorum for the transaction of business, and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
In a 1989 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that, while broker non-votes should be counted for the purpose of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for the purpose of determining the number
of Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Accordingly, the Company intends to treat broker non-votes
in this manner. Thus, a broker non-vote will not affect the outcome of the
voting on a proposal.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
The Company currently intends to hold its 2000 Annual Meeting of
Stockholders in November 2000 and to mail proxy statements relating to such
meeting in October 2000. Stockholders are entitled to present proposals for
action at a forthcoming meeting if they comply with the requirements set forth
in the Company's Bylaws and in the proxy rules promulgated by the Securities and
Exchange Commission ("SEC"). The date by which stockholder proposals must be
received by the Company for inclusion in the Company's proxy statement and form
of proxy for its 2000 Annual Meeting of Stockholders is June 12, 2000. Such
stockholder proposals should be submitted to Auspex Systems, Inc., 2300 Central
Expressway, Santa Clara, California 95050, Attention: Secretary.
The Company's Bylaws provide that only persons nominated by or at the
direction of the Board of Directors or by a stockholder who has given timely
written notice to the Secretary of the Company prior to the meeting will be
eligible for election as directors and that, at an annual meeting, only such
business may be conducted as has been brought before the meeting by or at the
direction of the Board of Directors or by a stockholder who has given timely
written notice to the Secretary of the Company. In all cases, to be timely,
notice must be received by the Company by August 27, 2000, which date is prior
to forty five (45) days prior to the prior year's mailing date of the proxy
materials. In the notice, the stockholder must provide his address and the class
and number of shares of the Company that are held by the stockholder. In
addition, if the stockholder proposes to make a nomination or nominations to the
Board of Directors, the stockholder must provide (i) as to each person whom the
stockholder proposes to nominate for election as a director (A) the name, age,
business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the Company that are beneficially owned by such person, (D) any other
information relating to such person that is required by law to be disclosed in
solicitations of proxies for election of directors, and (E) such person's
written consent to being named as a
2
<PAGE> 5
nominee and to serving as a director if elected; and (ii) as to the stockholder
giving notice (A) the name and address, as they appear on the Company's books,
of such stockholder, (B) the class and number of shares of the Company that are
beneficially owned by such stockholder, and (C) a description of all
arrangements or understandings between the stockholder making the nomination and
each nominee and any other person or persons (naming such person or persons)
relating to the nomination. With respect to each item of business other than a
nomination to the Board of Directors that a stockholder proposes to bring before
a meeting, the stockholder must provide (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and address of the
stockholder proposing such business, (iii) the class and number of shares of the
Company that are beneficially owned by the stockholder, (iv) any material
interest of the stockholder in such business, and (v) any other information that
is required by law to be provided by the stockholder in his capacity as
proponent of a stockholder proposal.
PROPOSAL NO. 1
ELECTION OF DIRECTOR
NOMINEES
Pursuant to the Company's Restated Certificate of Incorporation, the Board
of Directors is divided into two classes. The directors are elected to serve
staggered two-year terms, such that the term of one class of directors expires
each year. The Company currently has three directors divided among the two
classes as follows: Class I -- W. Frank King and Bruce N. Moore; and Class II
- -- R. Stephen Cheheyl. One (1) Class II director has been nominated for election
at the Annual Meeting for a two-year term ending at the 2001 Annual Meeting of
Stockholders and until such director's successor is elected.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Class II nominee named below. In the event that such
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for a nominee who shall be designated by the
present Board of Directors to fill the vacancy. In the event that additional
persons are nominated for election as director, the proxy holders intend to vote
all proxies received by them in such a manner as will assure the election of the
nominee listed below, and, in such event, the specific nominee to be voted for
will be determined by the proxy holders. The Company is not aware that the
nominee will be unable or will decline to serve as a director. The director
elected at this Annual Meeting will serve until the term of such director's
class expires and until such director's successor has been duly elected and
qualified. The Board of Directors will consider the names and qualifications of
candidates for the Board of Directors submitted by stockholders in accordance
with the procedures set forth in "Stockholder Proposals for Next Annual Meeting"
above.
3
<PAGE> 6
VOTE REQUIRED
The one (1) nominee in Class II receiving the highest number of affirmative
votes of the shares entitled to be voted shall be elected to the Board of
Directors. Votes withheld from any nominee will have no legal effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE NOMINEE
LISTED BELOW.
The names of the directors, certain information about them and their ages
as of October 1, 1999 are set forth below:
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME OF DIRECTOR AGE POSITION(S) WITH THE COMPANY SINCE EXPIRES CLASS
---------------- --- ---------------------------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
NOMINEE FOR CLASS II DIRECTOR
R. Stephen Cheheyl................... 53 Director 1995 2001 II
CLASS I DIRECTORS WHOSE TERMS
CONTINUE
W. Frank King........................ 59 Director 1994 2000 I
Bruce N. Moore....................... 48 Chief Executive Officer, President 1995 2000 I
and Director
</TABLE>
Nominee for Class II Director:
Mr. R. Stephen Cheheyl has served as a Director of the Company since April
1995. Since he retired in December 1995, Mr. Cheheyl has been a private investor
and independent consultant. From October 1994 until then, Mr. Cheheyl served as
an Executive Vice President of Bay Networks, Inc., which was formed through the
merger of Wellfleet Communications, Inc. ("Wellfleet") and Synoptics
Communications Inc. From December 1990 to October 1994, Mr. Cheheyl served as
Senior Vice President of Finance and Administration at Wellfleet. He also serves
as a director of MCMS, Inc. and Sapient Corporation.
Directors Whose Term Continues:
Dr. W. Frank King has served as a Director of the Company since October
1994. Dr. King has been a private investor since October 1998. Prior to that
time, from October 1992 through October 1998, Dr. King served as President,
Chief Executive Officer and a Director of PSW Technologies, Inc., a software
services firm that provides high value solutions to technology vendors and
business end-users by mastering and applying critical emerging technologies.
From 1992 to October 1996, Dr. King served as President of Pencom Software, a
division of Pencom Systems, Inc. From 1988 to 1992, Dr. King was Senior Vice
President of the Software Business group of Lotus, a software publishing
company. Prior to joining Lotus, Dr. King was with IBM, a technology company,
for 19 years, where his last position was Vice President of Development for the
Personal Computing Division. Dr. King earned a doctorate in electrical
engineering from Princeton University, a master's degree in electrical
engineering from Stanford University and a bachelor's degree in electrical
engineering from the University of Florida. He also serves on the boards of
directors of Best Software, Inc., Excalibur Technologies Corporation, PSW
Technologies, Inc., Cortelco Systems, Inc. and Natural Microsystems, Inc.
Mr. Bruce N. Moore joined the Company in June 1995 as President, Chief
Operating Officer and a member of the Board of Directors. In January 1996, Mr.
Moore assumed the additional role of Chief Executive Officer and relinquished
the role of Chief Operating Officer. Mr. Moore joined the Company from Diasonics
Ultrasound, Inc., a provider of diagnostic ultrasound equipment, where he held
the positions of President and Chief Executive Officer from December 1993 to
December 1994. His eleven-year career at Diasonics included various senior
management positions in marketing and business development. Mr. Moore started
his career as a sales representative in IBM's Data Processing Division in 1976.
There are no family relationships among any of the Directors or nominees
for Director.
4
<PAGE> 7
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of eight (8) meetings
during the fiscal year ended June 30, 1999 and acted four (4) times by unanimous
written consent. All directors attended 100% of the sum of the total number of
meetings of the Board of Directors and committees thereof on which they served,
held during the fiscal year or such shorter period as the director may have
served as a director, except that Mr. David Marquardt, who resigned effective as
of October 1998, attended fewer than 75% of the sum of the total number of
meetings of the Board of Directors and committees thereof on which he served.
The Board of Directors has an Audit Committee, a Compensation Committee and a
Stock Option Committee. The Board of Directors does not have a nominating
committee or any committee performing similar functions.
The Audit Committee, which consists of Dr. W. Frank King and Mr. R. Stephen
Cheheyl, held two (2) meetings during the fiscal year. This committee is
primarily responsible for approving the services performed by the Company's
independent auditors and for reviewing and evaluating the Company's accounting
principles and its system of internal accounting controls.
The Compensation Committee, which consists of Dr. W. Frank King and Mr. R.
Stephen Cheheyl, held a total of four (4) meetings during the fiscal year. This
committee reviews and approves the Company's executive compensation policies and
approves all stock option grants to executive officers, stock option grants over
10,000 shares to new employees and all subsequent stock option grants to
existing employees.
The Stock Option Committee, which consists of Mr. Bruce N. Moore, acted on
ten occasions during the fiscal year. This committee is primarily responsible
for approving all stock option grants of 10,000 shares or fewer to newly-hired
employees (other than executive officers).
BOARD OF DIRECTORS COMPENSATION
As of May 3, 1999, compensation for directors who are not employees of the
Company was increased to the rate of $25,000 per annum, which reflects
additional efforts expended by these directors due to an increase in duties
applicable to such directors, to be paid in installments on a quarterly basis
and an additional $6,000 per quarter in lieu of a per meeting fee. Non-employee
directors are automatically granted an initial option to purchase 25,000 shares
of the Company's Common Stock and thereafter annual options to purchase 8,000
shares of the Company's Common Stock pursuant to the terms of the Company's 1993
Directors' Stock Option Plan (the "Directors' Plan"). In December 1998, the
Financial Accounting Standards Board (the "FASB") proposed certain changes in
the accounting treatment for options granted to directors that would have
resulted in compensation expense charges that would have affected future
accounting periods in an unpredictable manner. Under these proposals, prior to
the respective vesting dates for option installments, the issuer of the option
would have had to accrue compensation expense at each quarterly accounting
period if the market value of the stock exceeded the exercise price, based on
the difference. In view of these proposed changes in the accounting treatment
for director options, the Board of Directors suspended the automatic grant
mechanism under the Directors' Plan for one year and in June 1999, in lieu of
the 8,000 shares normally granted under the Directors' Plan, granted each
outside director 4,000 fully-vested options under the Company's 1997 Stock Plan.
FASB has since withdrawn the proposed changes to the accounting treatment of
options granted to directors. The Company expects, at the end of the present
one-year suspension of the Directors' Plan, to resume the previous automatic
option grants under the Directors' Plan for the following fiscal year. Employee
directors do not receive any separate consideration for their service on the
Board.
PROPOSAL NO. 2
APPROVAL OF AN 800,000 SHARE INCREASE IN THE SHARES ISSUABLE
UNDER THE COMPANY'S 1993 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the stockholders are being requested to consider and
approve an amendment to the Company's 1993 Employee Stock Purchase Plan, as
amended (the "Employee Stock Purchase Plan"), to increase the number of shares
of Common Stock reserved for issuance thereunder by 800,000 shares.
5
<PAGE> 8
The Company's Employee Stock Purchase Plan was adopted by the Board of
Directors and by the stockholders in March 1993. A total of 800,000 shares of
Common Stock was initially reserved for issuance under the Employee Stock
Purchase Plan. In September 1997, the Board of Directors approved an increase of
500,000 shares issuable under the Employee Stock Purchase Plan, which was
approved by the stockholders in November 1997. In June 1999, the Board of
Directors approved a further increase of 800,000 shares issuable under the
Employee Stock Purchase Plan, which, if approved by the stockholders, would
increase the total shares reserved for issuance under the Employee Stock
Purchase Plan since its inception to 2,100,000 shares. As of October 1, 1999,
1,291,441 shares of Common Stock had been purchased under the Employee Stock
Purchase Plan and 808,559 shares remained available for future purchases (which
assumes the adoption of the proposed amendment).
PURPOSE AND EFFECT OF AMENDMENT
The purpose of the proposed amendment to the Employee Stock Purchase Plan
is to increase the number of shares available for issuance under the Employee
Stock Purchase Plan. The Board of Directors believes that the proposed amendment
is in the best interests of the Company and its stockholders for a number of
reasons. First, the Board of Directors believes that the Company's Employee
Stock Purchase Plan serves as an incentive to current employees and helps align
their interests with those of the Company's stockholders. Second, the Board of
Directors believes that the Employee Stock Purchase Plan is an important element
of the Company's strategy to attract and retain qualified employees in an
increasingly competitive market. Finally, without the proposed share increase,
the Company expects to exhaust the shares available for issuance under the
Employee Stock Purchase Plan within the next year. A summary of the principal
terms of the Employee Stock Purchase Plan (which assumes the adoption of the
proposed amendment) is located in Appendix A to this Proxy Statement.
AMENDED EMPLOYEE STOCK PURCHASE PLAN BENEFITS
The Company cannot now determine the number of shares to be purchased in
the future by the Named Executive Officers (as defined in "Executive
Compensation -- Summary Compensation Table"), all current executive officers as
a group, all current directors who are not executive officers as a group or all
employees (including current officers who are not executive officers) as a
group. Nevertheless, the following table sets forth information with respect to
share purchases under the Employee Stock Purchase Plan during the fiscal year
ended June 30, 1999 by such persons:
AMENDED EMPLOYEE STOCK PURCHASE PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
DOLLAR
VALUE NUMBER OF SHARES
NAME OF INDIVIDUAL OR IDENTITY OF GROUP ($)(1) PURCHASED (#)
--------------------------------------- --------- ----------------
<S> <C> <C>
Bruce N. Moore........................................... $ 18,688 2,597
R. Marshall Case......................................... 25,827 3,589
Fred Wiele............................................... -- --
Stephen L. Aleshire...................................... 7,816 1,250
John Coviello............................................ -- --
All current executive officers as a group (5 total)...... 52,331 7,436
Non-executive directors as a group (2 total)............. -- --
All other employees as a group........................... 2,507,798 349,665
</TABLE>
- ---------------
(1) Indicates the difference between the purchase prices of the shares and
$10.875, the closing price of the Company's Common Stock on June 30, 1999 as
listed on The Nasdaq Stock Market, multiplied by the number of shares
purchased.
6
<PAGE> 9
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the Employee Stock Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
800,000 SHARE INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UNDER THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL NO. 3
APPROVAL OF A 500,000 SHARE INCREASE IN THE SHARES ISSUABLE
UNDER THE COMPANY'S 1997 STOCK PLAN
At the Annual Meeting, the stockholders are being requested to consider and
approve an amendment to the Company's 1997 Stock Plan, as amended (the "1997
Plan"), to increase the number of shares of Common Stock reserved for issuance
thereunder by 500,000 shares.
The 1997 Plan was adopted by the Board of Directors in September 1997 and
by the stockholders in April 1998. A total of 1,250,000 shares of Common Stock
was initially reserved for issuance under the 1997 Plan. In June 1999, the Board
of Directors approved an increase of 500,000 shares issuable under the 1997
Plan, which, if approved by the stockholders, would increase the total shares
reserved for issuance under the 1997 Plan since its inception to 1,750,000
shares. The 1997 Plan was designed to replace the Company's 1988 Stock Option
Plan, as amended (the "1988 Plan"), which terminated by its terms with respect
to the grant of new options in April 1998, leaving 2,377,568 shares of Common
Stock unissued which had previously been approved by the Company's stockholders
for issuance pursuant to option exercise. As of October 1, 1999, options to
purchase 781,937 shares of Common Stock were outstanding under the 1997 Plan and
968,063 shares remained available for future issuance under the 1997 Plan (which
assumes the adoption of the proposed amendment). A summary of the principal
terms of the 1997 Plan is located in Appendix B to this Proxy Statement.
The net effect, therefore, of the expiration of the 1988 Plan, the proposed
500,000 share increase to the 1997 Plan and the reservation of 3,000,000 shares
of Common Stock for issuance to employees other than executive officers under
the Company's 1998 Non-Statutory Stock Option Plan will be that the number of
shares of Common stock available for issuance pursuant to the Company's stock
option plans will increase by approximately 1,122,432 shares over an eighteen
month period.
PURPOSE AND EFFECT OF AMENDMENT
The purpose of the proposed amendment to the 1997 Plan is to increase the
number of shares available for issuance under the 1997 Plan. The Board of
Directors believes that the proposed amendment is in the best interests of the
Company and its stockholders for a number of reasons. First, the Board of
Directors believes that the Company's 1997 Plan is vital to retaining,
motivating and rewarding employees, executives and consultants by providing them
with long-term equity participation in the Company relating directly to the
financial performance and long-term growth of the Company. Second, the Board of
Directors believes that granting stock options to employees is an important
contributor to aligning the incentives of the Company's employees with the
interests of the Company's stockholders. Third, the increase in the number of
shares reserved for issuance under the 1997 Plan will provide the Company with
an adequate pool of options to compete effectively with other companies for
existing and new employees. Competition for qualified employees in the
technology market is extremely intense, and, due to the rapid growth of many
successful companies in this sector, such competition is increasing. The Board
of Directors believes that in order to remain competitive with other technology
companies with regard to its long-term incentive plans, the Company must
continue to provide employees with the opportunity to obtain equity in the
Company. A summary of the principal terms of the 1997 Plan is located in
Appendix B to this Proxy Statement.
7
<PAGE> 10
AMENDED 1997 PLAN BENEFITS
The Company cannot now determine the number of stock options to be granted
in the future to the Named Executive Officers (as defined in "Executive
Compensation -- Summary Compensation Table"), all current executive officers as
a group, all current directors who are not executive officers as a group or all
employees (including current officers who are not executive officers) as a
group. However, the following table sets forth information with respect to stock
option grants under the 1997 Plan during the fiscal year ended June 30, 1999 to
such persons:
AMENDED 1997 PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO OPTIONS
NAME OF INDIVIDUAL OR IDENTITY OF GROUP GRANTED(#)
--------------------------------------- ------------------
<S> <C>
Bruce N. Moore.............................................. 250,000
R. Marshall Case............................................ 65,000
Fred Wiele.................................................. 125,000
Stephen L. Aleshire......................................... 65,000
John Coviello............................................... 60,000
All current executive officers as a group (5 total)......... 565,000
Non-executive directors as a group (2 total)................ 32,000
All other employees as a group(1)........................... 162,000
</TABLE>
- ---------------
(1) In addition to the 162,000 options received under the 1997 Plan, all other
employees as a group received 1,850,600 options under the Company's other
option plans for a total of 2,012,600 options or 77.1% of all options
granted by the Company in fiscal year 1998.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the Company's 1997 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
500,000 SHARE INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UNDER THE COMPANY'S 1997 PLAN.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending June 30, 2000, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Arthur Andersen LLP has audited the Company's financial statements since
1987. Its representatives are expected to be present at the Annual Meeting with
the opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
approve the ratification of the appointment of Arthur Andersen LLP as
independent auditors of the Company for the fiscal year ending June 30, 2000.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information for the three most recently
completed fiscal years concerning the compensation of the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers") in the
fiscal year ended June 30, 1999:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
FISCAL ----------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) ($)(2)
--------------------------- ------ --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Bruce N. Moore........................ 1999 $383,653 $135,000 250,000 $ 1,392
Chief Executive Officer and 1998 373,944 -- 100,000 1,392
President 1997 350,000 125,342 -- 1,285
R. Marshall Case(3)................... 1999 199,324 54,000 65,000 711
Vice President of Finance and 1998 60,000 43,450(4) 100,000 213
Chief Financial Officer
Fred Wiele(5)......................... 1999 205,768 117,500(6) 125,000 4,752
Vice President of Marketing
Stephen L. Aleshire(7)................ 1999 197,305 54,000 65,000 32,825(8)
Vice President of Worldwide
Sales and Customer Service
John Coviello(9)...................... 1999 199,995 54,000 60,000 101,469(10)
Vice President of Engineering
</TABLE>
- ---------------
(1) May include (in each fiscal year) bonuses earned during the fiscal year and
paid in the subsequent fiscal year.
(2) Represents group term life insurance premiums except as otherwise
indicated.
(3) Mr. Case was appointed as an executive officer of the Company on February
23, 1998.
(4) Includes a $25,000 sign-on bonus and a guaranteed bonus equal to 30% of Mr.
Case's fiscal year 1998 salary ($18,450) pursuant to the terms of his offer
letter for employment with the Company.
(5) Mr. Wiele was appointed as an executive officer of the Company on September
16, 1998.
(6) Includes a $50,000 sign-on bonus.
(7) Mr. Aleshire was appointed as an executive officer of the Company on June
16, 1999.
(8) Includes $31,629 of relocation expenses.
(9) Mr. Coviello terminated his employment with the Company on September 1,
1999.
(10) Includes $99,453 relocation expense.
9
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 1999 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SHARE)(3) DATE 5%($) 10%($)
---- ------------- -------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bruce N. Moore......... 250,000 9.6% $7.125 05/03/09 $1,120,219 $2,838,854
R. Marshall Case....... 15,000 0.6% 2.750 08/05/08 25,942 65,742
50,000 1.9% 9.875 06/16/09 310,517 786,910
Fred Wiele............. 100,000 3.8% 2.563 08/19/08 161,154 408,397
25,000 1.0% 9.875 06/16/09 155,258 393,455
Stephen L. Aleshire.... 15,000 0.6% 2.750 08/05/08 25,942 65,742
50,000 1.9% 9.875 06/16/09 310,517 786,910
John Coviello.......... 60,000 2.3% 2.750 08/05/08 103,768 262,968
</TABLE>
- ---------------
(1) Under the terms of the Company's 1997 Stock Plan, the Board of Directors
retains discretion, subject to plan limits, to modify the terms of
outstanding options and to reprice the options.
(2) An aggregate of 2,609,600 options to purchase shares of the Company's Common
Stock was granted to employees and consultants during the fiscal year ended
June 30, 1999.
(3) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of shares that are already owned or by offset of the
underlying shares, subject to certain conditions.
(4) These columns show the hypothetical gains or "option spreads" of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full 10-year term of the option. The 5% and 10% assumed rates
of appreciation are mandated by the rules of the SEC and do not represent
the Company's estimate or projection of future Common Stock prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides certain information concerning option
exercises by the Named Executive Officers during the fiscal year ended June 30,
1999 and fiscal year-end option values:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT JUNE 30, 1999 AT JUNE 30, 1999($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce N. Moore............... -- -- 516,665 233,335 $3,960,931 $1,039,069
R. Marshall Case............. -- -- 65,622 99,378 461,929 522,446
Fred Wiele................... -- -- 18,750 106,250 155,859 700,391
Stephen L. Aleshire.......... -- -- 60,623 84,377 421,312 400,563
John Coviello................ -- -- 50,935 76,565 413,847 622,091
</TABLE>
- ---------------
(1) Calculated by determining the difference between the closing price of the
Company's Common Stock on The Nasdaq National Market on the date of exercise
and the exercise price of the options, and multiplying such difference by
the number of shares.
(2) Calculated by determining the difference between the fair market value of
the Company's Common Stock underlying the options at June 30, 1999 (the
closing price of the Common Stock of the Company was listed on The Nasdaq
National Market at $10.875 per share on June 30, 1999) and the exercise
price of the options, and multiplying such difference by the number of
shares subject to outstanding options.
10
<PAGE> 13
TEN-YEAR OPTION REPRICINGS TABLE
The following table provides certain information regarding the repricing of
options held by the Company's executive officers during the last 10 completed
fiscal years:
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK PRICE AT NEW REMAINING AT
OPTIONS AT TIME OF TIME OF EXERCISE DATE
NAME DATE REPRICED(#) REPRICING($) REPRICING($) PRICE($) OF REPRICING
---- --------- ----------- ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bruce N. Moore.................. 08/05/98 400,000 $2.75 $10.75 $2.75 6 yrs. 311 days
Chief Executive Officer and 08/05/98 100,000 2.75 12.312 2.75 9 yrs. 42 days
President
R. Marshall Case................ 08/05/98 100,000 2.75 9.50 2.75 9 yrs. 210 days
Vice President of Finance and
Chief Financial Officer
Stephen L. Aleshire............. 08/05/98 80,000 2.75 7.875 2.75 9 yrs. 160 days
Vice President of Worldwide
Sales and Customer Service
John Coviello................... 08/05/98 67,500 2.75 8.6875 2.75 9 yrs. 253 days
Vice President of Engineering
Russell M. Lait................. 08/05/98 5,400 2.75 5.75 2.75 5 yrs. 256 days
Vice President of Operations 08/05/98 7,500 2.75 10.25 2.75 7 yrs. 169 days
08/05/98 50,000 2.75 10.25 2.75 8 yrs. 86 days
08/05/98 25,000 2.75 12.312 2.75 9 yrs. 42 days
11/01/96* 7,500 10.25 15.50 10.25 8 yrs. 357 days
11/01/96* 50,000 10.25 15.50 10.25 9 yrs. 306 days
Joseph G. Brown................. 11/01/96 25,000 10.25 15.50 10.25 9 yrs. 305 days
Vice President World Wide 02/28/94 100,000 6.50 9.75 6.50 9 yrs. 324 days
Field Operations
Kent L. Robertson............... 11/01/96 100,000 10.25 18.875 10.25 9 yrs. 180 days
Vice President of Finance 11/01/96 25,000 10.25 15.50 10.25 9 yrs. 306 days
and Chief Executive Officer
Michael B. Stevens.............. 11/01/96 7,000 10.25 15.50 10.25 8 yrs. 357 days
Vice President of 11/01/96 100,000 10.25 18.312 10.25 9 yrs. 173 days
North American Sales 02/28/94 9,000 6.50 10.25 6.50 9 yrs. 196 days
</TABLE>
- ---------------
* These same options were repriced in August of 1998 as shown above in this
Repricing Table.
CHANGE OF CONTROL AGREEMENTS
The Company has in place Change of Control Severance Agreements with each
of the Named Executive Officers.
Change of Control Agreement with Mr. Moore
On June 16, 1999, the Company entered into a Change of Control Severance
Agreement with Mr. Moore, the President and Chief Executive Officer of the
Company. Generally, under the terms of this agreement, if there occurs a Change
of Control (as defined) of the Company and Mr. Moore's employment is terminated
within thirty (30) days thereafter, then he is entitled to severance pay equal
to one hundred fifty percent (150%) of his annual compensation (i.e. salary and
target bonus), to be paid in monthly installments. If there occurs a termination
not associated with a Change of Control, i.e. prior to a Change of Control or
more than twenty-four (24) months after a Change of Control, then in addition to
the foregoing severance he shall be entitled to receive a pro rata portion of
his bonus otherwise payable. If he is requested to remain as an employee
following a Change of Control and his employment is subsequently terminated,
then in addition to the foregoing severance and pro rata bonus he is also
entitled to one additional monthly payment for each month of continued
employment, up to twelve (12) additional payments. A "Change of Control" is
generally deemed to occur in the event of: (1) a merger, (2) a sale of
substantially all assets, (3) any person acquiring control over fifty percent
(50%) of the Company's voting securities, or (4) a change in the composition of
the board of directors over a two year period as a result of which fewer than a
majority of the directors are
11
<PAGE> 14
incumbent directors. Each of the foregoing payments would only apply to the
extent Mr. Moore's employment is terminated by him for good reason, by the
Company other than for cause, or due to death or disability.
Change of Control Agreements with Other Executive Officers
Generally, under the terms of these agreements in the event of a Change of
Control of the Company (as defined above), the Employees shall receive an amount
equal to one hundred percent (100%) of the Employee's annual compensation. Such
payments would only apply to the extent the Employee's employment is terminated
by the Employee for good reason, by the Company other than for cause, or due to
death or disability.
Change of Control Provisions in Other Agreements
The Employee Stock Purchase Plan and the 1997 Plan both contain change of
control provisions. Generally, under the terms of the Employee Stock Purchase
Plan, in the event of a change of control each option shall be assumed or an
equivalent option shall be substituted by such successor corporation, unless the
Board of Directors decides to accelerate vesting of such options. Generally,
under the 1997 Plan, in the event of a change in control each unvested
outstanding option or stock purchase right shall become vested and exercisable
as to an additional 1/16 of the shares subject to the option or stock purchase
right for each full year that such option or stock purchase right has been
outstanding, and any restricted stock will vest. In addition, each outstanding
option or stock purchase right may be assumed or an equivalent option or right
substituted by the successor corporation. A summary of the principal terms of
the 1997 Plan and the Employee Stock Purchase Plan is located in Appendix A and
B to this Proxy Statement.
12
<PAGE> 15
REPORT OF THE COMPENSATION COMMITTEE
The following is the Report of the Compensation Committee of the Company's
Board of Directors. It describes the compensation policies and rationale with
respect to the compensation paid to the Company's executive officers for the
fiscal year ended June 30, 1999. The information contained in the report shall
not be deemed to be "soliciting material" or to be "filed" with the SEC 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 Securities
Exchange Act of 1934, as amended (the "Exchange Act"), except to the extent that
the Company specifically incorporates it by reference into such filing.
INTRODUCTION
The Compensation Committee administers the Company's executive compensation
programs. The Compensation Committee was comprised of two non-employee directors
of the Company, Dr. W. Frank King and Mr. R. Stephen Cheheyl, during the fiscal
year ended June 30, 1999. The Company's programs and policies are designed to
enhance stockholder values by closely linking executive rewards with the
Company's success.
The Company's executive compensation program has three elements:
- Base Salary
- Annual Cash Incentive Plan
- Stock Option Program
BASE SALARY
The base salaries for the Company's executive officers for the fiscal year
ended June 30, 1999 set forth in the Summary Compensation Table were determined
by the Compensation Committee. See "Executive Compensation -- Summary
Compensation Table." The Compensation Committee considers the recommendations
made by the Chief Executive Officer for the Company's officers other than the
Chief Executive Officer. In addition, the Compensation Committee retains the
services of an outside compensation consulting firm. In its deliberations, the
Compensation Committee takes into consideration:
- Salaries of officers in similar positions in similar sized and comparable
high technology companies. This peer group of companies may be different
than those of the companies incorporated in the stock performance graph
inasmuch as it represents competitors for executive talent, rather than
commercial competitors;
- Company performance as measured by achievement of goals and objectives
established at the start of the previous fiscal year; and
- Evaluations of each individual's contributions as made by the Chief
Executive Officer (the Chief Executive Officer's performance was
evaluated independently by the Committee).
ANNUAL CASH INCENTIVE PROGRAM
The annual cash incentive plan is designed to reward participants for
achievement of predetermined Company goals and objectives. These predetermined
goals and objectives are designed to drive Company performance toward enhanced
stockholder returns. During the fiscal year ended June 30, 1999, the Company
paid a portion of the eligible awards as set forth in the summary compensation
table.
STOCK OPTION PROGRAM
During the fiscal year ended June 30, 1999, the Compensation Committee
approved all stock option grants made to executive officers, employees and
consultants under the stockholder approved 1997 Stock Plan, except for stock
option grants to newly-hired employees who are non-executive officers receiving
10,000 or fewer shares (which were approved by the Stock Option Committee). The
stock option program is designed to
13
<PAGE> 16
attract, retain and motivate the Company's officers and other participants by
providing them with a meaningful stake in the Company's long-term success.
In making its determinations, the Compensation Committee takes into
consideration:
- Grants made to individuals in similar positions in comparable high
technology companies;
- Participants' contributions to the Company's performance, both short and
long-term;
- Prior stock option grants, especially as they relate to the number of
options vested and unvested; and
- Impact that total option grants made to all participants have on dilution
of current stockholder ownership and the Company's earnings.
Stock option grants made to the Named Executive Officers are set forth in
the table of option grants in the last fiscal year set forth above. See
"Executive Compensation -- Option Grants in Last Fiscal Year."
TEN-YEAR OPTION REPRICINGS FROM JULY 1, 1989 TO JUNE 30, 1999
On August 5, 1998, the Board of Directors offered all employees the
opportunity to amend any outstanding stock options with exercise prices in
excess of $2.75, the fair market value per share of the Company's Common Stock
on August 5, 1998 (as listed on The Nasdaq Stock Market). The amended options
have an exercise price of $2.75 per share and are otherwise identical to the old
options, except that the ability to exercise the amended option was suspended
until February 5, 1999, in the case of employees and consultants other than
members of the executive staff and until August 5, 1999 in the case of members
of the executive staff. In approving the amendment and option repricing, the
Board of Directors considered such factors as the competitive environment for
retaining qualified employees and officers and the overall benefit to the
stockholders from a highly motivated group of employees and officers. In
particular, the Board of Directors recognized the extremely intense competition
for qualified employees in the San Francisco Bay area employment market. Given
the variety of alternative employment opportunities from both established high-
technology companies and high-technology startup companies, the Board of
Directors concluded that amending and repricing the options would greatly assist
the Company in retaining its employees and the members of the Company's
management team. Finally, the Board of Directors recognized the important role
which stock options serve in aligning the incentives of the Company's employees
with the interests of the Company's stockholders.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Bruce N. Moore serves as the Company's Chief Executive Officer and
President. The Compensation Committee has independently reviewed the
compensation of the Chief Executive Officer. The Compensation Committee's
recommendation to the full Board of Directors regarding Mr. Moore's compensation
was based upon the same criteria used to evaluate the Company's other officers,
i.e., independent outside sources of compensation data, the Company's
performance, the individual's performance and the overall contribution to the
Company's short and long-term objectives.
Utilizing these criteria, in May 1999 the Compensation Committee increased
Mr. Moore's base salary by $75,000 in order to recognize his contribution to the
Company and to recognize his level of responsibility compared to that of other
corporate officers of the Company. In addition, in May 1999 Mr. Moore was
granted 250,000 stock options. Mr. Moore did earn a bonus for the fiscal year
ended June 30, 1999 under the Company's annual cash incentive program as set
forth in the Summary Compensation Table. Mr. Moore's bonus was based on the
Company's business objectives and only constituted sixty percent (60%) of the
total bonus potential that was available to Mr. Moore under the annual cash
incentive program.
All evaluation and consideration of adjustments in Mr. Moore's compensation
were made independently by the Compensation Committee during Mr. Moore's absence
from the proceedings.
14
<PAGE> 17
The foregoing report has been furnished by the Compensation Committee of
the Board of Directors of the Company.
Compensation Committee
W. Frank King
R. Stephen Cheheyl
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1999, the Compensation Committee
consisted of Dr. W. Frank King and Mr. R. Stephen Cheheyl. The Company is not
aware of any interlocks or insider participation required to be disclosed under
applicable rules of the SEC.
15
<PAGE> 18
COMPANY PERFORMANCE
The following performance graph compares the cumulative total return to
stockholders of the Company's Common Stock since May 11, 1993 (the date the
Company first became subject to the reporting requirements of the Exchange Act)
to the cumulative total return over such period of (i) The Nasdaq Stock Market
(U.S. Companies) and (ii) the Hambrecht & Quist Technology Index. The
information contained in the performance graph below shall not be deemed to be
"soliciting material" or to be "filed" with the SEC, nor shall such information
be incorporated by reference into any future filing under the Securities Act or
the Exchange Act, except to the extent that the Company specifically
incorporates it by reference into such filing.
The performance graph assumes that $100 was invested on May 11, 1993 in the
Company's Common Stock at the closing price on the first day of trading of
$14.25 per share, and in each index, and that all dividends were reinvested. No
dividends have been declared or paid on the Company's Common Stock. Stockholder
returns over the period indicated should not be considered indicative of future
stockholder returns.
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET -
ASPEX SYSTEMS, INC. H&Q TECHNOLOGY U.S.
------------------- -------------- ---------------------
<S> <C> <C> <C>
5/11/93 100.00 100.00 100.00
Jun-94 35.09 102.21 100.96
Jun-95 87.72 180.82 134.78
Jun-96 105.26 211.32 173.04
Jun-97 67.54 275.98 210.36
Jun-98 38.16 349.59 277.56
Jun-99 76.32 565.02 393.49
</TABLE>
16
<PAGE> 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 13, 1999 (except as set
forth in the footnotes) certain information with respect to the beneficial
ownership of the Company's Common Stock by (i) each person known by the Company
to own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each of the Named Executive Officers of the Company listed in the Summary
Compensation Table above, (iii) each director of the Company, and (iv) all
directors and executive officers as a group. The Company knows of no agreements
among its stockholders which relate to voting or investment power of its shares
of Common Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
-----------------------
PERCENTAGE
FIVE PERCENT STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS NUMBER OWNERSHIP
- ----------------------------------------------------------- --------- ----------
<S> <C> <C>
State of Wisconsin Investment Board(2)...................... 3,687,200 13.4%
P.O. Box 7842
Madison, WI 53702-0000
West Highland Capital Inc.(3)............................... 1,551,500 5.7%
300 Drakes Landing Road
Suite 290
Greenbrae, CA 94904
The Crabbe Huson Group, Inc.(4)............................. 1,536,000 5.6%
121 SW Morrison, Suite 1400
Portland, OR 97204
Dimensional Fund Advisors Inc.(5)........................... 1,436,000 5.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Bruce N. Moore(6)........................................... 152,407 *
R. Marshall Case(6)......................................... 86,435 *
Fred Wiele(6)............................................... 45,312 *
Stephen L. Aleshire(6)...................................... 71,373 *
John Coviello(7)............................................ 0 *
R. Stephen Cheheyl(6)....................................... 26,000 *
W. Frank King(6)............................................ 25,000 *
All current executive officers and directors as a group (8
persons)(8)............................................... 408,750 1.5%
</TABLE>
- ---------------
* Less than one percent.
(1) Applicable percentage of ownership is based on 27,443,990 shares of the
Company's Common Stock outstanding as of September 13, 1999 together with
any applicable stock options held by such stockholder. Beneficial ownership
is determined in accordance with the rules of the SEC, and includes voting
and investment power with respect to shares. Shares of Common Stock subject
to options currently exercisable or exercisable within 60 days of September
13, 1999 are deemed outstanding for computing the percentage ownership of
the person holding such options, but are not deemed outstanding for
computing the percentage of any other person.
(2) State of Wisconsin Investment Board claims sole voting and dispositive power
as to the 3,687,200 shares. Information provided herein is based solely upon
a Schedule 13G-A filed with the SEC in February 1999.
(3) Lang H. Gerhard is the sole shareholder of West Highland Capital Inc. and
the Manager of Estero Partners, LLC. West Highland Capital, Inc., Estero
Partners, LLC and Lang H. Gerhard are the general partners of West Highland
Partners, L.P. and Buttonwood Partners, L.P. As a group, the parties
mentioned in this footnote (3) claim shared voting and dispositive power
over a total of 1,551,500 shares. Information provided herein is based
solely upon a schedule 13G filed with the SEC in March 1999.
(4) James E. Crabbe, Trustee of the James E. Crabbe Revocable Trust claims sole
voting and dispositive power as to the 1,536,000 shares. Information
provided herein is based solely upon a Schedule 13G filed with the SEC in
August 1999.
17
<PAGE> 20
(5) Dimensional Fund Advisors Inc. claims sole voting and dispositive power as
to the 1,436,000 shares. Information provided herein is based solely upon a
Schedule 13G filed with the SEC in February 1999.
(6) Includes shares of Common Stock issuable upon exercise of options
exercisable within 60 days of September 13, 1999 as follows: Bruce N. Moore,
143,749 shares; R. Marshall Case, 74,373 shares; Fred Wiele, 45,312 shares;
Stephen L. Aleshire, 68,123 shares, R. Stephen Cheheyl, 21,000 shares; and
W. Frank King, 25,000 shares;.
(7) Mr. Coviello terminated his employment with the Company on September 1, 1999
and as of the date of his termination did not beneficially own or have the
right to acquire any shares of the Company's stock.
(8) Includes 377,557 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of September 13, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and regulations of the SEC thereunder
require the Company's executive officers and directors, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of initial ownership and changes in ownership with the SEC. Based solely
on its review of copies of such forms received by the Company, or on written
representations from certain reporting persons that no other reports were
required for such persons, the Company believes that, during or with respect to
the fiscal year ended June 30, 1999 all of the Section 16(a) filing requirements
applicable to its executive officers, directors and 10% stockholders were
complied with, except that Form 3's were not timely filed for Mr. John
Livingston or Mr. Stephen Aleshire upon their appointment as officers of the
Company in June 1999.
OTHER MATTERS
The Company knows of no other matters to be brought before the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the accompanying proxy to vote the shares
represented as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
/s/ HENRY P. MASSEY, JR.
Henry P. Massey, Jr.
Secretary
Dated: October 8, 1999
18
<PAGE> 21
APPENDIX A
SUMMARY OF THE 1993 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1993 Employee Stock Purchase Plan, as amended (the "Employee
Stock Purchase Plan") was adopted by the Board of Directors and by the
stockholders in March 1993. In September 1997, the Board of Directors approved
an increase of 500,000 shares issuable under the Employee Stock Purchase Plan,
which was approved by the stockholders in November 1997. Including the 800,000
shares reserved for issuance by the Board of Directors in June 1999, a total of
2,100,000 shares of Common Stock currently is reserved for issuance under the
Employee Stock Purchase Plan (pending stockholder approval of a 800,000 share
increase). The Employee Stock Purchase Plan is intended to qualify under Section
423 of the Code.
Purpose. The purpose of the Employee Stock Purchase Plan is to provide
employees of the Company with an opportunity to purchase Common Stock of the
Company through accumulated payroll deductions, which serves to incentivize
current employees and to align their interests with those of the Company's
stockholders and supports the Company's strategy to attract and retain qualified
employees.
Administration. The Employee Stock Purchase Plan shall be administered by
the Board of Directors or a committee appointed by the Board of Directors. All
questions of interpretation of the Employee Stock Purchase Plan are determined
by the Board of Directors or its committee, whose decisions are final and
binding upon all participants.
Eligibility. Any person who is an employee of the Company as of the
offering date of a given offering period shall be eligible to participate in
such offering period under the Employee Stock Purchase Plan, provided that such
person was not eligible to participate in such Offering Period as of any prior
offering date, and further, subject to the requirements of Section 5(a) of the
Employee Stock Purchase Plan and the limitations imposed by Section 423(b) of
the Code.
Participation. Eligible employees become participants in the Employee Stock
Purchase Plan by delivering to the Company a subscription agreement authorizing
payroll deductions prior to the applicable offering date, unless a later time
for filing the subscription agreement has been set by the Board of Directors for
all eligible employees with respect to a given offering period.
Offering Periods. The offering period for the Employee Stock Purchase Plan
commenced on April 1, 1994 and ended on June 30, 1994. After such initial
offering period, the Employee Stock Purchase Plan is implemented by consecutive
six-month offering periods commencing on or about January 1 and July 1 of each
year or on such date as the Board of Directors shall determine. The Board of
Directors may change the duration of the offering periods without stockholder
approval upon fifteen days prior notice.
Payroll Deductions. The purchase price for the shares is accumulated by
payroll deductions during the offering period. The deductions may not be less
than 1% nor more than 10% of a participant's eligible aggregate compensation
during the offering period. Eligible aggregate compensation is defined to
include all regular straight time gross earnings and sales commissions,
including payments for overtime, shift premiums, bonuses and other compensation
earned during a given offering period. A participant may discontinue his or her
participation in the Employee Stock Purchase Plan at any time during the
offering period and may decrease or increase the rate of payroll deductions one
time during any offering period. Payroll deductions shall commence on the first
payroll following the first day of the offering period, and shall end on the
last day of the offering period (the "exercise date") unless sooner terminated
as provided in the Employee Stock Purchase Plan.
Grant and Exercise of Option. The maximum number of shares placed under
option to a participant in an offering is that number determined by dividing the
amount of the participant's total payroll deductions to be accumulated prior to
an exercise date (not to exceed $12,500) by the lower of 85% of the fair market
value of the Common Stock at the beginning of the offering period or 85% of the
fair market value of the Common Stock on the exercise date. The fair market
value of the Common Stock on a given date shall be the closing sale price of the
Common Stock for such date as reported by The Nasdaq National Market or, if such
price is
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<PAGE> 22
not reported, the means of the bid and asked prices per share of the Common
Stock as reported by The Nasdaq National Market or, if listed on a stock
exchange, the closing price on such exchange as of such date or, if not traded
on such date, on the immediately preceding trading date as reported in The Wall
Street Journal. Unless a participant withdraws from the Employee Stock Purchase
Plan, such participant's option for the purchase of shares will be exercised
automatically on each exercise date for the maximum number of whole shares at
the applicable price.
Notwithstanding the foregoing, no employee will be permitted to subscribe
for shares under the Employee Stock Purchase Plan if, immediately after the
grant of the option, the employee would own 5% or more of the voting power or
value of all classes of stock of the Company or of any of its subsidiaries
(including stock which may be purchased under the Employee Stock Purchase Plan
or pursuant to any other options), nor shall any employee be granted an option
that would permit the employee to buy pursuant to the Employee Stock Purchase
Plan more than $25,000 worth of stock (determined at the fair market value of
the shares at the time the option is granted) in any calendar year.
Withdrawal; Termination of Employment. A participant's interest in a given
offering may be terminated in whole, but not in part, at any time by signing and
delivering to the Company a notice of withdrawal from the Employee Stock
Purchase Plan. Any withdrawal by the participant of accumulated payroll
deductions for a given offering automatically terminates the participant's
interest in that offering.
Transferability. Neither accumulated payroll deductions nor any rights with
regard to the exercise of an option or to receive shares under the Employee
Stock Purchase Plan may be assigned, transferred, pledged or otherwise disposed
of in any way (other than by will, the laws of descent and distribution or as
provided in the Employee Stock Purchase Plan) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
from the Employee Stock Purchase Plan.
Adjustments Upon Changes in Capitalization. In the event any change is made
in the Company's capitalization, such as a stock split or stock dividend, which
results in an increase or decrease in the number of outstanding shares of Common
Stock without receipt of consideration by the Company, appropriate adjustments
will be made by the Board of Directors to the shares subject to purchase under
the Employee Stock Purchase Plan and in the purchase price per share.
In the event of the proposed dissolution or liquidation of the Company, the
offering will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board of Directors. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Employee Stock Purchase Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation, unless the Board of Directors decides
to accelerate vesting of such options. If the Board of Directors accelerates
vesting of such options, participants shall have 10 days to withdraw from the
offering period or such options will be exercised automatically.
Amendment or Termination. The Board of Directors may at any time terminate
or amend the Employee Stock Purchase Plan, except that termination shall not
affect options previously granted and no amendment may make any change in any
option previously granted that adversely affects the rights of any participant.
In addition, the Company shall obtain stockholder approval in such a manner and
to such a degree as required to comply with Section 423 of the Code (or any
successor rule or provision or any other applicable law or regulation).
TAX INFORMATION
The Employee Stock Purchase Plan, and the right of participants to make
purchases thereunder is intended to qualify under the provisions of Sections 421
and 423 of the Code. Under these provisions, no income will be taxable to a
participant at the time of grant of the option or purchase of shares. Upon
disposition of the shares, the participant will generally recognize taxable
income, and the amount of the tax will depend upon the length of time the shares
have been held by the participant. If the shares have been held
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<PAGE> 23
by the participant for more than two years after the date of option grant, the
lesser of (a) the excess of the fair market value of the shares at the time of
such disposition over the option price or (b) 15% of the fair market value of
the shares at the time the option was granted will be treated as ordinary
income. All additional gain upon the disposition will be treated as long-term
capital gain. If the shares are sold and the sale price is less than the
purchase price, there is no ordinary income, and the participant will have a
long-term capital loss. If the shares are disposed of within two years of the
date of grant, the excess of the fair market value of the shares on the exercise
date over the option price will be treated as ordinary income. Any further gain
or loss on such disposition will be capital gain or loss, and will be long-term
if the shares are held for more than one year. Under current law, the maximum
federal tax rate on net capital gain is 28% (for shares held at least 18 months,
the maximum rate is 20%). Net capital gain is net long-term capital gain less
net short-term capital loss, if any. Capital losses are allowed in full against
capital gains plus $3,000 of other income.
Different rules may apply with respect to optionees subject to Section
16(b) of the Exchange Act. The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income reported by participants upon disposition of shares
within two years from date of grant.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE SUMMARY OF THE EFFECT OF
FEDERAL INCOME TAXATION UPON THE PARTICIPANT AND THE COMPANY WITH RESPECT TO THE
PURCHASE OF SHARES UNDER THE EMPLOYEE STOCK PURCHASE PLAN AND REFERENCE SHOULD
NOT BE MADE TO THE APPLICABLE PROVISIONS OF THE CODE. IN ADDITION, THIS SUMMARY
DOES NOT DISCUSS THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY,
STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
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<PAGE> 24
APPENDIX B
SUMMARY OF 1997 STOCK PLAN
The Company's 1997 Stock Plan, as amended (the "1997 Plan") was adopted by
the Board of Directors in September 1997 and by the stockholders in February
1998. Including the 1,000,000 shares reserved for issuance by the Board of
Directors in June 1999, a total of 1,750,000 shares of Common Stock currently
are reserved for issuance under the 1997 Plan (pending stockholder approval of a
500,000 share increase).
General. The purposes of the 1997 Plan are to attract and retain the best
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees, directors and
consultants of the Company and to promote the success of the Company's business.
Options and stock purchase rights may be granted under the 1997 Plan. Options
granted under the Plan may be either "incentive stock options," as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options.
Administration. The 1997 Plan may generally be administered by the Board of
Directors or the Committee appointed by the Board of Directors (as applicable,
the "Administrator").
Eligibility; Limitations. Nonstatutory stock options and stock purchase
rights may be granted under the 1997 Plan to employees, directors and
consultants of the Company and any parent or subsidiary of the Company.
Incentive stock options may be granted only to employees. The Administrator, in
its discretion, selects the employees, directors and consultants to whom options
and stock purchase rights may be granted, the time or times at which such
options and stock purchase rights shall be granted, and the number of shares
subject to each such grant.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options granted to such persons, the 1997 Plan provides
that no employee, director or consultant may be granted, in any fiscal year of
the Company, options to purchase more than 1,000,000 shares of Common Stock.
Notwithstanding this limit, however, in connection with such individual's
initial employment with the Company, he or she may be granted options to
purchase up to an additional 500,000 shares of Common Stock.
Terms and Conditions of Options. Each option is evidenced by a stock option
agreement between the Company and the optionee, and is subject to the following
additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an
incentive stock option may not be less than 100% of the fair market value
of the Common Stock on the date such option is granted; provided, however,
the exercise price of an incentive stock option granted to a greater than
10% stockholder may not be less than 110% of the fair market value of the
Common Stock on the date such option is granted. The fair market value of
the Common Stock is generally determined with reference to the closing sale
price for the Common Stock (or the closing bid if no sales were reported)
on the last market trading day prior to the date the option is granted.
(b) Exercise of Option; Form of Consideration. The Administrator
determines when options become exercisable and may, in its discretion,
accelerate the vesting of any outstanding option. Stock options granted
under the 1997 Plan generally vest and become exercisable over five years.
The means of payment for shares issued upon exercise of an option is
specified in each option agreement. The 1997 Plan permits payment to be
made by cash, check, promissory note, other shares of Common Stock of the
Company (with some restrictions), cashless exercises, a reduction in the
amount of any Company liability to the optionee, any other form of
consideration permitted by applicable law, or any combination thereof.
(c) Term of Option. The term of an incentive stock option may be no
more than ten (10) years from the date of grant; provided that in the case
of an incentive stock option granted to a greater than 10%
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<PAGE> 25
stockholder, the term of the option may be no more than five (5) years from
the date of grant. No option may be exercised after the expiration of its
term.
(d) Termination of Employment. If an optionee's employment or
consulting relationship terminates for any reason (other than death or
disability), the optionee may exercise his or her option within such period
of time as is specified in the option agreement to the extent that the
option is vested on the date of termination (but in no event later than the
expiration of the term of such option as set forth in the option
agreement). In the absence of a specified time in the option agreement, the
option shall remain exercisable for three (3) months following the
optionee's termination in the case of an incentive stock option, and six
(6) months following the optionee's termination in the case of a
non-statutory stock option.
(e) Death or Disability. If an optionee's employment or consulting
relationship terminates as a result of disability, the optionee may
exercise his or her option within such period of time as is specified in
the option agreement (but in no event later than the expiration of the term
of such option as set forth in the option agreement) to the extent that the
option is vested on the date of termination. In the absence of a specified
time in the option agreement, the option shall remain exercisable for six
(6) months following the optionee's termination. If an optionee's
employment or consulting relationship terminates as a result of death while
the optionee is an employee or consultant, the option may be exercised by
the optionee's estate or a person who acquired the right to exercise the
option by bequest or inheritance within such period of time as is specified
in the option agreement (but in no event later than the expiration of the
term of such option as set forth in the option agreement) to the extent
that the option would have vested had the optionee continued living and
working for the Company for an additional six (6) months. In the absence of
a specified time in the option agreement, the option shall remain
exercisable for twelve (12) months following the optionee's death. If an
optionee's employment or consulting relationship terminates as a result of
death occurring within 30 days of the optionee's termination of employment
or consultancy with the Company, the option may be exercised by the
optionee's estate or a person who acquired the right to exercise the option
by bequest or inheritance within such period of time as is specified in the
option agreement not to exceed three (3) months from the date of
termination (but in no event later than the expiration of the term of such
option as set forth in the option agreement) to the extent that the option
had vested on the date of termination.
(f) Nontransferability of Options and Stock Purchase Rights. Options
and stock purchase rights granted under the 1997 Plan are not transferable
other than by will or the laws of descent and distribution, and may be
exercised during the optionee's lifetime only by the optionee.
(g) Other Provisions. The stock option agreement may contain other
terms, provisions and conditions not inconsistent with the 1997 Plan as may
be determined by the Administrator.
Stock Purchase Rights. In the case of stock purchase rights, unless the
Administrator determines otherwise, the standard form of restricted stock
purchase agreement shall grant the Company a repurchase option exercisable upon
the voluntary or involuntary termination of the purchaser's employment with the
Company for any reason (including death or disability). The purchase price for
shares repurchased pursuant to the restricted stock purchase agreement shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at a rate determined by the Administrator.
Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
Sale. In the event that the stock of the Company changes by reason of any stock
split, reverse stock split, stock dividend, combination, reclassification or
other similar change in the capital structure of the Company effected without
the receipt of consideration, appropriate adjustments shall be made in the
number and class of shares of stock subject to the 1997 Plan, the number and
class of shares of stock subject to any option or stock purchase right
outstanding under the 1997 Plan, and the exercise price of any such outstanding
option or stock purchase right.
In the event of a liquidation or dissolution, any unexercised options or
stock purchase rights will terminate. The Administrator may, in its discretion,
provide that each optionee shall have the right to exercise
B-2
<PAGE> 26
all of the optionee's options and stock purchase rights, including those not
otherwise exercisable, until the date ten (10) days prior to the consummation of
the liquidation or dissolution.
In connection with any merger, consolidation, acquisition of assets or like
occurrence involving the Company, each outstanding option or stock purchase
right, to the extent unvested, shall become vested and exercisable as to an
additional 1/16th of the shares subject to the option or stock purchase right
for each full year that such option or stock purchase right has been outstanding
and any restricted stock will vest and the Company's repurchase right will lapse
as to 1/16th of the shares subject to such repurchase right for each full year
from the date of purchase. In addition, each outstanding option or stock
purchase right may be assumed or an equivalent option or right substituted by
the successor corporation. If the successor corporation refuses to assume the
options and stock purchase rights or to substitute substantially equivalent
options and stock purchase rights, the optionee shall have the right to exercise
the option or stock purchase right as to all the optioned stock, including
shares not otherwise exercisable, and any restricted stock will vest and the
Company's repurchase right will fully lapse. In such event, the Administrator
shall notify the optionee that the option or stock purchase right is fully
exercisable for thirty (30) days from the date of such notice and that the
option or stock purchase right terminates upon expiration of such period. In the
event that the Company's independent public accountants determine that the
acceleration of vesting of outstanding options (described above) upon a merger
would preclude accounting for such merger as a pooling of interests, and the
Board of Directors desires to approve such transaction which requires as a
condition to the closing of such transaction that it be accounted for as a
pooling of interests, then any such option acceleration shall be null and void,
but only if the absence of such option acceleration would preserve the pooling
treatment.
Amendment and Termination of the Plan. The Board of Directors may amend,
alter, suspend or terminate the 1997 Plan, or any part thereof, at any time and
for any reason. However, the Company shall obtain stockholder approval for any
amendment to the 1997 Plan to the extent necessary to comply with Section 162(m)
and Section 422 of the Code, or any similar rule or statute. No such action by
the Board of Directors or stockholders may alter or impair any option or stock
purchase right previously granted under the 1997 Plan without the written
consent of the optionee. Unless terminated earlier, the 1997 Plan shall
terminate 10 years from the date of its approval by the stockholders or the
Board of Directors of the Company, whichever is earlier.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director, or
greater than 10% stockholder of the Company. The Company is entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period.
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<PAGE> 27
Stock Purchase Rights. Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when a stock ceases to be subject to
a substantial risk of forfeiture. The stock will generally cease to be subject
to a substantial risk of forfeiture when it is no longer subject to the
Company's right to repurchase the stock upon the purchaser's termination of
employment with the Company. At such times, the purchaser will recognize
ordinary income measured as the difference between the purchase price and the
fair market value of the stock on the date the stock is no longer subject to a
substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b) of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date. The
ordinary income recognized by a purchaser who is an employee will be subject to
tax withholding by the Company. Different rules may apply if the purchaser is
also an officer, director, or greater than 10% stockholder of the Company.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES, HOLDERS OF STOCK PURCHASE RIGHTS AND THE COMPANY WITH RESPECT TO
THE GRANT AND EXERCISE OF OPTIONS AND STOCK PURCHASE RIGHTS UNDER THE 1997 PLAN.
IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF
THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF
ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE EMPLOYEE OR CONSULTANT
MAY RESIDE.
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<PAGE> 28
----------------------------------------------------
DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AUSPEX SYSTEMS, INC.
2300 CENTRAL EXPRESSWAY, SANTA CLARA, CALIFORNIA 95050
1999 ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 18, 1999
The undersigned stockholder of Auspex Systems, Inc., a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated October 8, 1999, and
hereby appoints Bruce N. Moore and R. Marshall Case, or either of them, proxies
and attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1999 Annual
Meeting of Stockholders of the Company to be held on November 18, 1999 at 9:00
a.m. local time, at the Company's headquarters located at 2300 Central
Expressway, Santa Clara, California, and at any adjournment(s) thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to vote
if then and there personally present, on the matters set forth on the reverse
side.
----------------------------------------------------
SEE REVERSE SIDE SEE REVERSE SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
----------------------------------------------------
DETACH HERE
Please mark [X] votes as in this example.
This proxy, when properly executed, will be voted as directed below, or,
if no contrary direction is indicated, will be voted FOR the election of one (1)
Class II director, FOR proposals 2, 3 and 4, and as said proxies deem advisable
on such other matters as may properly come before the meeting.
1. To elect one (1) Class II director of the Company to serve for a
two-year term.
Nominee: R. Stephen Cheheyl
MARK HERE:
FOR [ ] WITHHELD [ ]
IF YOU PLAN TO ATTEND THE MEETING [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [ ]
<PAGE> 29
2. To approve an amendment to the Company's 1993 Employee Stock Purchase
Plan to increase the shares reserved for issuance thereunder by 800,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve an amendment to the Company's 1997 Stock Plan to increase
the shares reserved for issuance thereunder by 500,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To ratify the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the year ending June 30, 2000.
5. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN
AND DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
(This proxy should be marked, dated and signed by the stockholder(s)
exactly as his or her name appears hereon, and returned promptly in the enclosed
envelope. When shares are held by joint tenants, both should sign. When signing
as attorney, as executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by president
or other authorized officer. If a partnership, please sign in partnership name
by authorized person.)
Signature:______________________________ Date:________________________
Signature:______________________________ Date:________________________
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