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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>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
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 SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 15, 2000
TO THE STOCKHOLDERS OF AUSPEX SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of AUSPEX SYSTEMS, INC., a Delaware corporation (the "Company"), will
be held at 9:00 a.m., local time, on Tuesday, August 15, 2000 at the Company's
headquarters, 2800 Scott Boulevard, Santa Clara, California 95050, for the
following purposes:
1. To ratify the sale and issuance by the Company on January 18, 2000 in a
private placement of 25,000 shares of Series B Convertible Preferred
Stock and Warrants to purchase an aggregate of 1,605,136 shares of
Common Stock, and to approve the issuance of Common Stock upon
conversion of the Series B Convertible Preferred Stock and upon exercise
of such Warrants.
2. To approve an amendment to the Company's 1993 Directors' Stock Option
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 500,000 shares to a total of 825,000 shares.
3. To approve an amendment to the Company's 1997 Stock Plan to increase the
shares reserved for issuance thereunder by 8,000,000 shares to a total
of 9,050,000 shares.
4. To increase the authorized number of shares of Common Stock of the
Company from 50,000,000 to 120,000,000 shares.
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 [July , 2000] are entitled to notice of and to vote at the Special
Meeting.
All stockholders are cordially invited to attend the Special 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 SPECIAL MEETING. ANY STOCKHOLDER ATTENDING THE
SPECIAL 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
[July , 2000]
<PAGE> 3
AUSPEX SYSTEMS, INC.
------------------------
PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of AUSPEX SYSTEMS, INC., a
Delaware corporation (the "Company"), for use at a Special Meeting of
Stockholders (the "Special Meeting") to be held on Tuesday, August 15, 2000 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 Special Meeting of
Stockholders. The Special Meeting will be held at the Company's headquarters,
2800 Scott Boulevard, 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 Special Meeting in
accordance with the instructions of the stockholder. If no specific instructions
are given, the shares will be voted "FOR" (i) ratification of the sale and
issuance by the Company on January 18, 2000 in a private placement of 25,000
shares of Series B Convertible Preferred Stock and Warrants and for the purchase
of an aggregate of 1,605,136 shares of Common Stock, and for the approval of the
issuance of Common Stock upon conversion of the Series B Convertible Preferred
Stock and upon exercise of such Warrants; (ii) an amendment to the Company's
1993 Directors' Stock Option Plan to increase the number of shares of Common
Stock reserved for issuance thereunder by 500,000 shares; (iii) an amendment to
the Company's 1997 Stock Plan to increase the shares reserved for issuance
thereunder by 8,000,000 shares; and (iv) an increase in the authorized number of
shares of Common Stock of the Company from 50,000,000 shares to 120,000,000
shares; and at the discretion of the proxy holders upon such other business as
may properly come before the Special Meeting or any adjournment or postponement
thereof.
These proxy solicitation materials were first mailed on or about [July ,
2000], to all stockholders entitled to vote at the meeting.
PURPOSE
The primary purposes of the Special Meeting are to seek stockholder
ratification of the sale and issuance by the Company on January 18, 2000 in a
private placement of 25,000 shares of Series B Convertible Preferred Stock and
Warrants to purchase an aggregate of 1,605,136 shares of Common Stock, and to
approve the issuance of Common Stock upon conversion of the Series B Convertible
Preferred Stock and upon exercise of such Warrants; and to seek stockholders
approval of (i) an amendment to the Company's 1993 Directors' Stock Option Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder by 500,000 shares; (ii) an amendment to the Company's 1997 Stock Plan
to increase the shares reserved for issuance thereunder by 8,000,000 shares; and
(iii) an increase in the authorized number of shares of Common Stock of the
Company from 50,000,000 shares to 120,000,000 shares.
RECORD DATE AND VOTING SECURITIES
Stockholders of record of the Common Stock at the close of business on
[July , 2000] (the "Record Date") are entitled to notice of and to vote at the
Special Meeting. At the Record Date, [ ] shares of the Company's
Common Stock, $.001 par value, were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to the 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
Special Meeting a written notice of revocation bearing a later date than the
proxy, (ii) duly
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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 Special
Meeting, or (iii) attending the Special Meeting and voting in person (although
attendance at the Special 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., 2800 Scott Boulevard, 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 Special 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
expects to retain a proxy solicitation firm to assist in its solicitation of
proxies from brokers, nominees, institutions, and individuals, and estimates
that such service will cost not more than $7,500. Arrangements will also 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 Special 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" or
"AGAINST" 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
Special 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 had to have
been received by the Company for inclusion in the Company's proxy statement and
form of proxy for its 2000 Annual Meeting of Stockholders was June 12, 2000.
Such stockholder proposals should have been submitted to Auspex Systems, Inc.,
2800 Scott Boulevard, Santa Clara, California 95050, Attention: Secretary. The
Company did not receive any stockholder proposals.
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<PAGE> 5
PROPOSAL 1:
APPROVAL OF PRIVATE PLACEMENT OF PREFERRED STOCK AND WARRANTS
On January 18, 2000, the Company sold 25,000 shares of Series B Convertible
Preferred Stock (the "Preferred Stock") and issued warrants to purchase an
aggregate of 1,605,136 shares of common stock (the "Warrants") to four
institutional investors (collectively, the "Investors") in a private placement
(the "Private Placement"). The Company received gross proceeds of $25,000,000
from the issuance of the Preferred Stock and the Warrants.
The stockholders of the Company are being asked to ratify the sale and
issuance of the Preferred Stock and the Warrants, and to approve the issuance of
shares of Common Stock upon conversion of the Preferred Stock and upon exercise
of the Warrants.
REASONS FOR PRIVATE PLACEMENT AND USE OF PROCEEDS
The Company entered into the Private Placement to raise financing for
general corporate purposes and working capital. Leading up to the Private
Placement, the Company had a history of operating losses. The Company's Board of
Directors believed at the time that it was strongly advisable for the Company to
raise additional financing to strengthen its financial position and to fund
operating activities. The Company engaged in discussions with various potential
financing sources, and eventually determined that, among the available
alternatives, the Private Placement offered the Company and its existing
stockholders the greatest potential future returns. The Company has been using
the proceeds from the Private Placement for working capital and general
corporate purposes.
TERMS OF THE PRIVATE PLACEMENT
Preferred Stock
Each share of Preferred Stock accrues dividends at an annual rate of 7%
payable quarterly in cash or shares of the Company's Common Stock. If the
Company fails to pay such dividends, default interest accrues at an 18% annual
rate on the unpaid amounts.
Each share of the Preferred Stock is convertible into a number of shares of
Common Stock of the Company equal to the quotient of (A) the sum of (i) $1,000
plus (ii) accrued dividends plus (iii) default interest, if any, divided by (A)
the conversion price on the day of conversion. The Conversion Price is equal to
the lower of (i) 92% of the lowest closing sale prices of the Company's Common
Stock on the four consecutive trading days ending on the date of conversion, or
(ii) the fixed conversion price. The fixed conversion price is currently $14.211
(twice the market price of the Common Stock on January 18, 2000) but may be
adjusted downward on January 18, 2001 if the price of the Company's Common Stock
is lower than $14.211 on that date or earlier as discussed in the paragraph
below.
As a general matter, the Investors may not convert voluntarily the
Preferred Stock until January 18, 2001. However, the Investors may freely
convert the Preferred Stock if the price of the Company's Common Stock drops
below $4.1875 for 10 of any 15 consecutive trading days and in certain other
limited circumstances. In addition, the Investors are allowed to convert up to
25% of their holdings if the price of the Company's Common Stock exceeds
$10.4688 for 15 of any 20 consecutive trading days. That condition was met
earlier this year, and the Investors all converted 25% of their holdings.
Prior to January 18, 2001, the Company can require the Investors to convert
all or part of their holdings subject to certain limitations based on the
trading volume of the Company's Common Stock and provided that a registration
statement for the Common Stock issued upon conversion is effective and certain
other conditions are met. The terms of the Private Placement require the Company
to redeem or force the conversion of 6,250 shares, 25% of the Investors
Preferred Stock, by July 19, 2000 and an additional 25% by October 18, 2000.
Pursuant to the terms of the Preferred Stock and the Warrants, no holder of
the Preferred Stock or Warrants can convert Preferred Stock or exercise Warrants
to the extent such conversion or exercise would
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cause such holder's beneficial ownership of the Company's Common Stock (other
than shares deemed beneficially owned through ownership of unconverted shares of
the Preferred Stock or unexercised Warrants) to exceed 4.99% of the total
outstanding shares of the Company's Common Stock. In addition, certain side
letters between the Company and the Investors impose similar restrictions on
conversion.
The Preferred Stock has a per share liquidation preference (the
"Liquidation Preference") equal to the sum of (i) $1,000, plus (ii) accrued and
unpaid dividends, plus (iii) default interest, if any.
Subject to certain conditions, the Company may redeem some or all of the
Preferred Stock prior to January 18, 2001 at a price per share equal to 108% of
the Liquidation Preference.
The Investors may require the Company to redeem the Preferred Stock at a
price per share equal to the greater of (i) 118% of the Liquidation Preference
or the (ii) closing sale price of the Company's Common Stock, upon the
occurrence of the following events (i) if the Company fails to maintain the
effectiveness of the registration statement pursuant to which the Investors may
resell the shares of Common Stock received upon conversion of the Preferred
Stock; (ii) if the Company's Common Stock is suspended from or fails to trade on
the Nasdaq National Market for more than 5 consecutive days or more than 10 days
in any one year period; (iii) the announcement by the Company or its transfer
agent that it does not intend to convert Preferred Stock which has been properly
tendered for conversion; (iv) the Company's failure to convert Preferred Stock
which has been properly tendered for conversion; (v) if the Company fails to
convert shares of Preferred Stock because such a conversion would cause it to
breach the regulations of the Nasdaq National Market; and (vi) if the Company
breaches a representation, warrant or covenant contained in any of the
transaction documents relating to the Private Placement. In addition, upon a
change of control of the Company, the Investors may require the Company to
redeem all or part of the Preferred Stock at the Liquidation Preference.
In the event that the Investors require the Company to redeem shares of
Preferred Stock because the Company is unable to convert them without breaching
the regulations of the Nasdaq National Market and the Company fails to redeem
such shares of Preferred, then the Investors can require the Company to delist
its Common Stock from the Nasdaq National Market and have the Common Stock
traded on the Nasdaq electronic bulletin board or in the pink sheets.
The Preferred Stock does not have any voting rights except as required by
law. However, the Company may not without obtaining approval of two-thirds of
the Preferred Stock (i) make any change to its Certificate of Incorporation or
the Certificate of Designation of the Preferred Stock which would amend, alter,
change or repeal any of the powers, designations, preferences or rights of
Preferred Stock or (ii) issue any additional Preferred Stock.
On January 18, 2002, the Company must either (i) convert any outstanding
shares of Preferred Stock into Common Stock at a conversion price of 95% of the
average closing bid prices of the Common Stock for 30 consecutive trading days
immediately preceding such date or (ii) redeem the Preferred Stock at a price
per share equal to the Liquidation Preference.
WARRANTS
The Warrants are exercisable for common stock at $8.5663 per share and have
a term of 4 years. If on January 18, 2001, 110% of the average of the closing
bid price for the Company's Common Stock for the 10 days prior to and including
January 18, 2001 is less than $8.5663 then the exercise price will be reduced to
such average. The exercise price will also be adjusted in the event of certain
dilutive issuances.
As of June 21, 2000, including the Warrants discussed in this Proposal 1,
warrants to purchase 1,605,136 shares of Common Stock were outstanding.
REGISTRATION RIGHTS
The Company is required to maintain the effectiveness of a registration
statement covering that number of shares equal to the sum of (i) 200% of the
total number of shares of Common Stock issuable upon
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conversion of the Preferred Stock outstanding, plus (ii) the total number of
shares issuable upon exercise of the outstanding Warrants, plus (iii) the total
number of shares issued upon conversion of the Preferred Stock or exercise of
the Warrants then held by the Investors. The Company is also required to
indemnify the Investors from any damages or liability arising from any untrue
statements contained in the registration statement or any prospectus relating
thereto.
FURTHER INFORMATION
The terms of the Preferred Stock and Warrants are complex and are only
briefly summarized in this proxy statement. Stockholders wishing further
information concerning the rights, preferences, powers, and privileges of the
Preferred Stock and the terms and conditions of the Warrants and the transaction
documents relating to Private Placement should review the Company's current
report on Form 8-K and the exhibits thereto filed with the Securities Exchange
Commission on January 19, 2000, which can be viewed in the public reading room
maintained by the Commission at the Securities Exchange Commission, Public
Reference Branch, Stop T-2, 450 Fifth Street, NW, Washington, DC 20549-1004. The
Company's current reports on Form 8-K may also be viewed on the web site
maintained by the Securities and Exchange Commission at http://www.sec.gov. The
description of the Preferred Stock, Warrants, and related transaction documents
contained herein is qualified in its entirety by reference to the documents
included as exhibits to said 8-K.
STOCKHOLDER APPROVAL
Pursuant to the terms of the Private Placement, the Company may not issue
shares of Common Stock upon the conversion of the Preferred Stock if such an
issuance would cause a breach of the Company's obligations under the rules of
the Nasdaq National Market. Marketplace Rule 4310(c)(25)(G)(i)(d)(2) of the
Nasdaq National Market requires companies listed on the Nasdaq National Market
to obtain shareholder approval prior to issuing common stock or securities
convertible into common stock in a private financing at a price less than the
greater of the book or market value if such shares are convertible into more
than 20% of the shares of the number of shares of the company outstanding on the
date of issuance of the Preferred Stock.
Because the conversion rate of the Preferred Stock will vary based upon the
date of conversion and the trading price of the Common Stock, the number of
shares of Common Stock issuable upon conversion of all the Preferred Stock now
outstanding is not known and may exceed 20% of the Common Stock of the Company
outstanding as of January 18, 2000. Accordingly, the terms of the Private
Placement require the Company to use its best efforts to obtain shareholder
approval of the Private Placement by December 15, 2000 or earlier if the price
of the Company's stock declined to certain levels. On June 1, 2000 the price of
the Company's Common Stock reached those levels, and, as a result, the Company
is required to use its best efforts to obtain stockholder approval of the
Private Placement by August 15, 2000.
EFFECT OF PROPOSAL
If the Stockholders approve the proposal, the Company will no longer be
subject to the limitations of Market Place Rule 4460(i)(l)(D) with respect to
the number of shares it can issue upon conversion of the Preferred Stock. As
discussed above, the number of shares of Common Stock into which the Preferred
Stock is convertible varies directly with the price of the Common Stock. As a
result, if the price of the Company's Common Stock declines, the stockholders
would face substantial and potentially unlimited dilution in their ownership of
the Company.
Failure to obtain stockholder approval would not invalidate the issuance of
the Preferred Stock. However, the Company would not be able to issue Common
Stock upon conversion of the Preferred Stock beyond the limits of the Market
Place Rule 4460(i)(l)(D).
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders approve the
issuance of the Preferred Stock and the Warrants in the Private Placement and
the issuance of the Common Stock upon conversion of the
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Preferred Stock and exercise of the Warrants. The Board believes that the
Private Placement was necessary to maintain the Company's viability and was on
acceptable terms given the Company's business and financial condition at the
time of the Private Placement.
In addition, the Board of Directors notes potentially severe negative
consequences of a failure to obtain stockholder approval. Given the fluctuations
in the Company's stock price, the total number of shares issuable upon
conversion of the Preferred Stock may exceed 20% of the total number of shares
of the Company's Common Stock outstanding at the time of the Private Placement.
If the stockholders do not approve this proposal, the Company will not be able
to issue shares of Common Stock upon conversion of the Preferred Stock in excess
of the 20% figure. If the Company is unable to convert the Preferred Stock, the
Investors may demand that the Company instead redeem it. At such time, the
Company may not have sufficient funds to redeem the remaining outstanding shares
of Preferred Stock or to do so might substantially impair the ability of the
Company to continue as a going concern. If the Company fails to redeem the
Preferred Stock in such an instance, the Investors may require that the Company
delist its Common Stock from the Nasdaq National Market and instead list it on
the Nasdaq electronic bulletin board or in the pink sheets. Though such a change
would allow the Company to issue shares of Common Stock upon conversion of the
Preferred Stock in excess of the 20% figure, it is likely that the price and
liquidity of the Company's Common Stock would decrease substantially. In order
to avoid that possibility, the Board believes it is in the bests interests of
the Company and the stockholders for the stockholders to ratify the issuance of
the Preferred Stock and the Warrants in the Private Placement and to approve the
issuance of Common Stock upon conversion of the Preferred Stock and exercise of
the Warrants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE SALE AND
ISSUANCE BY THE COMPANY ON JANUARY 18, 2000 IN A PRIVATE PLACEMENT OF 25,000
SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK AND WARRANTS AND FOR THE PURCHASE
OF AN AGGREGATE OF 1,605,136 SHARES OF COMMON STOCK, AND FOR THE APPROVAL OF THE
ISSUANCE OF COMMON STOCK UPON CONVERSION OF THE SERIES B CONVERTIBLE PREFERRED
STOCK AND UPON EXERCISE OF SUCH WARRANTS.
PROPOSAL 2:
APPROVAL OF AN AMENDMENT TO THE 1993 DIRECTORS' STOCK OPTION PLAN
At the Special Meeting, the stockholders are being requested to consider
and approve an amendment to the Company's 1993 Directors' Stock Option Plan (the
"Directors' Plan") to increase the number of shares of Common Stock reserved for
issuance thereunder by 500,000 shares to a total of 825,000 shares.
The Directors' Plan was adopted by the Board of Directors in March 1993 and
was approved by the stockholders in April 1993. The Directors' Plan is automatic
in its operation and provides that upon joining the Board of Directors, each
non-employee Director shall be granted options to purchase 25,000 shares of
Common Stock and annually thereafter shall be granted options to purchase 8,000
shares of Common Stock. The Board of Directors suspended the automatic grant
mechanism under the Directors' Plan for one year. The Company expects that as of
June 2000 at the end of the present one-year suspension of the Directors' Plan,
to resume the previous automatic option grants under the Directors' Plan. In
June 2000, the Board of Directors approved amendments to the Directors' Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
by 500,000 shares to a total of 825,000 shares. As of June 21, 2000, options to
purchase 60,000 shares of Common Stock (net of lapsed and terminated options)
had been granted under the Directors' Plan, 549,000 shares remained available
for future option grants (which assumes the adoption of the proposed amendment)
and options for the purchase of 16,000 shares had been exercised. A summary of
the principal terms of the Directors' Plan (which assumes adoption of the
proposed amendments) is located in Appendix A to this Proxy Statement.
PURPOSE AND EFFECT OF AMENDMENTS
The primary purpose of the proposed amendment to the Directors' Plan is to
increase the number of shares available for issuance thereunder.
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The Board of Directors believes that stock option grants are an essential
element in attracting and retaining qualified individuals to serve as directors
of the Company. The pool of individuals qualified to be directors of growing
technology companies is relatively small and the number of companies seeking
such expertise is increasing. In addition, many qualified individuals are
reluctant to serve on boards of directors unless appropriately compensated for
the responsibility and risk they assume. The Board of Directors believes that
most individuals it seeks as Board of Director members expect equity
compensation as an inducement for their services. Further, the Board of
Directors believes that equity compensation serves to better align the interests
of non-employee directors with those of the Company and its stockholders than
does cash compensation.
The Board of Directors believes that the proposed amendment to the
Directors' Plan is in the best interests of the Company and its stockholders.
Without the proposed increase in the number of shares reserved for issuance
under the Directors' Plan, the Company will deplete the options available for
grant thereunder within the next few years.
AMENDED DIRECTORS' PLAN BENEFITS
The following table sets forth information with respect to stock option
grants to be made under the Directors' Plan to the Company's non-employee
directors for the fiscal year ending June 30, 2001.
AMENDED DIRECTORS' PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
NUMBER OF
SHARES SUBJECT
TO OPTIONS TO BE
DOLLAR VALUE GRANTED DURING
NAME OF INDIVIDUAL OR IDENTITY OF GROUP ($)(1) FISCAL 2001(#)
--------------------------------------- ------------ ----------------
<S> <C> <C>
Karl C. Powell(2)........................................ -- 25,000
John E. McNulty(2)....................................... -- 25,000
All current directors who are not executive officers (2
persons)............................................... -- 50,000
</TABLE>
---------------
(1) Pursuant to the Directors' Plan and assuming the continued service of these
directors, these stock options will be automatically granted on July 1, 2000
at an exercise price equal to the closing price of the Company's Common
Stock on July 1, 2000 as listed on The Nasdaq Stock Market.
(2) Mr. Powell and Mr. McNulty were also each granted options to purchase
100,000 shares of Common Stock pursuant to the terms of the Company's 1997
Stock Plan.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required to
approve the proposed amendment to the Company's Directors' Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
PROPOSED AMENDMENT TO THE DIRECTORS' PLAN TO INCREASE THE NUMBER OF SHARES OF
COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY 500,000 SHARES TO A TOTAL OF
825,000 SHARES.
PROPOSAL 3:
APPROVAL OF AMENDMENT TO THE 1997 STOCK PLAN
At the Special 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 8,000,000 shares.
The 1997 Plan was adopted by the Board of Directors in September 1997 and
by the stockholders in April 1998. In June 2000, the Board of Directors approved
an increase of 8,000,000 shares issuable under the 1997 Plan, which, if approved
by the stockholders, would increase the total shares reserved for issuance under
the
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1997 Plan since its inception to 9,050,000 shares. As of June 21, 2000, options
to purchase 1,177,063 shares of Common Stock were outstanding under the 1997
Plan and 5,161,513 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 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.
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
8,000,000 SHARE INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UNDER THE COMPANY'S 1997 PLAN.
PROPOSAL 4:
INCREASE IN AUTHORIZED COMMON STOCK
The Company wishes to amend its restated certificate of incorporation (the
"Certificate"), as currently in effect to increase the authorized Common Stock
of the Company from 50,000,000 to 120,000,000 shares.
As a result of the proposed change, the authorized capital stock of the
Company would consist of 5,000,000 shares of Preferred Stock, of which there are
18,750 shares outstanding, and 120,000,000 shares of Common Stock, of which
there were 29,867,760 shares outstanding on June 21, 2000. In addition, as of
June 21, 2000, options to purchase 434,926 shares of Common Stock were
outstanding under the 1988 Plan, options to purchase 1,177,063 shares of Common
Stock were outstanding under the 1997 Plan, options to purchase 60,000 shares of
Common Stock were outstanding under the Directors' Plan, and options to purchase
2,378,520 shares of Common Stock were outstanding under the 1998 Non-Statutory
Stock Option Plan (the "Non-Statutory Plan"). As of June 21, 2000 (assuming the
adoptions of the proposed amendments to the Company's Directors' Plan and the
1997 Plan), 5,161,513 shares of Common Stock had been reserved to cover future
grants (and subsequent exercise) of options under the 1997 Plan, 549,000 shares
of Common Stock had been reserved to cover future grants (and subsequent
exercise) of options under the Directors' Plan, and 363,338 shares of Common
Stock had been reserved to cover future share issuances under the Company's
Non-Statutory Plan.
PURPOSE AND EFFECT OF AMENDMENT
The purpose of the proposed amendment to the Certificate is to authorize
additional shares of Common Stock which will be available in the event that the
Board of Directors determines that it is necessary or appropriate to effect
future stock dividends or stock splits, to raise additional capital through the
sale of securities, to acquire another company or its business or assets through
the issuance of securities, to establish a strategic relationship with a
corporate partner through the exchange of securities, or to take such other
action
8
<PAGE> 11
necessitating additional shares of stock as deemed appropriate by the Board of
Directors. In determining the appropriate level of authorized shares of Common
Stock, the Board of Directors considered, among other factors (i) the ability of
the Company to issue shares pursuant to the terms of the Series B Preferred
Stock financing (such terms are discussed more fully in Proposal One of this
proxy statement); (ii) the ability of the Company to issue stock options to
employees and directors of the Company; and (iii) the ability of the Company to
raise capital. If the proposed amendment is adopted, 70,000,000 additional
shares of Common Stock will be available for issuance by the Board of Directors
without any further stockholder approval, although certain issuances of shares
may require stockholder approval in accordance with the requirements of the
Nasdaq Stock Market or the Delaware General Corporations Law. The holders of
Common Stock have no preemptive rights to purchase any stock of the Company. The
additional shares might be issued at such times and under such circumstances as
to have a dilutive effect on earnings per share and on the equity ownership of
the present common stockholders. The Company has no pending or proposed
acquisition of or strategic relationship with another company which would
require use of the additional shares to be authorized.
The flexibility of the Board of Directors to issue additional shares of
stock could enhance the Board's ability to negotiate on behalf of the
stockholders in a takeover situation. Although it is not the purpose of the
proposed amendment, the authorized but unissued shares of Common Stock (as well
as the authorized but unissued shares of Preferred Stock) also could be used by
the Board of Directors to discourage, delay, or make more difficult a change in
the control of the Company. For example, such shares could be privately placed
with purchasers who might align themselves with the board in opposing a hostile
takeover bid. The issuance of additional shares might serve to dilute the stock
ownership of persons seeking to obtain control and thereby increase the cost of
acquiring a given percentage of the outstanding stock. The Board of Directors is
not aware of any pending or proposed effort to acquire control of the Company.
VOTE REQUIRED
The approval of the amendment to the Certificate requires the affirmative
vote of a majority of the outstanding shares of Common Stock of the Company. An
abstention or non-vote is not an affirmative vote and, therefore, will have the
same effect as a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO AUTHORIZE AN
ADDITIONAL 70,000,000 SHARES OF COMMON STOCK.
9
<PAGE> 12
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, 2000:
<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>
Gary J. Sbona(3)......................... 2000 -0- -0- 2,400,000 -0-
Chairman and Chief
Executive Officer
Dennis J. Dunnigan(3).................... 2000 -0- -0- -0- -0-
Chief of Operations Officer
Peter R. Simpson(3)...................... 2000 -0- -0- -0- -0-
Chief Financial Officer
John P. Livingston....................... 2000 240,942 -0- 15,000 748
Vice President of Operations 1999 43,269 30,000 100,000 268
Stephen L. Aleshire(4)................... 2000 247,534 85,750(5) 15,000 748
Vice President of Worldwide 1999 197,305 54,000 65,000 32,825(6)
Sales and Customer Service
Bruce N. Moore(7)........................ 2000 327,205 -0- -0- 295,806(12)
Chief Executive Officer and 1999 383,653 135,000 250,000 1,392
President 1998 373,944 -0- 100,000 1,392
R. Marshall Case(8)...................... 2000 156,603 -0- -0- 314
Vice President of Finance 1999 199,324 54,000 65,000 711
and Chief Financial Officer 1998 60,000 43,450(9) 100,000 213
Fred Wiele(10)........................... 2000 149,889 -0- -0- 1,828
Vice President of Marketing 1999 205,768 117,500(11) 125,000 4,752
</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. Sbona, Mr. Dunnigan, and Mr. Simpson are all employees of Regent
Pacific and amounts shown other than option grants represent amounts paid
by Regent Pacific Management Corporation. See Section entitled "Employment
and Change of Control Agreements" for more information on the agreement
with Regent Pacific Management Corporation.
(4) Mr. Aleshire was appointed as an executive officer of the Company on June
16, 1999.
(5) Includes a sign-on bonus.
(6) Includes $31,629 of relocation expenses.
(7) Mr. Moore terminated his employment with the Company on February 14, 2000.
(8) Mr. Case was appointed as an executive officer of the Company on February
23, 1998. Mr. Case terminated his employment with the Company on January
28, 2000.
(9) 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.
(10) Mr. Wiele was appointed as an executive officer of the Company on September
16, 1998 and he terminated his employment with the Company on January 7,
2000.
(11) Includes a $50,000 sign-on bonus.
(12) Includes a severance payment of $295,313.
10
<PAGE> 13
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 2000 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SHARE)(2) DATE 5%($) 10%($)
---- ---------- -------------- ------------ ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gary J. Sbona(4)......... 2,400,000 39.7% $9.4375 02/14/05 6,257,777 $13,828,052
Dennis J. Dunnigan....... -- -- -- -- -- --
Peter R. Simpson......... -- -- -- -- -- --
Stephen L. Aleshire...... 15,000 3% 6.2813 05/11/10 59,254 150,161
John R. Livingston....... -- -- -- -- -- --
Bruce N. Moore........... 15,000 3% $6.2813 05/11/10 $ 59,254 150,161
R. Marshall Case......... -- -- -- -- -- --
Fred Wiele............... -- -- -- -- -- --
</TABLE>
---------------
(1) An aggregate of 6,043,175 options to purchase shares of the Company's Common
Stock was granted to directors, employees, and consultants during the fiscal
year ended June 30, 2000.
(2) 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.
(3) 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 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.
(4) Mr. Sbona's option was not granted under the Company's 1997 Plan or under
the Non-Statutory Plan, but was granted outside these Plans.
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,
2000 and fiscal year-end option values as of June 30, 2000:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
NUMBER OF SHARES VALUE OPTIONS AT JUNE 30, 2000 JUNE 30, 2000($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary J. Sbona........... -- -- -- -- -- --
Dennis J. Dunnigan...... -- -- -- -- -- --
Peter R. Simpson........ -- -- -- -- -- --
Stephen L. Aleshire..... 68,435 530,371 5,938 20,627 14,474 50,278
John R. Livingston...... -- -- -- -- -- --
Bruce N. Moore.......... 562,499 4,422,478 -- -- -- --
R. Marshall Case........ 81,248 521,491 -- -- -- --
Fred Wiele.............. 50,000 373,445 -- -- -- --
</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, 2000 (the
closing price of the Common Stock of the Company
11
<PAGE> 14
was listed on The Nasdaq National Market at $[ ] per share on June 30,
2000) and the exercise price of the options, and multiplying such difference
by the number of shares subject to outstanding options.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
RETAINER AGREEMENT WITH REGENT PACIFIC MANAGEMENT CORPORATION AND OPTION GRANT
TO MR. SBONA
The Company entered into a Retainer Agreement with Regent Pacific
Management Corporation ("Regent") on February 10, 2000. Regent is currently
performing certain management services for the Company and has provided the
Company with a five person management team which includes Gary J. Sbona, Dennis
J. Dunnigan, Thomas E. Gardner, James A. Garvey, and Peter R. Simpson. Pursuant
to the terms of this Agreement, of the five person management team, only Mr.
Sbona has been appointed as an officer of the Company and only Mr. Sbona shall
be held accountable for the fiduciary obligations of an officer of the Company.
The agreement has a twelve month term, provides for a fee of $75,000 per week to
be paid to Regent, includes a retainer of $300,000, and provides for
reimbursement of certain expenses. The Company does not pay salaries to any
member of the management team provided by Regent. In addition, the Company has
granted an option to purchase 2,400,000 shares of Common Stock to Mr. Sbona.
This option vests and becomes fully exercisable upon a Change of Control or if
Mr. Sbona's employment is terminated without cause. Pursuant to the terms of Mr.
Sbona's option grant, a "Change of Control" is generally deemed to occur in the
event of: (1) a merger, (2) a sale of substantially all of the Company's assets,
or (3) any person acquiring control over fifty percent (50%) of the Company's
voting securities.
CHANGE OF CONTROL AGREEMENTS WITH OTHER EXECUTIVE OFFICERS
The Company has in place Change of Control Severance Agreements with the
Named Executive Officers, other than the Named Executive Officers provided by
Regent. Generally, under the terms of these agreements with the other executive
officers in the event of a Change of Control of the Company, the executive
officers shall receive an amount equal to one hundred percent (100%) of the
executive officers' annual compensation. Such payments would only apply to the
extent the executive officers' employment is terminated by the executive officer
for good reason, by the Company other than for cause, or due to death or
disability. Pursuant to the terms of these agreements, a "Change of Control" is
generally deemed to occur in the event of: (1) a merger, (2) a sale of
substantially all of the Company's 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 incumbent directors.
CHANGE OF CONTROL PROVISIONS IN OTHER AGREEMENTS
The Non-Statutory Plan and the 1997 Plan both contain change of control
provisions. Generally, under these plans, 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 1/12 (Non-Statutory Plan) or 1/16 (1997 Plan) 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 is located in
Appendix B to this Proxy Statement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of the fiscal year ended June 30, 2000, the Compensation Committee
consisted of John E. McNulty, W. Frank King, and R. Stephen Cheheyl. The Company
is not aware of any interlocks or insider participation required to be disclosed
under applicable rules of the SEC.
12
<PAGE> 15
BOARD OF DIRECTORS COMPENSATION
As of February 14, 2000, compensation for directors who are not employees
of the Company was decreased to the rate of $12,000 per annum and an additional
$2,000 per meeting. 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 Directors' Plan. The Board of Directors suspended the
automatic grant mechanism under the Directors' Plan for one year. The Company
expects that as of June 2000 at the end of the present one-year suspension of
the Directors' Plan, to resume the previous automatic option grants under the
Directors' Plan. Employee directors do not receive any separate consideration
for their service on the Board. In addition, options to purchase 100,000 shares
of Common Stock were made to Mr. Powell and Mr. McNulty pursuant to the 1997
Plan.
13
<PAGE> 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 21, 2000 (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
person who served as Chief Executive Officer of the Company during the Company's
last fiscal year and the four most highly compensated officers other than the
Chief Executive Officer who were serving as executive officers at the end of the
Company's last fiscal year, (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 OF
FIVE PERCENT STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS NUMBER OWNERSHIP
----------------------------------------------------------- --------- -------------
<S> <C> <C>
State of Wisconsin Investment Board(2)...................... 3,687,200 12.3%
P.O. Box 7842
Madison, WI 53707
West Highland Capital Inc.(3)............................... 3,000,000 10.0%
300 Drakes Landing Road Suite 290
Greenbrae, CA 94904
Crabbe Huson Group, Inc.(4)................................. 2,877,378 9.6%
121 SW Morrison, Suite 1400
Portland, OR 97204
James E. Crabbe(5).......................................... 1,968,000 6.6%
121 SW Morrison, Suite 1400
Portland, OR 97204
Gary J. Sbona(6)............................................ 1,200,000 3.9%
Peter J. Simpson(7)......................................... 1,100 *
John R. Livingston(7)....................................... 38,390 *
Dennis J. Dunnigan(7)....................................... 0 *
Karl C. Powell(7)........................................... 127,000 *
John E. McNulty(7).......................................... 13,400 *
Bruce N. Moore(7)........................................... 0 *
R. Marshall Case(7)......................................... 0 *
R. Stephen Cheheyl(7)....................................... 37,000 *
W. Frank King(7)............................................ 30,000 *
Fred Wiele(7)............................................... 0 *
Stephen L. Aleshire(7)...................................... 31,374 *
All current executive officers and directors as a group (10
persons)(8)............................................... 1,484,264 4.8%
</TABLE>
---------------
* Less than one percent.
(1) Applicable percentage of ownership is based on 29,862,760 shares of the
Company's Common Stock outstanding as of June 21, 2000 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 June 21, 2000
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 upon a
Schedule 13G/A filed with the SEC in January 2000 and subsequent
conversations with the investor.
(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
14
<PAGE> 17
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 3,000,000 shares. Information provided
herein is based upon a schedule 13D filed with the SEC in February 2000 and
subsequent conversations with the investor.
(4) Crabbe Huson Group, Inc. claims shared voting power over a total of
2,668,578 shares and shared dispositive power over a total of 2,877,378
shares. Information provided herein is based upon a Schedule 13G/A filed in
February 2000 and subsequent conversations with the investor.
(5) James E. Crabbe, Trustee of the James E. Crabbe Revocable Trust claims sole
voting and dispositive power as to the 1,968,000 shares. Information
provided herein is based upon a Schedule 13D/A filed with the SEC in
February 2000 and subsequent conversations with the investor.
(6) Includes 1,200,000 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 21, 2000.
(7) Includes shares of Common Stock issuable upon exercise of options
exercisable within 60 days of June 21, 2000 as follows: Peter J. Simpson, 0
shares; Dennis J. Dunnigan, 0 shares; Karl C. Powell, 0 shares; John
McNulty, 0 shares; Bruce N. Moore, 0 shares; R. Marshall Case, 0 shares;
Fred Wiele, 0 shares; Stephen L. Aleshire, 28,124 shares; John P.
Livingston, 35,000 shares; R. Stephen Cheheyl, 32,000 shares; W. Frank King,
36,000 shares.
(8) Includes 1,331,124 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 21, 2000.
INFORMATION INCORPORATED BY REFERENCE
This proxy statement incorporates by reference the following documents and
information, all of which the Company has filed in the past with the SEC:
The Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1999 filed on September 27, 1999. The Company's Form 10Q for the quarter ended
September 30, 1999 filed on November 12, 1999. The Company's Form 10Q for the
quarter ended December 31, 1999 filed on February 10, 2000. The Company's Form
10Q for the quarter ended March 31, 2000 filed on May 11, 2000.
The Company will provide without charge to each person to whom a copy of
this proxy statement is delivered, upon written or oral request, a copy of the
information that has been or may be incorporated by reference in this proxy
statement, other than exhibits to such documents. Direct any request for such
copies to Auspex Systems, Inc., 2800 Scott Boulevard, Santa Clara, California,
95050, Attention: Secretary.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Special
Meeting. If any other matters properly come before the Special Meeting, it is
the intention of the persons named in the enclosed Proxy to vote the shares they
represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
/s/ Henry P. Massey, Jr.
Henry P. Massey, Jr.
Secretary
Dated: [July , 2000]
15
<PAGE> 18
APPENDIX A
SUMMARY OF THE 1993 DIRECTORS' STOCK OPTION PLAN
(INCLUDING PROPOSED AMENDMENT)
The Company's 1993 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Board of Directors in March 1993 and was approved by the
stockholders in April 1993. Including the 500,000 shares reserved for issuance
by the Board of Directors in June 2000, a total of 825,000 shares of Common
Stock has been reserved for issuance under the Directors' Plan. This Summary
assumes adoption of the proposed amendments.
Purpose. The purposes of the Directors' Plan are to attract and retain the
best available personnel for service as directors of the Company, to provide
additional incentive to the outside directors of the Company to serve as
directors and to encourage their continued service on the Board of Directors.
Administration. Except as may otherwise be required pursuant to the terms
of the Directors' Plan or applicable law, the Directors' Plan is administered by
the Board of Directors. However, all options granted under the Directors' Plan
are automatic and nondiscretionary. All decisions, determinations, and
interpretations of the Board of Directors shall be final and binding on all
participants.
Eligibility. Options may be granted only to the Company's outside
directors. An outside director who has been granted an option may, if he or she
is otherwise eligible, be granted an additional option or options in accordance
with such provisions. The Directors' Plan defines the term "outside director" as
a director of the Company's Board of Directors who is not otherwise an employee
or a consultant of the Company.
Terms of Options. Each new outside director will automatically be granted
an option to purchase twenty-five thousand (25,000) shares of Common Stock on
the date on which such person first becomes a member of the Board of Directors.
On the first business date of each fiscal year and during the term of the
Directors' Plan, each outside director will automatically receive a nonstatutory
stock option to purchase eight thousand (8,000) shares of Common Stock if he or
she has served on the Board of Directors for at least six (6) months.
The term of each option is ten (10) years from the date of grant.
Each option granted under the Directors' Plan shall be evidenced by a
written stock option agreement between the optionee and the Company and is
subject to the following terms and conditions:
Exercise Price. The exercise price of options granted under the Directors'
Plan shall be 100% of the fair market value per share on the date of grant. For
so long as the Company's Common Stock is listed on The Nasdaq National Market or
a stock exchange, the fair market value per share shall be the closing price on
such system or exchange on the date of the grant of the option, as reported in
the Wall Street Journal.
Exercise of Option. Except as described below, options granted under the
Directors' Plan are exercisable only while the optionee remains a director of
the Company. The first option granted under the Directors' Plan will become
exercisable as to 1/16 of the shares subject to such option on the last day of
each calendar quarter beginning with the first full calendar quarter after the
date of grant. Subsequent options shall become exercisable as to 1/16 of the
shares subject to such option on the last day of each calendar quarter beginning
with the calendar quarter in which the subsequent option is granted.
An option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
option by the person entitled to exercise the option and full payment for the
shares with respect to which the option is exercised has been received by the
Company. The consideration to be paid for the shares shall consist entirely of
cash, check, other shares of Common Stock which (i) either have been owned by
the optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company and (ii) have a fair market value on the date of
surrender equal to the aggregate exercise price of the shares as to which the
option granted under this Directors' Plan shall be exercised, delivery of a
properly executed exercise notice together with instructions to a broker to
deliver to the
A-1
<PAGE> 19
Company the amount of sale proceeds required to pay the exercise price, or any
combination of such methods of payment.
Termination, Disability or Death. If an optionee ceases to serve as a
director, other than due to death or permanent disability, such optionee may,
but only within three (3) months after the date he or she ceases to be a
director of the Company, exercise his or her option to the extent that he or she
was entitled to exercise it at the date of such termination. To the extent that
the optionee was not entitled to exercise an option at the date of such
termination, or if the optionee does not exercise such option (which he or she
was entitled to exercise) within the time specified, the option shall terminate.
In the event an optionee is unable to continue service as a director as a
result of total and permanent disability (as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code")), such optionee may, but
only within six (6) months from the date of termination, exercise his or her
option to the extent he or she was entitled to exercise it at the date of such
termination. To the extent that the optionee was not entitled to exercise an
option at the date of termination, or if the optionee does not exercise such
option (which he or she was entitled to exercise) within the time specified, the
option shall terminate.
In the event of the death of an optionee while serving as a director for
the Company, the option may be exercised at any time within six (6) months
following the date of death by the optionee's estate or by a person who acquired
the right to exercise the option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the optionee
continued living and remained a director for six (6) months after the date of
death. If the optionee dies within three (3) months of termination of status as
a director, the option may be exercised at any time within six (6) months
following the date of death by the optionee's estate or by a person who acquired
the right to exercise the option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of termination.
Nontransferability of Options. An option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the optionee, only by the optionee.
Adjustments Upon Changes in Capitalization or Merger. 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 Directors' Plan and in the purchase price per
share.
In the event of the proposed dissolution or liquidation of the Company, the
option 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, then each option shall
become vested and exercisable as to an additional 25% of the shares subject to
such option. If the successor corporation does not assume an outstanding option
or substitute an equivalent option, in addition to the shares that have already
vested as to such option, the optionee shall have the right to exercise the
option as to all of the optioned stock including shares as to which the option
would not otherwise be exercisable. If an option becomes exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
participant shall have fifteen (15) days to exercise such option. 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. The Board of Directors may amend or terminate
the Directors' Plan from time to time. Any such amendment or termination shall
not impair the rights of any optionee unless mutually agreed otherwise between
the optionee and the Company as evidenced in writing. The Company shall obtain
A-2
<PAGE> 20
stockholder approval for any Directors' Plan amendment to the extent necessary
and desirable to comply with any applicable law, rule or regulation.
The Directors' Plan shall continue in effect until 2003 unless terminated
earlier by the Board of Directors.
TAX INFORMATION
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. 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.
The foregoing does not purport to be a complete summary of the effect of
federal income taxation upon the optionee and the Company with respect to the
grant of options and purchase of shares under the Directors' Plan, and reference
should 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 optionee may reside.
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<PAGE> 21
APPENDIX B
SUMMARY OF 1997 STOCK PLAN
(INCLUDING PROPOSED AMENDMENTS)
General. The purposes of the 1997 Stock Plan (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.
Stock Subject to Plan. Subject to the adjustments described below, the
maximum aggregate number of share of Common Stock which may be issued pursuant
to the plan is 9,050,000.
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 750,000 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 250,000 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 exercise price of a
nonstatutory option may be not be less than 75% 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 will generally vest and become exercisable over four
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 stock options 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% stockholder,
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<PAGE> 22
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
nonstatutory 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
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<PAGE> 23
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 1/16 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. 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. 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 ten 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.
Non-statutory 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.
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
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<PAGE> 24
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> 25
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this proxy statement of our report dated July 23, 1999 included
in the Form 10-K of Auspex Systems, Inc. for the year ended June 30, 1999.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
June 28, 2000
<PAGE> 26
DETACH HERE
PROXY
AUSPEX SYSTEMS, INC.
2800 SCOTT BOULEVARD, SANTA CLARA, CA 95050
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 15, 2000
The undersigned stockholder of Auspex Systems, Inc., a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of
Special Meeting of Stockholders and Proxy Statement each dated [July ___, 2000]
and hereby appoints Gary J. Sbona and Peter R. Simpson, 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
2000 Special Meeting of Stockholders of the Company to be held on August 15,
2000 at 9:00 a.m. local time, at the Company's headquarters, located at 2800
Scott Boulevard, 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 below.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BELOW, OR,
IF NO CONTRARY DIRECTION IS INDICATED, WILL VOTE FOR PROPOSALS 1, 2, 3, 4, and 5
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING.
---------------- ----------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
---------------- ----------------
DETACH HERE
Please mark
[X] votes as in
his example.
TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE MARK, SIGN
AND DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
<TABLE>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To ratify the sale and issuance by the Company on January 18, 2000 in a [ ] [ ] [ ]
private placement of 25,000 shares of Series B Convertible Preferred
Stock and Warrants to purchase an aggregate of 1,605,136 shares of
Common Stock, and to approve the issuance of Common Stock upon
conversion of the Series B Convertible Preferred Stock and upon exercise
of such Warrants.
</TABLE>
<PAGE> 27
<TABLE>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. To approve an amendment to the Company's 1993 Directors' Stock Option [ ] [ ] [ ]
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 500,000 shares to a total of 825,000 shares.
3. To approve an amendment to the Company's 1997 Stock Plan to increase the [ ] [ ] [ ]
shares reserved for issuance thereunder by 8,000,000 shares to a total
of 9,050,000 shares.
4. To increase the authorized number of shares of Common Stock of the [ ] [ ] [ ]
Company from 50,000,000 shares to 120,000,000 shares.
5. To transact such other business as may come properly before the meeting [ ] [ ] [ ]
or any postponements or adjournments thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ] (This Proxy should
be marked, dated, 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, 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:____________
</TABLE>
