<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[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
ARI Network Services, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE> 2
ARI NETWORK SERVICES, INC.
330 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
_______________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
November 19, 1997
To the Shareholders of ARI Network Services, Inc.:
The 1997 Annual Meeting of Shareholders of ARI Network Services, Inc. will
be held at 330 East Kilbourn Ave., Suite 725 Milwaukee, Wisconsin, on
Wednesday, November 19, 1997 at 9:00 a.m., local time, for the following
purposes:
(1) To re-elect two directors to serve until 2000;
(2) To consider and act upon a proposal to amend the Company's
Articles of Incorporation to effect a one-for-four reverse stock
split of the Company's Common Stock while keeping 25,000,000
authorized shares of $.001 par value Common Stock (the "Reverse
Split");
(3) To ratify the appointment of Ernst & Young LLP to audit the
books and accounts of the Company for the fiscal year ending July
31, 1998; and
(4) To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on October 7, 1997 are
entitled to notice of and to vote at the Annual Meeting and at all adjournments
thereof.
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES MUST BE PRESENT IN PERSON
OR BY PROXY IN ORDER FOR THE MEETING TO BE HELD. SHAREHOLDERS ARE URGED TO
DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE WHETHER
OR NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU ATTEND THE
MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO BY REVOKING YOUR
PROXY AT ANY TIME PRIOR TO THE VOTING THEREOF.
Mark L. Koczela, Secretary
October 17, 1997
<PAGE> 3
ARI NETWORK SERVICES, INC.
330 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
PROXY STATEMENT
The expenses of printing and mailing proxy materials, including expenses
involved in forwarding materials to beneficial owners of stock, will be borne
by the Company. No solicitation other than by mail is contemplated, except
that officers or employees of the Company may solicit the return of proxies
from certain shareholders by telephone. This Proxy Statement and the
accompanying Proxy and Annual Report to Shareholders are being sent to the
Company's shareholders commencing on October 17, 1997.
Each shareholder of record at the close of business on October 7, 1997
will be entitled to one vote for each share of common stock registered in such
shareholder's name. As of October 7, 1997, the Company had outstanding
15,420,974 shares of common stock, par value $.001 per share (the "Common
Stock"). The presence, in person or by proxy, of a majority of the shares of
Common Stock outstanding on the record date is required for a quorum at the
Annual Meeting.
Any shareholder executing and delivering the enclosed proxy may revoke the
same at any time prior to the voting thereof by written notice of revocation
given to the Secretary of the Company.
UNLESS OTHERWISE DIRECTED, ALL PROXIES WILL BE VOTED FOR THE ELECTION OF EACH
OF THE INDIVIDUALS NOMINATED TO SERVE AS DIRECTORS AND FOR EACH OF THE OTHER
PROPOSALS. DIRECTORS WILL BE ELECTED BY A PLURALITY OF VOTES CAST AT THE
ANNUAL MEETING (ASSUMING A QUORUM IS PRESENT) UP TO THE MAXIMUM NUMBER OF
DIRECTORS TO BE CHOSEN AT THE ANNUAL MEETING. THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE SHARES OF COMMON STOCK IS NECESSARY TO APPROVE THE REVERSE
SPLIT. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON STOCK
PRESENT IN PERSON OR BY PROXY AT THE ANNUAL MEETING (ASSUMING A QUORUM IS
PRESENT) IS REQUIRED TO APPROVE THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE
COMPANY'S AUDITORS. FOR PURPOSES OF DETERMINING THE NUMBER OF VOTES CAST WITH
RESPECT TO A VOTING MATTER, ONLY VOTES CAST "FOR" OR "AGAINST" ARE INCLUDED.
ABSTENTIONS AND BROKER NON-VOTES ARE COUNTED ONLY FOR PURPOSES OF DETERMINING
WHETHER A QUORUM IS PRESENT AT THE ANNUAL MEETING.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock by each person known by the
Company to beneficially own 5% or more of the Common Stock, by each director or
nominee of the Company, by certain executive officers of the Company, and by
all directors and executive officers of the Company as a group as of September
30, 1997.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF BENEFICIAL
NAME OF BENEFICIAL OWNERS OWNERSHIP (1) PERCENT
------------------------- ------------- -------
<S> <C> <C>
WITECH Corporation (2)(3)............................... 3,420,744 21.2%
231 West Michigan Street, Milwaukee, WI 53203
Vulcan Ventures Incorporated (4) (5).................... 2,157,791 13.9%
110 110th Avenue N.E., Suite 550, Bellevue, WA 98004
Applewood Associates L.P................................ 1,800,000 11.7%
68 Whetley Road, Brookville, NY 11545
State of Wisconsin Investment Board..................... 1,267,500 8.2%
121 W. Wilson Street, Madison, WI 53703
RPI Holdings, Inc. (6)(7)............................... 1,227,257 7.9%
330 East Kilbourn Avenue, Milwaukee, WI 53202
William H. Alverson (8)................................. 20,000 *
John C. Bray (9)........................................ 50,000 *
Gordon J. Bridge (10)................................... 85,000 *
Francis Brzezinski (3)(11).............................. 19,750 *
George D. Dalton (12)................................... 35,750 *
Brian E. Dearing (13)................................... 248,627 1.6%
Mark L. Koczela (14).................................... 160,913 1.0%
Michael R. McGurk (15).................................. 32,250 *
Eric P. Robison (5) (16)................................ 16,050 *
Richard W. Weening (17)................................. 173,875 1.1%
All officers and directors as a group (10 persons) (18). 842,215 5.3%
</TABLE>
- ---------------------
*Less than 1%
(1) Except as otherwise noted, the persons named in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them. Indicated options and warrants are
exercisable within 60 days of September 30, 1997.
(2) WITECH's shares include 700,000 shares subject to a warrant.
(3) Francis Brzezinski is an officer and director of WITECH and has voting
control of the Common Stock held by WITECH.
(4) Vulcan's shares include 125,000 shares subject to warrants.
(5) Mr. Robison is a Business Development Associate of Vulcan, N.W., an
affiliate of Vulcan Ventures Incorporated.
(6) Includes 60,625 shares subject to a warrant.
(7) William H. Alverson and Richard W. Weening are shareholders and directors
of RPI Holdings, Inc. ("RPI").
(8) Includes options for 15,000 shares. Mr. Alverson's shares exclude
any shares held by RPI.
(9) Includes options for 50,000 shares.
(10) Includes options for 85,000 shares.
(11) Includes options for 18,750 shares. Mr. Brzezinski's total excludes any
shares held by WITECH.
(12) Includes options for 32,750 shares.
(13) Includes options for 248,627 shares.
(14) Includes options for 160,013 shares.
(15) Includes options for 32,250 shares.
(16) Includes options for 16,050 shares. Mr. Robison's shares exclude any
shares held by Vulcan.
(17) Includes options for 100,000 shares and a warrant for 60,625 shares. Mr.
Weening's total excludes any shares held by RPI.
(18) Includes options and warrants for 819,065 shares.
2
<PAGE> 5
ELECTION OF DIRECTORS
The Company's directors are divided into three classes, with staggered
terms of three years each. At the Annual Meeting, shareholders will elect two
directors to serve until 2000.
DIRECTORS WHOSE TERMS
EXPIRE AT THE ANNUAL MEETING IN 2000
------------------------------------
GEORGE D. DALTON, 68; Mr. Dalton, a director since March, 1994, is
Chairman and Chief Executive Officer and a director of FIserv Inc., a major
provider of data processing outsourcing and related products and services for
financial institutions. Mr. Dalton was one of the original investors in FIserv
when it was formed in 1984. Mr. Dalton is also a director of APAC
Teleservices, Inc.
GORDON J. BRIDGE, 55; Mr. Bridge, a director since 1995, is President,
Chief Executive Officer and Chairman of the Board of CONNECT, Inc. Prior to
joining CONNECT, Mr. Bridge was with QUAESTUS Management Corporation as an
Executive Vice President. Prior to joining QUAESTUS Mr. Bridge was with AT&T
where he held various executive management positions from 1988 to 1995. Most
recently, Mr. Bridge served as Vice President, Corporate Strategy for Emerging
Services and Products for AT&T. He previously managed three business units for
AT&T, including Consumer Interactive Services, EasyLink Services and Computer
Systems. Prior to joining AT&T, Mr. Bridge was with the IBM Corporation for 23
years. Mr. Bridge holds a B.A. in mathematics from Bradley University.
DIRECTORS WHOSE TERMS
EXPIRE AT THE ANNUAL MEETING IN 1999
------------------------------------
ERIC P. ROBISON, 38; Mr. Robison, a director since 1994, is a business
development associate for Vulcan Northwest in Bellevue, Washington, the
investment company of Paul G. Allen, co-founder of Microsoft. From 1991 to
1994 when he joined Vulcan, Mr. Robison was co-founder and Vice President of
The Stanton Robison Group, Inc., a business development, marketing and
advertising consulting firm. From 1989 to 1991 Mr. Robison was Vice President
of Marketing of SGS, Inc., a seafood restaurant chain in Mountlake Terrace,
Washington. Pursuant to an Agreement between Vulcan Ventures and the Company,
Vulcan Ventures designated Mr. Robison for election to the Board. Mr. Robison
is also a director of Egghead Software and c/net.Inc.
WILLIAM H. ALVERSON, 64; Mr. Alverson, a director since 1983, is a
shareholder and member of the Board of Directors of Godfrey & Kahn, S.C., a
Milwaukee law firm where he has been employed since 1966.
FRANCIS BRZEZINSKI, 46; Mr. Brzezinski, a director since 1990, is Vice
President, Wisconsin Energy Corporation and President of its real estate and
venture subsidiaries WISPARK, WITECH and WISVEST. Mr. Brzezinski has been
employed by Wisconsin Energy Corporation since 1990.
DIRECTORS WHOSE TERMS
EXPIRE AT THE ANNUAL MEETING IN 1998
------------------------------------
BRIAN E. DEARING, 42; Mr. Dearing, a director since 1995, is President
and Chief Executive Officer of the Company. Prior to joining the Company, Mr.
Dearing held the position of Vice President - EDI Business Development in
London, England, with Sterling Software, Inc. Since 1990, Mr. Dearing held a
series of electronic commerce executive positions at Sterling including Vice
President of Marketing and Vice President of Customer Service for Sterling's
North American EDI business, as well as Vice President of European Network
Services. Prior to joining Sterling, Mr. Dearing was Manager of EDI Market
Development and Manager of EDI Product Management with General Electric
Information Services. Mr. Dearing holds a Masters Degree in Industrial
Administration from Krannert School of Management at Purdue University and a BA
in Political Science from Union College. He also spent a year of undergraduate
studies at the London School of Economics.
3
<PAGE> 6
RICHARD W. WEENING, 51; Mr. Weening, a director since 1981, is Chairman
of the Board of the Company. Mr. Weening organized the Company in 1981 as a
business information publishing subsidiary of Raintree Publishers, Inc., now
known as RPI Holdings, Inc. ("RPI"). He served as President and Chief
Executive Officer of the Company until October 1987 and Chairman and Chief
Executive Officer of the Company until October 1990. Mr. Weening is also the
President and Chief Executive Officer of QUAESTUS Management Corporation, a
private equity investment management firm. From 1972 to present Mr. Weening
has also served as President of RPI, a significant shareholder of the Company.
See "Security Ownership of Certain Beneficial Owners." Mr. Weening is also a
director of Connect, Inc.
The Board of Directors held ten meetings in fiscal 1997. Each incumbent
director, except Mr. Weening attended 75 percent or more of the combined number
of meetings of the Board and Committees on which such director served.
The Company's Board of Directors has established an Executive Committee
that currently is composed of Mr. Dearing, Mr. Bridge, Mr. Brzezinski and Mr.
Weening. Mr. Bridge serves as Chairman of the Executive Committee. The duties
of the Executive Committee are to review the monthly management report with the
CEO; act as a resource to the CEO in the development of the Company's Business
Plan, overall business strategy and any other matter which the CEO or any
member deems appropriate. The Executive Committee also considers and acts upon
matters requiring Board consideration between regular meetings of the full
Board not prohibited by law or by the by-laws of the Company. The Executive
Committee also reviews and approves compensation including base salary,
benefits, bonus and (subject to the review and approval of the Stock Option
Committee) stock option awards for the CEO and the CEO recommendations for all
management level employees. The Executive Committee also reviews and makes
recommendations to the Board as to appropriate action regarding any and all
matters of corporate finance, acquisitions, the sale of stock, the incurrence
of debt and the sale of assets. The Executive Committee met eight times during
fiscal 1997.
The Company's Board of Directors has established an Audit Committee that
currently is composed of Mr. Brzezinski and Mr. Alverson. The duties of the
Audit Committee are to evaluate the independent auditors; to make
recommendations as to the selection of independent auditors; to review the
audit plan and scope with the independent auditors; to review audit results; to
review transactions between management and the Company; to review reports of
the accounting staff of the Company and its auditors as to the adequacy of its
system of internal controls; and to make appropriate inquiries respecting
financial matters to the auditors and others. The Audit Committee met once
during fiscal 1997.
The Company's Board of Directors has established a Stock Option Committee
that currently is composed of Mr. Brzezinski and Mr. Alverson. The duties of
the Stock Option Committee are to administer the Company's 1991 Incentive Stock
Option Plan, the 1992 Employee Stock Purchase Plan and the 1993 Director Stock
Option Plan. The Stock Option Committee did not meet in fiscal 1997.
The Board of Directors does not have a nominating committee, as decisions
regarding Board membership are made by the full Board.
Each member of the Board of Directors is compensated under the Director
Stock Option Plan in lieu of any cash compensation. Under the Plan, each
director receives options for 500 shares on the first day of each calendar year
and receives options for an additional 1,000 shares for each meeting of the
Board and 350 shares for each meeting of a Committee attended by the director.
In consideration for his services as Chairman of the Executive Committee of the
Board, on October, 1996 Mr. Bridge received a grant of options to acquire
140,000 shares of Common Stock at $2.50 per share which will vest at the rate
of 5,000 per month. The options expire on October, 2006.
Mr. Weening has a consulting arrangement with the Company. See "Certain
Transactions."
4
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth compensation for the last three fiscal
years for each of the Company's executive officers whose salary and bonus
during fiscal 1997 exceeded $100,000 or who served as chief executive officer
at any time during fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Tern
Compensation
Annual Compensation Awards
------------------- ------
Securities
Other Annual Underlying All Other
Name and Principle Position Year Salary ($) Bonus ($) Compensation Options/SARs (#) Compensation ($)
--------------------------- --- --------- --------- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Brian Dearing 1997 $150,000 $33,683 $0 100,000 $0
President & Chief 1996 $109,615 $4,167 $0 350,000 $19,086
Executive Officer(1)
Mark Koczela, Executive 1997 $129,854 $38,947 $0 100,000 $0
Vice President of Business 1996 $125,000 $0 $0 0 $0
Development & 1995 $125,000 $10,000 $0 0 $0
Administration
John C. Bray, Vice 1997 $111,032 $20,320 $18,835 150,000 $0
President of Sales (2)
Michael R. McGurk, Vice 1997 $53,529 $18,343 $0 112,500 $0
President of Technology(3)
</TABLE>
- ---------------------
(1) Mr. Dearing's employment with the Company commenced November 13, 1995.
(2) Mr. Bray's employment with the Company commenced September 30, 1996.
Other annual compensation consists of commission paid on new sales.
(3) Mr. McGurk's employment with the Company commenced January 20, 1997. Mr.
McGurk's annual base salary is at the rate of $100,000.
5
<PAGE> 8
The table below provides information regarding option grants in the year
ended July 31, 1997 to the persons named in the Summary Compensation Table
pursuant to the Company's 1991 Stock Option Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES BASE PRICE
NAME GRANTED # (1) IN FISCAL YEAR (1) ($/SHARE) EXPIRATION DATE
---- ------------- ------------------ --------- ---------------
<S> <C> <C> <C> <C>
Brian E. Dearing 100,000 13% $2.25 11/2006
Mark L. Koczela 100,000 13% $2.25 11/2006
John C. Bray 150,000 20% $2.625 11/2006
Michael R. McGurk 112,500 15% $2.25 03/2007
</TABLE>
- ----------------------
(1) All options granted in the fiscal year were awarded with an exercise
price equal to the fair market value of the Common Stock on the date of
grant. Under the terms of the Plan, the Stock Option Committee retains
discretion to, among other things, accelerate the exercise of an option,
modify the terms of outstanding options (including decreasing the exercise
price), and permit the exercise price and tax withholding obligations
related to exercise to be paid by delivery of already owned shares or by
offset of the underlying shares.
The table below provides information regarding the value of stock options
held at July 31, 1997 by the persons named in the Summary Compensation Table.
None of such persons exercised any options during the fiscal year.
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE AT FY-END (#) AT FY-END ($) (1)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Brian E. Dearing -0- -0- 209,743/240,257 $0/$0
Mark L. Koczela -0- -0- 160,013/75,000 $0/$0
John C. Bray -0- -0- 50,000/100,000 $0/$0
Michael R. McGurk -0- -0- 32,250/80,250 $0/$0
</TABLE>
- ----------------------
(1) "Value" represents the difference between the $0.875 closing price of the
Common Stock on July 31, 1997 (the last trading day in the fiscal year)
and the exercise price of the options, multiplied by the number of shares
underlying the options.
6
<PAGE> 9
CERTAIN AGREEMENTS
The Company and Mr. Dearing are parties to a letter describing the terms
of his employment. Mr. Dearing is to receive an annual base salary of
$150,000. Mr. Dearing is eligible to receive a $75,000 cash bonus if he meets
the objectives set jointly by the Board of Directors and Mr. Dearing. In
connection with his employment letter, Mr. Dearing was granted options for
350,000 shares of the Company's common stock at a price of $1.625 per share.
The options are to vest over a three year period, with 116,696 vesting after 12
months of continuous employment. The remainder will vest at a rate of 9,721
per month for the following 24 months. Mr. Dearing is to receive 9 months of
full salary continuance and Company-paid medical and dental benefits if his
employment is involuntarily terminated within 24 months of November 13, 1995 or
within 18 months as a result of the Company being sold, liquidated or merged.
CERTAIN TRANSACTIONS
The Company and QUAESTUS Management Corporation, an affiliate of RPI
Holdings, Inc., one of the shareholders of the Company, are parties to an
engagement letter dated September 30, 1993 as amended (the "QMC Letter").
Under the QMC Letter, QUAESTUS assists the Company with investor relations,
executive recruiting, business and strategic planning and corporate finance
matters. During fiscal 1997, QUAESTUS provided consulting services for the
Company and was paid an aggregate of $176,000 including out-of-pocket expenses.
The Agreement can be terminated by the Company or QUAESTUS on 30 days written
notice.
The Company and QUAESTUS were also parties to a sublease dated June 4,
1991. Pursuant to such sublease, QUAESTUS subleased approximately 4,000 square
feet of office space from the Company at a gross rate of $19.15 per square
foot, subject to an annual 5% increase. The term of the sublease terminated
July 31, 1997. Management believes the rental rate paid by QUAESTUS
approximated the current market rate for similar office space in downtown
Milwaukee.
QUAESTUS, RPI and the Company have entered into certain arrangements
pursuant to which the employees of RPI and QUAESTUS participate in the health
and dental insurance, long-term disability insurance and life insurance plans
offered by the Company to its employees. RPI and QUAESTUS pay the Company an
amount equal to the premiums for their employees covered by such plans.
The Company and Mr. Weening are parties to a Consulting Agreement which
replaced the employment agreement that had been in effect when he served as the
Chairman and CEO of the Company prior to October 1990. Under his employment
agreement and the Company's Incentive Stock Option Plan, Mr. Weening was
granted an option to purchase 100,000 shares of the Company's stock at a price
of $8.00 per share. These options will expire in 2001. Pursuant to the
Consulting Agreement, Mr. Weening is not entitled to receive any cash
compensation for so long as QUAESTUS is retained to assist the Company. If the
Company elects to terminate the QMC Letter, Mr. Weening would again be entitled
to receive his annual compensation at the rate of $125,000 per year under his
Consulting Agreement. If both the QMC Letter and the Consulting Agreement are
terminated, Mr. Weening would be entitled to receive a lump sum payment equal
to $125,000 unless the termination occurs after a change in control of the
Company in which case he would receive $250,000. In any event, unless the
termination is for cause, Mr. Weening is entitled to health and disability
coverage for two years following termination. Pursuant to Mr. Weening's
Consulting Agreement, the Company pays the premium on a split dollar life
insurance policy on his life with a face amount of $1,000,000.
Mr. Alverson is a shareholder of the law firm of Godfrey & Kahn, S.C.,
which the Company retains from time to time to perform legal services.
On December 13, 1996, the Company repaid borrowings from WITECH
Corporation ("WITECH") and QUAESTUS Limited Partnership under a previously
existing secured line of credit (the "Senior Line"). Of the $1,465,000
outstanding under the Senior Line at December 13, 1996, $1,000,000 was repaid
by conversion of such
7
<PAGE> 10
amount into shares of the Company's common stock at a rate of $2.25 per share.
The remaining $465,000 was borrowed under the WITECH Line described below.
The Company has a line of credit with WITECH, (the "WITECH" Line) that has
been in place since October 4, 1993. The WITECH Line was amended on May 30,
1997 to include a bridge loan of $500,000, bringing the line up to $2,500,000.
The bridge loan was paid in full and canceled as of September 30, 1997 and the
balance of the WITECH Line is due on December 31, 1997. Interest due on the
WITECH Line is at the rate of prime plus 2%. On July 28, 1997, the Company
repaid $2,000,000 of the WITECH Line by conversion of such amount into 20,000
shares of the Company's PIK preferred stock at a rate of $100 per share. Under
the WITECH Line, the Company has issued a commitment warrant to WITECH for the
purchase of up to 500,000 shares of common stock at a price of $2.00 per share
and 100,000 shares of its common stock at a price of $2.25 per share pursuant
to an amendment dated November 5, 1996. The Company has issued a usage warrant
to WITECH for a maximum of 100,000 shares of its common stock at a price of
$2.25. The exercise price of the warrants is reduced if the Company issues
common stock at less than the then current exercise price. As of September 30,
1997 there were $1,159,000 of borrowings outstanding under the WITECH Line.
In July 1997, the Company issued 20,000 shares of Series A Preferred Stock
for $2,000,000 to WITECH. The proceeds from the sale were applied against the
outstanding balance of the WITECH Line.
In September 1996, Applewood Associates LP purchased from the Company
1,050,000 additional shares of stock at a purchase price of $2.25 per share.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon its review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company pursuant to Section 16 of the Securities Exchange Act
of 1934, as amended, except as noted below, all of such forms were filed on a
timely basis by reporting persons. William Alverson, Francis Brzezinski, Gordon
Bridge, George Dalton, Mitchell Fromstein, Gerald Kahn, Eric Robison and
Richard Weening reported late on Form 5 option grants under the Company's
Director Stock Option Plan. Mr. Dearing and Mr. Koczela reported late on Form
5 option grants under the Company's Incentive Stock Option Plan.
PROPOSAL TO AMEND ARTICLES OF INCORPORATION TO EFFECT REVERSE STOCK SPLIT
GENERAL
The Board of Directors has determined that it would be advisable to amend
the Company's Articles of Incorporation to effect a one-for-four reverse stock
split of the Company's issued and outstanding Common Stock while keeping
25,000,000 authorized shares of Common Stock, at par value of $0.001, and
1,000,000 authorized shares of Preferred Stock, at a par value of $0.001 (the
"Reverse Split").
Subject to shareholder approval, the Board of Directors has approved an
amendment of the Company's Articles of Incorporation which would add a new
paragraph to the Articles of Incorporation that would result in one post-split
share of Common Stock ("Post-Split Shares of Common Stock") being issued in
exchange for every four shares of Common Stock issued and outstanding on the
effective date of the Reverse Split ("Pre-Split Shares of Common Stock"). The
Reverse Split will not affect the number or par value of the authorized Common
Shares, which will remain at 25,000,000 Common Shares, $0.001 par value per
share. The Reverse Split will not affect the number or par value of the
authorized Preferred Shares, which will remain at 1,000,000 Preferred Shares,
$0.001 par value per share.
The Reverse Split will become effective upon the filing with the Office of
the Wisconsin Department of Financial Institutions of Articles of Amendment to
the Articles of Incorporation of the Company (the "Amendment"). Each share of
Common Stock then issued and outstanding would automatically, without any
action on the part of the holders of such Common Stock, become and be converted
into one fourth of a share of Common Stock. If the Amendment is approved and
management determines to proceed with the Reverse Split management will use its
8
<PAGE> 11
discretion to determine when to file the Amendment. Management currently
expects such Amendment to be filed by December 31, 1997. See "Purposes of the
Reverse Split."
PRINCIPAL EFFECTS OF REVERSE SPLIT
Based upon the 15,420,974 shares of Common Stock outstanding as of October
7, 1997, the Reverse Split would decrease the outstanding shares of Common
Stock by approximately 75%, and, once effective, the Reverse Split would result
in approximately 3,855,244 Post-Split Shares of Common Stock outstanding.
Fractional shares will be settled by rounding up to the next whole share.
Similarly, the aggregate number of shares of Common Stock reserved for issuance
upon exercise of warrants and options would decrease from approximately
2,715,338 shares to approximately 678,835.
Each outstanding option or warrant will automatically become an option or
warrant, as the case may be, to purchase 25% of the number of shares subject to
the option or warrant immediately prior to the Reverse Split at an exercise
price which is four times the exercise price of the option or warrant
immediately prior to the Reverse Split. In addition, the shares available for
issuance under the Company's Incentive Stock Option Plan and Director Stock
Option Plan will be reduced by approximately 75% to reflect the Reverse Split,
and the other relevant terms and provisions of the Company's stock option plans
will be appropriately adjusted to reflect the Reverse Split. The Company will
obtain a new CUSIP number for the Common Stock effective at the time of the
Reverse Split. Following the effectiveness of the Reverse Split, the Company
will provide each record holder of Common Stock information to enable such
holder to obtain new shares and certificates.
The Reverse Split will not affect the par value of the authorized Common
Stock, and the number of authorized shares of Common Stock will remain at
25,000,000 shares, $0.001 par value per share. The Reverse Split will not
affect the number of par value of the authorized Preferred Shares, which will
remain at 1,000,000 Preferred Shares, $0.001 par value per share. As a result,
if the Amendment is approved, the decrease in the number of shares outstanding
and reserved for issuance pursuant to the exercise of options and warrants will
result in an increase in the number of shares available for issuance. The
terms of the Post-Split Shares of Common Stock will be the same as the terms of
the Pre-Split Shares of Common Stock, and subject to the provisions for the
settlement of fractional shares, as described below, consummation of the
Reverse Split will not result in a change in the relative equity interest in
the Company or the voting power or the rights, preferences or privileges of the
holders of Common Stock.
The following table illustrates the principal effects of the Reverse Split
discussed in the preceding paragraphs:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK BEFORE REVERSE SPLIT AFTER REVERSE SPLIT
<S> <C> <C>
Authorized 25,000,000 25,000,000
Outstanding 15,420,974 3,855,244
Subject to Outstanding Options and Warrants 2,715,338 678,835
Reserved for Issuance in Connection with
Future Grants Under Option Plans 628,313 157,078
Available for Future Issuance by Action of
the Board (after giving effect to the
above reservations) 6,235,375 20,308,843
</TABLE>
Assuming the Reverse Split is approved and management determines to
proceed with the Reverse Split, the Company will file Articles of Amendment,
with the Wisconsin Department of Financial Institutions effecting the Reverse
Split. See "Purposes of the Reverse Split." The Reverse Split would become
effective on the date of such filing (the "Effective Date").
9
<PAGE> 12
PURPOSES OF THE REVERSE SPLIT
The Reverse Split would decrease the number of Common Stock outstanding
and presumably increase the per share market price for the Post-Split Shares of
Common Stock. The Company's Board of Directors believes that the relatively
low market price per share of the Company's Common Stock may impair the
marketability of the Common Stock to institutional investors and members of the
investing public. In theory, the number of shares outstanding should not,
alone affect the marketability of the Common Stock, the type of investor who
acquires them, or the Company's reputation in the financial community. In
practice, however, this is often not the case, because many investors look upon
low-priced shares as speculative in nature, and as a matter of policy, avoid
investment in such stocks. These factors may not only affect the liquidity of
the Common Stock, but may also impair the Company's ability to raise additional
capital through the sale of equity securities.
The Board also recognizes that many leading brokerage firms are reluctant
to recommend lower-priced securities to their clients. In addition, a variety
of brokerage house policies and practices currently tend to discourage
individual brokers within firms from dealing in lower-priced stocks. Some of
those policies and practices relate to the payment of broker's commissions and
time-consuming procedures that make the handling of lower priced stocks
economically unattractive to brokers. The structure of brokerage commission
tends to adversely impact holders of lower-priced stocks because brokerage
commissions on a sale of a lower-priced stock generally represent a higher
percentage of the sales price than the commissions on higher-priced stocks.
The Company is currently quoted on the NASDAQ Stock Market as a National
Market Security ("NASDAQ/NMS"). Under new requirements for NASDAQ/NMS
securities that become effective on February 23,1998, the Common Stock must
maintain a minimum $1 bid price to be eligible for continued quotation on
NASDAQ/NMS. On October 2, 1997, the closing bid price of the Pre-Split Shares
of Common Stock was $ .875. If the Company fails to maintain such $1 minimum
bid price, the Common Stock could be subject to delisting. In that event, the
liquidity of the Company's Common Stock could be impaired, through delays in
the timing of transactions, reduction in the news media's coverage of the
Company, lack of investment analyst interest in covering the Company, and lower
prices for the Company's Common Stock than might otherwise be obtained.
The Board of Directors hopes that the decrease in the number of shares
Common Stock outstanding resulting from the Reverse Split and the anticipated
corresponding increased price per share will stimulate interest in the
Company's Common Stock, promote greater liquidity for the Company's
shareholders and result in a price level for the Post-Split Shares of Common
Stock that will better assure that the Company will maintain its NASDAQ/NMS
listing. The Board also hopes that the Reverse Split will result in a price
level for the Post-Split Shares of Common Stock that will mitigate the present
reluctance, policies and practices of brokerage firms, and diminish the adverse
impact of trading commissions, on the potential market for the Company's Common
Stock. However, there is no assurance that the Reverse Split will achieve the
desired results, that the price per Post-Split share of Common will increase
proportionately with the decrease in the number of shares, or that any price
increase can be sustained for a prolonged period of time. In addition, it is
possible that the liquidity of the Post-Split Shares of Common Stock may be
adversely affected by the reduced number of shares outstanding if the proposed
Reverse Split is effected.
Further, the Reverse Split might leave some shareholders with one or more
"odd-lots" of the Company's Common Stock (stock in amounts less than 100
shares). These shares may become more difficult to sell, or require a greater
commission per share to sell, than shares in even multiples of 100.
The Board of Directors believes that the Reverse Split is in the best
interest of the Company and its shareholders.
EXCHANGE OF CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
On the Effective Date, each four Pre-Split Shares of Common Stock will
automatically be combined and changed into one Post-Split Common Share. No
additional action on the part of the Company or any shareholder will be
required in order to effect the Reverse Split and, beginning on the Effective
Date, each certificate representing Pre-
10
<PAGE> 13
Split Shares of Common Stock will represent for all purposes one fourth of
that number of Post-Split Shares of Common Stock. Shareholders will be
requested to exchange their certificates representing shares of Common Stock
held prior to the Reverse Split for new certificates representing Shares of
Common Stock issued as a result of the Reverse Split. The Company's Transfer
Agent will act as the Company's exchange agent in implementing the exchange of
stock certificates.
Shareholders will be furnished the necessary materials and instructions to
effect such exchange promptly following the Effective Date. Certificates
representing Pre-Split Shares of Common Stock subsequently presented for
transfer will not be transferred on the books and records of the Company but
either will be returned to the tendering person for exchange or processed as a
transfer of Post-Split shares of Common Stock. Shareholders should not submit
any certificates until requested to do so.
No scrip or fractional Post-Split Shares of Common Stock will be issued to
any shareholder in connections with the Reverse Split. In lieu of issuance of
any fractional shares that would otherwise result from the Reverse Split, the
Company will issue to any shareholder that would otherwise receive fractional
shares one (1) additional share of Common Stock.
Shareholders are encouraged to surrender their certificates for
certificates evidencing whole Post-Split Shares of Common Stock as promptly as
possible after the Effective Date.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The following general description of the federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended, the applicable
treasury regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this Proxy
Statement, all of which are subject to change and any such change could apply
retroactively. This discussion is for general information only and does not
purport to deal with all aspects of federal income taxation that may be
relevant to the holders of Common Stock and does not discuss the consequences
which may apply to special classes of taxpayers (e.g., non-resident aliens,
broker-dealers, tax exempt organizations, banks or insurance companies).
Shareholders are urged to consult their own tax advisors to determine the
particular federal, state, local and foreign tax consequences to them.
The combination and change of each four Pre-Split Shares of Common Stock
into one Post-Split Common Share should be a tax-free transaction, and no gain
or loss will be recognized to the Company or its shareholders as a result of
the Reverse Split. The holding period of the Pre-Split Shares of Common Stock
will be transferred to the Post-Split Shares of Common Stock received in
exchange therefor, provided that the shareholder held the Pre-Split Shares of
Common Stock as a capital asset at the time of the exchange.
This discussion should not be considered as tax or investment advice, and
the tax consequence of the Reverse Split may not be the same for all
shareholders. Shareholders should consult their own tax advisors to ascertain
their individual federal, state, local and foreign tax consequences.
VOTE REQUIRED
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE REVERSE
SPLIT AND THE RELATED AMENDMENT. PROXIES SOLICITED BY THE BOARD OF DIRECTORS
WILL BE VOTED FOR APPROVAL OF THE AMENDMENT UNLESS SHAREHOLDERS SPECIFY TO THE
CONTRARY IN THEIR PROXIES OR SPECIFICALLY ABSTAIN FROM VOTING ON THIS MATTER.
The Board of Directors reserves the right to abandon the proposed
Amendment and Reverse Stock Split without further action by the shareholders at
any time before the filing of the Amendment with the Wisconsin Department of
Financial Institutions notwithstanding authorization of the proposed Amendment
and Reverse Split by the shareholders.
11
<PAGE> 14
PROPOSALS OF SHAREHOLDERS FOR 1998 ANNUAL MEETING
All proposals of shareholders intended to be presented at the Company's
1998 Annual Meeting must be received by the Company at its executive offices
on or before June 19, 1998, to be considered for inclusion in the proxy
statement for that meeting.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of its Audit Committee, has
appointed Ernst & Young LLP to audit the books and accounts of the Company and
its subsidiaries for the fiscal year ending July 31, 1998 and is seeking the
ratification of this appointment by the shareholders. It is intended that the
shares represented by the proxy will be voted (unless the proxy indicates to
the contrary) for ratification of the appointment.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting with the opportunity to make a statement if he or she desires to
do so, and is expected to be available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which may
come before the meeting. However, if any matters other than those referred to
above should properly come before the meeting, it is the intention of the
persons named in the enclosed proxy to vote such proxy in accordance with their
discretion.
SHAREHOLDERS MAY OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AT NO COST BY WRITING TO
THE OFFICE OF THE CHIEF EXECUTIVE OFFICER, ARI NETWORK SERVICES, INC., 330 E.
KILBOURN AVENUE, MILWAUKEE, WI 53202.
BY ORDER OF THE BOARD OF DIRECTORS
Mark L. Koczela, Secretary
October 17, 1997
<PAGE> 15
ARI NETWORK SERVICES, INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned, a shareholder of ARI Network Services, Inc. (the
"Company"), hereby appoints Brian E. Dearing and Mark L. Koczela and each of
them, as proxies, each with the power to appoint a substitute, and hereby
authorizes each of them to represent and to vote, as designated below, all of
the shares of stock of the Company held of record by the undersigned on October
7, 1997, at the 1997 Annual Meeting of shareholders of the Company to be held
on November 19, 1997 at 9:00 a.m. and at any and all adjournments thereof.
1. ELECTION OF DIRECTORS: [ ] FOR all nominees [ ] WITHHOLD AUTHORITY
below to serve until to vote for all
the Company's 2000 nominees listed
Annual Meeting below.
and until their
successors are
elected and
qualified.
(except as marked
to the contrary
below)
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike
a line through that nominee's name in the list below.)
GEORGE D. DALTON AND GORDON J. BRIDGE
2. To consider and act upon a proposal to amend the Company's Articles of
Incorporation to effect a one-for-four reverse stock split of the Company's
Common Stock while keeping 25,000,000 authorized shares of $0.001 par value
Common Stock (the "Reverse Split").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the selection of Ernst & Young LLP as the Company's Independent
Public Accountants for fiscal 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxy holders are authorized to vote upon such
other matters as may properly come before the 1997 Annual Meeting and at
any adjournment or postponement thereof.
(Continued and to be signed on the reverse side)
<PAGE> 16
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTORS, "FOR" THE
PROPOSED ONE-FOR-FOUR REVERSE STOCK SPLIT, AND "FOR" THE APPOINTMENT OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
Please sign exactly as your name appears below.
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.
Date: , 1997
------------------------------------
-----------------------------------------------
(Signature of Shareholder)
-----------------------------------------------
(Signature of Shareholder - if held jointly)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENVELOPE
PROVIDED.
