<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:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
ARI Network Services, Inc.
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(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
December 14, 2000
To the Shareholders of ARI Network Services, Inc.:
The 2000 Annual Meeting of Shareholders of ARI Network Services, Inc.
will be held at the Hotel Metro, 411 East Mason Street, Milwaukee, Wisconsin, on
Thursday, December 14, 2000 at 9:00 a.m., local time, for the following
purposes:
1. To elect two directors to serve until 2003.
2. To ratify the appointment of one director to serve until 2002.
3. To approve the 2000 Stock Option Plan.
4. To approve the 2000 Employee Stock Purchase Plan.
5. To ratify the appointment of Ernst & Young LLP as independent
auditors.
6. To transact such other business as may properly come before
the meeting.
Shareholders of record at the close of business on November 3, 2000 are
entitled to notice of and to vote at the 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.
By order of the Board of Directors,
Brian E. Dearing, Acting Secretary
November 13, 2000
<PAGE> 3
ARI NETWORK SERVICES, INC.
330 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
PROXY STATEMENT
The Board of Directors of ARI Network Services, Inc. (the "Company")
submits the enclosed proxy for the annual meeting to be held on the date, at the
time and place and for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders. Each shareholder of record at the close of
business on November 3, 2000 will be entitled to one vote for each share of
Common Stock registered in such shareholder's name. As of November 3, 2000, the
Company had outstanding 6,168,270 shares of 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 meeting. This proxy statement
and the accompanying proxy and Annual Report to Shareholders are being sent to
the Company's shareholders commencing on November 13, 2000.
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 THE INDIVIDUALS NOMINATED TO SERVE AS DIRECTORS, FOR THE RATIFICATION OF THE
ACTIONS APPOINTING ONE INDIVIDUAL TO SERVE AS DIRECTOR, AND FOR EACH OF THE
OTHER PROPOSALS. DIRECTORS WILL BE ELECTED BY A PLURALITY OF VOTES CAST AT THE
MEETING (ASSUMING A QUORUM IS PRESENT). THE OTHER PROPOSALS WILL BE APPROVED IF
THE AFFIRMATIVE VOTES EXCEED THE VOTES CAST AGAINST. BROKER NON-VOTES ARE
COUNTED ONLY FOR PURPOSES OF DETERMINING WHETHER A QUORUM IS PRESENT AT THE
MEETING BUT ARE NOT CONSIDERED PRESENT WITH RESPECT TO THAT MATTER AND,
THEREFORE, WILL HAVE NO EFFECT ON THE OUTCOME OF THE VOTING. ABSTENTIONS WILL
ALSO HAVE NO EFFECT ON THE VOTING.
2
<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 October 1,
2000.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNERS BENEFICIAL OWNERSHIP (1) PERCENT
----------------- ------------------------ -------
<S> <C> <C>
WITECH Corporation (2)(3) 1,130,308 18.0%
N16 W23217 Stone Ridge Drive
Waukesha, WI 53188
Briggs & Stratton Corporation 840,000 13.6%
12301 West Wirth Street
Milwaukee, WI 53201
Vulcan Ventures Incorporated 508,198 8.2%
110 110th Avenue, N.E.
Bellevue, WA 98004
John C. Bray (4) 62,375 1.0%
Gordon J. Bridge (5) 53,877 *
Francis Brzezinski (3)(6) 17,947 *
George D. Dalton (7) 34,065 *
Brian E. Dearing (8) 73,750 1.2%
Ted C. Feierstein 0 *
Michael E. McGurk (9) 51,125 *
D. Bruce Merrifield, Jr. 16,000 *
Frederic G. Tillman (10) 10,000 *
Richard W. Weening (11) 144,869 2.3%
All executive officers and directors as a 328,331 5.1%
group (10 persons) (12)
</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 October 1, 2000.
(2) WITECH's shares include 105,000 shares subject to warrants. Excludes
20,350 shares of non-voting, non-convertible Series A Preferred Stock
(the entire series) also owned by WITECH.
(3) Mr. Brzezinski is an officer of WITECH and has voting control of the
Common Stock held by WITECH.
(4) Includes options for 61,125 shares.
(5) Includes options for 39,377 shares.
(6) Includes options for 17,697 shares. Mr. Brzezinski's total excludes
any shares held by WITECH.
(7) Includes options for 18,315 shares.
(8) Includes options for 27,250 shares.
(9) Includes options for 48,625 shares.
(10) Includes options for 10,000 shares.
3
<PAGE> 5
(11) Includes options for 7,942 shares. Mr. Weening's total also includes
40,677 shares held Quaestus Limited Partnership ("QLP"), 10,000 shares
help by Quaestus Management Corp. ("QMC") and 85,000 shares held by RPI
Holdings, Inc. ("RPI"). Mr. Weening disclaims any beneficial ownership in
the shares held by QLP, QMC and RPI in excess of his pecuniary interest,
and the filing of this proxy statement shall not be deemed an admission
that Mr. Weening is the beneficial owner of such securities for purposes
of Section 16 of the Securities Exchange Act of 1934 or for any other
purpose.
(12) Includes options for 230,331 shares. Excludes shares held by WITECH, QLP,
QMC, and RPI.
On April 27, 2000, the Company issued and sold, pursuant to a Securities
Purchase Agreement, dated as of April 25, 2000, by and among the Company and RGC
International Investors, LDC ("RGC"), (i) a convertible subordinated debenture
in the amount of $4,000,000 due on April 27, 2003 (the "Debenture"), convertible
into shares of the Company's Common Stock, (ii) warrants to purchase 600,000
shares of Common Stock (the "Warrants"), and (iii) an investment option to
purchase 800,000 shares of Common Stock (the "Investment Option"). The
Investment Option expires on October 27, 2001 and the Warrants expire on April
27, 2005. The Debenture is convertible into Common Stock at $4 per share and the
Warrants and Investment Option are exercisable at $6 per share, subject in each
case to certain anti-dilution adjustments. At any time after October 27, 2000,
the Company can require RGC to convert the amount owed under the Debenture into
Common Stock at $4.00 per share provided that: (i) the closing bid price of the
Common Stock has been greater than $6.60 for twenty (20) consecutive trading
days and (ii) the Company's resale registration statement has been effective for
at least three (3) months. At any time after April 27, 2001, the Company can
require RGC to exercise the Investment Option if the closing bid price of the
Common Stock is greater than $9.90 for twenty (20) consecutive trading days and
the Company's resale registration statement has been effective for at least
three (3) months. Under the terms of the Debenture and the Investment Option and
Warrants, the Debenture is convertible and the Investment Option and Warrants
are exercisable by RGC only to the extent that the number of shares of Common
Stock issuable, together with the number of shares of Common Stock owned by RGC
and its affiliates, would not exceed 4.9% of the Company's outstanding Common
Stock at the time of conversion or exercise. In certain circumstances where the
Company has the right to force conversion of the Debenture and exercise of the
Investment Option, RGC's percentage ownership may exceed 4.9% but cannot exceed
9.9%. Except as described above, RGC cannot acquire more than 4.9% of the
Company's Common Stock at one time, and is not included in the table above or in
"Certain Transactions," below.
As long as $500,000 or more principal amount of the Debenture is outstanding,
the Company agreed not to: (i) pay any dividends or make any other distribution
on our Common Stock, other than stock dividends and stock splits; (ii)
repurchase or redeem any shares of our capital stock, except in exchange for
Common Stock or preferred stock; (iii) incur or assume any liability for
borrowed money, except our existing debt, debt from a bona fide financial
lending institution, indebtedness to trade creditors, borrowings used to repay
the debenture, indebtedness assumed or incurred in connection with the
acquisition of a business, product, license or other asset, refinancings of any
of the above, and indebtedness that is subordinate to the debenture; (iv) sell
or otherwise dispose of assets outside the normal course of business, except the
sale of a business, product, license or other asset that our board of directors
determines is in the best interests of us and our shareholders, and sales of
assets with a value not exceeding $500,000 in any 12-month period following the
issuance of the debenture; or (v) lend money or make advances to any person not
in the ordinary course of business, except loans to subsidiaries or joint
ventures approved by a majority of our independent directors, guarantee another
person's liabilities, except, among other things, guarantees made in connection
with the acquisition of a business, product, license or other asset.
4
<PAGE> 6
ELECTION OF DIRECTORS
The Company's directors are divided into three classes, with staggered
terms of three years each. At the meeting, shareholders will elect two directors
to serve until 2003 and ratify the appointment of one director to serve until
2002. Mr. Dalton has declined to stand for re-election as a director because of
other commitments. Until his replacement has been appointed, the Board will be
composed of six members.
NOMINEES FOR ELECTION TO SERVE
UNTIL THE ANNUAL MEETING IN 2003
GORDON J. BRIDGE, 58; Mr. Bridge, a director since December 1995, is
Chairman of the Board and CEO of SurferNETWORK.com. From 1995 to January 2000,
Mr. Bridge was Chairman of the Board of ConnectInc.com Company. Mr. Bridge was
with AT&T where he held various executive management positions from 1988 to
1995, culminating in his appointment 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.
TED C. FEIERSTEIN, 42; Mr. Feierstein, a director since January 2000,
is a partner in Ascent Partners ("Ascent"), a merchant bank specializing in
investments, mergers and acquisitions, and strategic assistance for Internet,
software and information technology-focused professional service companies. Mr.
Feierstein is also a founding partner of Prism Capital, a private equity fund.
Prior to co-founding Ascent, Mr. Feierstein was a senior vice-president with the
Corum Group, a firm specializing in merger and acquisition advisory services to
the software industry, and was a venture capitalist with Wind Point Partners, a
private equity fund. Mr. Feierstein received an MBA from the Harvard Business
School in 1989 and a BBA from the University of Wisconsin-Madison in 1979.
DIRECTOR APPOINTED TO CLASS WHOSE
TERM EXPIRES AT THE ANNUAL MEETING IN 2002
D. BRUCE MERRIFIELD, JR., 50; Mr. Merrifield, a director since August
2000, is President of Merrifield Consulting Group, Inc., a consulting practice
specializing in independent physical distribution channels. Mr. Merrifield is
also Chairman of Clark Security Products, Inc., a national distributor of
locksmith supplies, door hardware and access control hardware. Prior to his
acquisition of Clark Security in 1983, Mr. Merrifield was chief operating
officer of Distribix, Inc., a Missouri-based paper distribution chain. Mr.
Merrifield received a B.A. from Princeton University in 1972 and an MBA from the
Harvard Business School in 1974.
DIRECTOR WHOSE TERM
EXPIRES AT THE ANNUAL MEETING IN 2002
FRANCIS BRZEZINSKI, 49; Mr. Brzezinski, a director since 1990, is
President of Wisconsin Energy Corporation's venture subsidiaries Minergy and
WISVEST and is Executive Vice President of WITECH.
DIRECTORS WHOSE TERMS
EXPIRE AT THE ANNUAL MEETING IN 2001
BRIAN E. DEARING, 45; Mr. Dearing, is the Chairman of the Board,
President and Chief Executive Officer, Acting Chief Financial Officer, Treasurer
and Secretary of the Company. He has been a director since 1995 and was elected
Chairman of the Board of Directors in 1997. Prior to joining ARI in 1995, Mr.
Dearing held a series of electronic commerce executive positions at Sterling
Software, Inc. in the U.S. and in Europe. Prior to joining Sterling in 1990, Mr.
Dearing held a number of marketing management positions in the EDI business of
General Electric Information Services since 1986. 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.
RICHARD W. WEENING, 54; Mr. Weening, a director since 1981, 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,
5
<PAGE> 7
Chairman and Chief Executive Officer of the Company until October 1990, and
Chairman of the Board of Directors until 1997. Mr. Weening is also the Chief
Executive Officer of QUAESTUS Management Corporation, a private equity
investment management firm, and is Executive Chairman and a director of Cumulus
Media, Inc. (NASDAQ:CMLS). Mr. Weening has served as President of RPI from 1972
to the present.
The Board of Directors held seven meetings in fiscal 2000. 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, during the period for which he has been a director or served on the
Committee.
The Company's Board of Directors has established an Executive Committee
that currently is composed of Mr. Dearing, Mr. Bridge, Mr. Brzezinski and Mr.
Dalton. Mr. Bridge serves as Chairman of the Executive Committee. The duties of
the Executive Committee are to: (1) 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; (2) consider and act
upon matters requiring Board consideration between regular meetings of the full
Board not prohibited by law or by the by-laws of the Company; (3) review and
approve 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's recommendations for all employees; and (4) review and make
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 four times during
fiscal 2000.
The Company's Board of Directors has established an Audit Committee.
The Board of Directors has adopted a written charter which is included in this
annual proxy statement. Information regarding the functions performed by the
Audit Committee, its membership, and the number of meetings held during fiscal
2000 is set forth in the "Report of the Audit Committee," included in this
annual proxy statement. As noted under "Certain Transactions," the Company
issued 12,500 shares of common stock to Mr. Bridge for his work in developing
the Company's Web site. As a result of this transaction, Mr. Bridge would not be
considered independent under the rules adopted by the NASD regarding the
independence of audit committee members. The Board will take appropriate action
to comply with the structure and membership rules of corporate audit committees
before the June 14, 2001 deadline imposed by the NASD.
The Company's Board of Directors has established a Stock Option
Committee that currently is composed of Mr. Brzezinski and Mr. Dalton. 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 met two times during
fiscal 2000.
The Board of Directors does not have a nominating committee, as
decisions regarding Board membership are made by the full Board.
Each non-employee member of the Board of Directors has been compensated
under the Director Stock Option Plan in lieu of any cash compensation. Under the
Plan, each participant receives options for 375 shares of the Company's common
stock on the first business day of each calendar year and receives options for
an additional 375 shares for each meeting of the Board and 188 shares for each
meeting of a Committee attended by the participant. Beginning on December 14,
2000, and contingent upon approval at the 2000 Annual Shareholders Meeting,
directors will be eligible to receive options under the 2000 Stock Option Plan.
The Stock Option Committee will determine the number of options received under
the 2000 Stock Option Plan as an annual grant and for each Board and Committee
meeting attended.
6
<PAGE> 8
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 2000 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------------------------- -------------
Awards Payouts
------ -------
Securities
Name and Other Annual Underlying LTIP
Principal Position Year Salary Bonus Compensation Options/SARs (#) Payouts ($)
------------------ ---- ---------- --------- ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Brian E. Dearing, 2000 $ 161,538 $ 20,625 -- 25,000 $ 8,756
President and Chief Executive 1999 150,000 50,023 -- 35,000 --
Officer 1998 150,000 38,829 -- 24,000 --
John C. Bray, 2000 $ 135,769 $ 9,167 $ 10,000 15,000 $ 3,891
Vice President of Sales (1) 1999 130,000 15,566 56,121 15,000 --
1998 130,000 15,204 11,810 16,500 --
Michael E. McGurk, Vice 2000 $ 105,769 $ 11,458 -- 7,500 $ 2,781
President of Technology 1999 100,000 11,124 -- 12,500 --
Operations 1998 100,000 19,579 -- 16,500 --
Frederic G. Tillman, Vice 2000 $110,769 $ 11,458 -- 30,000 --
President of Technology 1999 88,846 39,937 -- 10,000 --
Development (2)
</TABLE>
-----------------
(1) Mr. Bray's other annual compensation consists of commission paid on new
sales.
(2) Mr. Tillman's employment with the Company commenced on September 15,
1998.
7
<PAGE> 9
The table below provides information regarding option grants in the year
ended July 31, 2000 to the persons named in the Summary Compensation Table
pursuant to the Company's 1991 Incentive Stock Option Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED # (1) FISCAL YEAR (1) PRICE ($/SHARE) EXPIRATION
---- ------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
Brian E. Dearing 25,000 14.1% $9.125 1/2010
John C. Bray 15,000 8.4% 9.125 1/2010
Michael E. McGurk 7,500 4.2% 9.125 1/2010
Frederic G. Tillman 30,000 16.9% 9.063 1/2010
</TABLE>
-------------------
(1) All options granted in the fiscal year were awarded with an exercise
price equal to the fair market value of the Common Stock on the date of
grant. The options vest in four equal annual increments beginning on the
last day of the fiscal year (July 31) during which the options were
granted. Under the terms of the Plan, the Stock Option Committee retains
discretion to, among other things, accelerate the exercise of an option,
modify the terms of outstanding options (including decreasing the
exercise price), and permit the exercise price and tax withholding
obligations related to exercise to be paid by delivery of already owned
shares or by offset of the underlying shares.
The table below provides information regarding the exercises of stock
options during fiscal 2000 and the value of stock options held at July 31, 2000
by the persons named in the Summary Compensation Table.
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTION/SARS AT IN-THE-MONEY OPTIONS AT FISCAL
ACQUIRED ON VALUE FISCAL YEAR END (#) YEAR END
NAME EXERCISE (#) REALIZED ($) (1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (2)
---- ------------ ---------------- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Brian E. Dearing 127,000 $994,906 27,250/42,250 $271/$543
John C. Bray -- -- 61,125/22,875 $233/$233
Michael E. McGurk -- -- 48,625/16,000 $194/$194
Frederic G. Tillman 2,500 $29,688 10,000/27,500 $78/$155
</TABLE>
(1) Determined by subtracting the exercise price from the market value of our
common stock on the exercise date ($14.00), multiplied by the number of
shares acquired on exercise. Mr. Dearing did not resell all shares acquired
on exercise.
(2) Determined by subtracting the exercise price from the fair market value of
our common stock at July 31, 2000 ($2.156 per share), based upon the
closing sales price of our common stock on the Nasdaq National Market on
such date.
8
<PAGE> 10
The table below provides information regarding long-term incentive plan
awards in fiscal 2000 to the persons named in the Summary Compensation Table
LONG-TERM INCENTIVE PLAN AWARDS
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price-Based Plans
---------------------------------------------
Number Period
Name of Units Until Payment Threshold Target Maximum
---- -------- ------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Brian E. Dearing (1) (2) $ 20,000 $ 20,000 $ 20,000
(1) (3) $ 5,625 $ 7,500 $ 15,000
John C. Bray (1) (2) $ 15,000 $ 15,000 $ 15,000
(1) (3) $ 3,333 $ 2,500 $ 6,666
Michael E. McGurk (1) (2) $ 15,000 $ 15,000 $ 15,000
(1) (3) $ 3,125 $ 4,167 $ 8,334
Frederic G. Tillman (1) (3) $ 3,125 $ 4,167 $ 8,334
</TABLE>
---------------
(1) Consists of contingent, deferred cash awards.
(2) Paid out at such time as the Company, in the judgment of the Board,
generates sufficient cash resources from operations regardless of whether
the participant is then employed by the Company.
(3) Vesting in two equal installments (August 1, 2001 and August 1, 2002),
provided the participant is then employed by the Company.
On May 20, 1999 the Board of Directors adopted Change of Control
Agreements ("Change of Control Agreements") which contained "Change of Control"
benefits for the current key officers of ARI. The officers include Brian E.
Dearing, John C. Bray, and Michael M. McGurk. In addition, on August 19, 1999,
the Board approved a similar Change of Control Agreement for Frederic G.
Tillman. The Change of Control Agreements are intended to retain the services of
these officers and provide for continuity of management in the event of any
"Change of Control," as defined below. These Change of Control Agreements
provide that each officer shall receive severance benefits equal to two times
the sum of salary and targeted bonuses and medical and dental plan continuation
for two years if, within two years following a "Change of Control," as defined
below, the officer's employment is terminated without cause. For this purpose,
"without cause" is defined to include: (i) a significant reduction in the
executive's compensation, duties, title or reporting responsibilities; (ii) a
change in the executive's job location; or (iii) the termination by the officer
of his employment for certain enumerated reasons. In addition, the officer will
receive a prorated portion of the officer's average annual bonus for the
preceding three fiscal years. If the officer leaves ARI for any other reason,
within two years following a Change of Control, the officer will receive a
prorated portion of the officer's average annual bonus for the preceding three
fiscal years. The officer is under no obligation to mitigate amounts payable
under the Change of Control Agreements. In addition, upon a Change of Control,
all stock options and similar awards become immediately vested and all deferred
compensation becomes payable.
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<PAGE> 11
For purposes of the Change of Control Agreements, a "Change of Control"
means any of the following events: the acquisition (other than from ARI) by any
individual, entity or group, subject to certain exceptions, of beneficial
ownership, directly or indirectly, of 50% or more of the combined voting power
of ARI's then outstanding voting securities; (ii) a merger, consolidation, share
exchange, or sale or disposition of substantially all of the assets of the
Company; or (iii) approval by the Company's shareholders of a complete
liquidation or dissolution of the Company.
CERTAIN TRANSACTIONS
The Company has a line of credit with WITECH Corporation (the "WITECH
Line") that has been in place since October 4, 1993. On August 1, 1999, the
amount available under the WITECH Line was $3.0 million. On September 30, 1999,
the Company and WITECH restructured and amended the WITECH Line in order to (1)
reduce the amount available under the WITECH Line from $3.0 million to $1.0
million, and (2) establish a $1.0 million term loan payable in equal monthly
installments over three years, commencing November 1, 1999. The WITECH Line
bears interest at prime plus 2.0% and the term loan bore interest at prime plus
3.25%. In addition, WITECH purchased $1.0 million of common stock, or 195,122
shares at $5 1/8 per share. In connection with this amendment the Company paid
WITECH $12,500 and issued a seven year warrant to purchase 30,000 shares of the
Company's common stock at $5 1/8 per share. On December 21, 1999 the Company and
WITECH amended the WITECH Line to enable the Company to borrow an additional
Five Hundred Thousand Dollars ($500,000) under the WITECH Line (the "Bridge
Loan"). The Bridge Loan bore interest at prime plus 2.0%. As consideration for
the Bridge Loan, ARI paid a closing fee of Fifty Thousand Dollars ($50,000) to
WITECH. On April 27, 2000, the Company (i) paid down the outstanding amount due
under the WITECH Line and (ii) repaid the Bridge Loan and the interest and
closing fee associated therewith. As of July 31, 2000 there are no amounts
outstanding under the WITECH Line. ARI's ability to borrow up to $1,000,000
under the WITECH Line will remain in place until December 31, 2001.
Since the inception of the WITECH Line, the Company has issued warrants
for an aggregate of 280,000 shares of Common Stock exercisable at prices ranging
from $2 1/8 to $5 1/8 per share. The exercise price of the warrants is reduced
if the Company sells stock for less than the then current exercise price. On
October 1, 2000, warrants to purchase 175,000 shares of Common Stock expired. Of
the 105,000 warrants to purchase shares of Common Stock currently owned by
WITECH (i) warrants to purchase up to 75,000 shares of Common Stock at $2.125
expire on January 1, 2002; and (ii) warrants to purchase 30,000 shares of Common
Stock at $4.00 expire on October 1, 2006.
On July 8, 1999, Briggs & Stratton Corporation ("Briggs") executed a
Master Agreement with the Company (the "Customer Contract"). The Customer
Contract provides for the Company to license its electronic commerce and
electronic cataloging software to Briggs and its dealers and distributors and to
provide certain related professional services. The Customer Contract has an
initial term of one year and automatically renews for additional terms of one
year each unless either party gives written notice of termination to the other
party. On March 30, 2000 and July 31, 2000, ARI and Briggs signed additional
contract for the license of the Company's Web-based communications and catalog
software. During fiscal 2000, the Company invoiced Briggs $606,790 for products
and services.
In connection with the acquisition of Powercom-2000 from Briggs in
September 1998, the Company obtained a line of credit from Briggs in the amount
of $250,000 (the "Briggs Line"). Borrowings under the Briggs Line were secured
by certain accounts receivable associated with the Powercom business. Borrowings
under the Briggs Line bore interest at prime plus 2%. On October 7, 1999, the
Company terminated the Briggs Line by paying the amount outstanding of
$182,264.50.
On February 8, 2000, the Company issued 12,500 shares of Common Stock
to Mr. Bridge for his development of the Company's Web site. The Company valued
the services provided by Mr. Bridge at $85,000.
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<PAGE> 12
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, all of such forms were filed on a timely basis by reporting
persons, except Mr. Feierstein filed a late Form 3 upon his becoming a director,
Mr. Tillman filed a late Form 3 upon his becoming an officer, Mr. Bridge filed
one late Form 4 with respect to the stock he received as payment for development
of the Company's website, WITECH filed one late Form 4 with respect to the
shares of Common Stock it received in September of 1999, and Mr. Weening filed
one late Form 5 with respect to stock option grants received during fiscal 2000.
PROPOSAL TO APPROVE THE
2000 STOCK OPTION PLAN
At the annual meeting, shareholders are being asked to approve the
Company's 2000 Stock Option Plan (the "SOP"). The SOP was adopted by the Board
of Directors on September 19, 2000. The Board of Directors has approved 450,000
shares under the SOP.
Management and the Board believe that the grant of options to
employees, directors, and certain contractors under the SOP is an attractive way
for the Company to be able to retain these personnel in an extremely competitive
marketplace without making additional cash bonus and salary increases. In
addition, the Board feels that granting stock options which vest over an
extended period of time provides the optionee with an incentive to remain with
the Company and actively contribute towards improving the Company's performance.
Management believes that employee and director ownership provides a stronger
incentive for these personnel to put forth maximum effort for the long term
success and growth of the Company in order to see the value of their ownership
grow. Moreover, no options may be granted under the Company's 1991 Incentive
Stock Option Plan after September 30, 2001. As discussed above, the Board
believes it is in the Company's best interest to approve the SOP so that we can
continue to attract and retain the services of those persons essential to our
growth and financial success.
DESCRIPTION OF STOCK OPTION PLAN
All directors, employees, or consultants who provide services to the
Company (the "Participants") are eligible to receive options under the SOP. At
October 16, 2000, approximately 160 persons were eligible. The SOP is designed
to provide additional incentive compensation to Participants and provide them
with an opportunity to acquire an equity interest in the Company. The SOP is
also designed to attract and retain the Company's non-employee directors.
The SOP is administered by a Stock Option Committee appointed by the
Board of Directors. Messrs. Dalton and Brzezinski are the current members of the
Stock Option Committee. Subject to the provisions of the SOP, the Stock Option
Committee has the authority to determine the exercise prices applicable to the
options, the eligible participants to whom and the time or times at which
options shall be granted, the number of shares of Common Stock subject to each
option, and the extent to which options may be exercisable in installments, and
also to interpret the SOP, and to prescribe, amend and rescind the rules and
regulations pertaining to the SOP.
Options granted under the SOP may be either (i) options granted to
qualifying employees which are intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or (ii) non-qualified stock options which may be granted to all Participants.
Under the SOP, no Participant may be granted options for more than 100,000
shares during any one-year period. No stock options may be granted under the
ISOP after December 13, 2010.
Any incentive stock option that is granted under the SOP must be
granted at a price no less than the fair market value of the Common Stock on the
date of grant (or no less than 110% of the fair market value in the case of
holders of 10% or more of the total combined voting power of all classes of
stock of the Company or of a subsidiary or parent of the Company). Non-qualified
stock options may be granted at the exercise price established by the Stock
Option Committee, which may be less than the fair market value of the Common
Stock on the date of grant.
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<PAGE> 13
Each option granted under the SOP is exercisable for a period not to
exceed 10 years from the date of grant (or five years in the case of a holder of
more than 10% of the total combined power of all classes of stock of the Company
or of a subsidiary or parent of the Company) and shall lapse upon the expiration
of the period, or earlier upon termination of the recipient's employment or
service with the Company or as determined by the Committee. The Committee shall
determine the period of time during which an option may be exercised following
termination of employment or service due to death or disability, or following
termination of employment or service due to retirement.
The Board of Directors of the Company may amend the SOP at any time,
except if shareholder approval is required under tax, securities or any other
applicable law.
FEDERAL INCOME TAX CONSEQUENCES
The grant and exercise of options issued pursuant to the SOP should
cause the federal income tax consequences to the Participant and the Company
described below.
INCENTIVE STOCK OPTIONS. Incentive stock options under the SOP are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under Section 422 of the Code. Incentive stock options
generally have the following tax consequences.
- There are generally no federal income tax consequences to the
optionee or the Company by reason of the grant or exercise of
an incentive stock option. However, the exercise of an
incentive stock option may increase the optionee's alternative
minimum tax liability if any and, to the extent that any
incentive stock option is exercisable during any calendar year
with respect to shares having, as of the grant date, a fair
market value exceeding $100,000, such excess will be treated
as a non-qualified stock option.
- If an optionee holds stock through exercise of an incentive
stock option for more than two years from the date on which
the option is granted and more than one year from the date on
which the shares are transferred to the optionee upon exercise
of the option, any gain or loss on a disposition of such stock
will be long-term capital gain or loss. Generally, if the
optionee disposes of the stock before the expiration of either
of these holding periods (a "disqualifying disposition"), at
the time of disposition of the option, the optionee will
realize taxable ordinary income equal to the lesser of (i) the
excess of the fair market value on the date of exercise over
the exercise price, or (ii) the optionee's actual gain, if
any, on the purchase and sale. The optionee's additional gain
or any loss upon the disqualifying disposition will be a
capital gain or loss which will be long-term or short-term,
depending on whether the stock was held more than one year.
- Upon exercise of an incentive stock option, the excess of the
stock's fair market value on the date of exercise over the
option exercise price will constitute an adjustment in
calculating the optionee's alternative minimum tax, if any.
- To the extent the optionee recognizes ordinary income by
reason of a disqualifying disposition, the Company will be
entitled to a corresponding compensation expense deduction in
the tax year in which the disposition occurs.
NON-QUALIFIED STOCK OPTIONS. At the time any non-qualified option is
granted, the optionee will not recognize any taxable income and the Company will
not be entitled to any deduction. When an optionee exercises a non-qualified
option, the optionee will generally recognize ordinary income in an amount equal
to the excess of the fair market value of the Common Stock received on the date
of exercise over the option exercise price. The Company will be entitled to a
deduction in an amount equal to the income recognized by the optionee. The basis
of the Common Stock received upon the exercise of a non-qualified option will be
the exercise price paid plus the amount recognized by the optionee as taxable
income attributable to such shares as a result of the exercise.
When an optionee sells stock acquired by the exercise of a
non-qualified option, the difference between the amount received and the
adjusted tax basis of the stock will be capital gain or loss if such shares
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<PAGE> 14
constitute a capital asset in the hands of the optionee. The compensation
deduction by the Company upon exercise of non-qualified options by the CEO or
any of the other four most highly compensated executive officers may be limited
by Section 162(m) of the Code, which limits the deductibility of compensation in
any one year to $1,000,000 unless the excess compensation is
"performance-based."
NEW PLAN BENEFITS
It is not determinable what options will be received by Participants
under the SOP in fiscal 2001. However, the following table provides information
concerning options awarded to employees and directors in fiscal 2000 under the
Company's 1991 Incentive Stock Option Plan and 1993 Director Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF
NAME OPTIONS(1)
---- ----------
<S> <C>
Brian E. Dearing 25,000
John C. Bray 15,000
Michael E. McGurk 7,500
Frederic G. Tillman 30,000
Gordon J. Bridge 10,441
Francis Brzezinski 8,941
George Dalton 8,190
Ted C. Feierstein 11,688
Richard W. Weening 2,251
All current executive officers as a group 77,500
All current directors who are not executive officers as a group 41,511
All employees who are not executive officers as a group 100,250
</TABLE>
----------------------
(1) Additional information concerning the terms and conditions of the options is
set forth above under the heading "Options/SAR Grants in Last Fiscal Year."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE STOCK
OPTION PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR
APPROVAL OF THE STOCK OPTION PLAN UNLESS SHAREHOLDERS SPECIFY TO THE CONTRARY IN
THEIR PROXIES.
PROPOSAL TO APPROVE THE
2000 EMPLOYEE STOCK PURCHASE PLAN
The Company's 2000 Employee Stock Purchase Plan (the "ESPP") is
intended to provide an employment incentive to the employees of the Company. The
Board of Directors has approved 75,000 shares under the ESPP and is submitting
the ESPP for shareholder approval, in order, among other reasons, to qualify the
ESPP for treatment as a Section 423 stock purchase plan under the Code.
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<PAGE> 15
DESCRIPTION OF EMPLOYEE STOCK PURCHASE PLAN
The ESPP is administered by the Stock Option Committee of the Board of
Directors. In general, all employees (except officers) of the Company are
eligible to participate in the ESPP, provided they meet a minimum period of
continuous service. As of the date hereof, the Company has approximately 140
employees eligible to participate in the ESPP. Under the ESPP, eligible
employees may purchase shares annually by payroll deduction, subject to certain
aggregate limitations set forth in the ESPP, at a purchase price equal to the
lower of either 85% of the fair market value of the Company's shares on the
offering commencement date or 85% of the fair market value of the Company's
shares one year from such date.
The Board of Directors of the Company may, from time to time, amend the
ESPP in any respect. However, no amendment may be made without the approval of
the Company's shareholders if shareholder approval is required for such
amendment under applicable tax, securities or other law.
FEDERAL INCOME TAX CONSEQUENCES
Participating employees will not be deemed to have recognized taxable
income upon the purchase of shares and the Company will not be entitled to any
deduction with respect to the shares issued, unless a participating employee
makes a disqualifying disposition.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 2000
EMPLOYEE STOCK PURCHASE PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL
BE VOTED FOR APPROVAL OF THE PLAN UNLESS SHAREHOLDERS SPECIFY TO THE CONTRARY IN
THEIR PROXIES.
RATIFICATION OF 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, 2001 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
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
OTHER PROPOSED ACTION
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, the persons named in the
enclosed proxy will vote such proxy in accordance with their discretion.
SHAREHOLDER PROPOSALS
All proposals of shareholders intended to be presented at the Company's
2001 Annual Meeting must be received by the Company at its executive offices on
or before September 15, 2001, in order to be presented at the meeting (and must
otherwise be in accordance with the requirements of the Bylaws of the Company)
and must be received by July 16, 2001 to be considered for inclusion in the
proxy statement for that meeting.
COSTS OF SOLICITATION
The expenses of printing and mailing proxy materials, including
reasonable expenses involved in forwarding materials to beneficial owners of
Common Stock, will be borne by the Company. No solicitation other
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<PAGE> 16
than by mail is contemplated, except that officers or employees of the Company
may solicit the return of proxies from certain shareholders by telephone,
facsimile or personal solicitation.
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 INVESTOR RELATIONS DEPARTMENT, ARI NETWORK SERVICES, INC., 330 E.
KILBOURN AVENUE, MILWAUKEE, WI 53202.
BY ORDER OF THE BOARD OF DIRECTORS
Brian E. Dearing, Acting Secretary
November 13, 2000
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<PAGE> 17
EXHIBIT A
ARI NETWORK SERVICES, INC.
2000 STOCK OPTION PLAN
1. Objectives. The ARI Network Services, Inc. 2000 Stock Option Plan is
designed to attract and retain certain selected officers, key employees,
non-employee directors and consultants whose skills and talents are important to
the Company's operations, and reward them for making major contributions to the
success of the Company. These objectives are accomplished by making awards under
the Plan, thereby providing Participants with a proprietary interest in the
growth and performance of the Company.
2. Definitions.
(a) "Award" shall mean the grant of any Stock Option to a Plan
Participant pursuant to such terms, conditions and limitations as the
Board or Committee may establish in order to fulfill the objectives of
the Plan.
(b) "Award Agreement" shall mean the agreement that sets forth
the terms, conditions and limitations applicable to an Award.
(c) "Board" shall mean the Board of Directors of ARI Network
Services, Inc.
(d) "Cause" shall mean (i) the willful and continued failure
by the Employee to substantially perform the Employee's duties with the
Company (other than any such failure resulting from the Employee's
incapacity due to physical or mental illness) for a period of at least
ten days after a written demand for substantial performance is
delivered to the Employee which specifically identifies the manner in
which the Employee has not substantially performed his duties, or (ii)
the willful engaging by the Employee in misconduct which is
demonstrably and materially injurious to the Company, monetarily or
otherwise. For purposes of this Plan, no act or failure to act on the
Employee's part shall be considered "willful" unless done or omitted to
be done by the Employee not in good faith and without reasonable belief
that such action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Employee shall not be deemed to have
been terminated for Cause unless and until there shall have been
delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the Board of the
Company at a meeting of the Board called and held for such purposes
(after reasonable notice to the Employee and an opportunity for the
Employee, together with the Employee's counsel, to be heard before the
Board), stating that in the good faith opinion of the Board the
Employee was guilty of conduct constituting Cause as set forth above
and specifying the particulars thereof in detail.
(e) "Change of Control" shall mean the first to occur of the
following:
(i) the acquisition by an individual, entity or
group, acting individually or in concert (a "Person") of
beneficial ownership of more than 50% of the then outstanding
shares of common stock of the Company (the "Outstanding Common
Stock"); provided, however, that for purposes of this
Subsection 2(e)(i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly
from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
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<PAGE> 18
controlled by the Company, or (D) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of Subsection 2(e)(ii) below; or
(ii) consummation of a reorganization, merger or
consolidation, share exchange, or sale or other disposition of
all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, immediately
following such Business Combination, (A) all or substantially
all of the individuals and entities who were the beneficial
owners of the Outstanding Common Stock immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Common Stock, (B) no
Person (excluding any employee benefit plan (or related trust)
of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, more than 50% of, respectively, the then
outstanding common stock of the corporation resulting from
such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the
Business Combination, and (C) at least a majority of the
members of the Board of the corporation resulting from such
Business Combination were members of the Board of the Company
at the time of the execution of the initial agreement
providing for such Business Combination; or
(iii) approval by the shareholders of the Company of
a complete liquidation or dissolution of the Company.
(f) "Common Stock" or "stock" shall mean the $.001 par value
common stock of ARI Network Services, Inc.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(h) "Committee" shall mean the Stock Option Committee of the
Board of the Company.
(i) "Company" shall mean ARI Network Services, Inc.
(j) "Fair Market Value" shall mean the closing sale price of
Common Stock on the Nasdaq National Market as reported in the Midwest
Edition of The Wall Street Journal for the date of grant provided that,
if no sales of Common Stock were made on such exchange on that date,
"Fair Market Value" shall mean the closing sale price of Common Stock
as reported for the most recent preceding day on which sales of Common
Stock were made on such exchange, or, failing any such sales, such
other price as the Committee may determine in conformity with pertinent
law and regulations of the Treasury Department. Notwithstanding the
foregoing, in the case of Awards which are effective on the date the
Company sells shares of Common Stock in an underwritten public
offering, Fair Market Value shall mean the price per share at which the
Common Stock is initially sold to the public pursuant to the offering.
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<PAGE> 19
(k) "Participant" shall mean a current or prospective
employee, non-employee director, consultant or other person who
provides services to the Company to whom an Award has been made under
the Plan.
(l) "Plan" shall mean this ARI Network Services, Inc. 2000
Stock Option Plan.
(m) "Stock Option" shall mean a grant of a right to purchase a
specified number of shares of Common Stock the purchase price of which
shall be not less than 100% of Fair Market Value on the date of grant,
as determined by the Committee. A Stock Option may be in the form of a
nonqualified stock option for all Participants or an incentive stock
option ("ISO") for Participants who are qualifying employees. An ISO,
in addition to being subject to applicable terms, conditions and
limitations established by the Committee, complies with Section 422 of
the Code which, among other limitations, provides that the aggregate
Fair Market Value (determined at the time the option is granted) of
Common Stock for which ISOs are exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000; that
ISOs shall be priced at not less than 100% of the Fair Market Value on
the date of the grant (110% in the case of a Participant who is a 10%
shareholder of the Company within the meaning of Section 422 of the
Code); and that ISOs shall be exercisable for a period of not more than
ten years (five years in the case of a Participant who is a 10%
shareholder of the Company).
3. Eligibility. Current and prospective employees, non-employee
directors, consultants or other persons who provide services to the Company
eligible for an Award under the Plan are those who hold, or will hold, positions
of responsibility and whose performance, in the judgment of the Committee or the
management of the Company (if such responsibility is delegated pursuant to
Section 6 hereof), can have a significant effect on the success of the Company.
However, incentive stock options within the meaning of Section 422 of the Code
may only be issued to employees of the Company and its subsidiary corporations
within the meaning of Section 424(f) of the Code.
4. Common Stock Available for Awards. Subject to adjustment as provided
in Section 13 hereof, the number of shares that may be issued under the Plan for
Awards during the term of the Plan is 450,000 shares of Common Stock, all of
which may be in the form of incentive stock options within the meaning of
Section 422 of the Code. Any shares subject to an Award which are used in
settlement of tax withholding obligations shall be deemed not to have been
issued for purposes of determining the maximum number of shares available for
issuance under the Plan. Likewise, if any Stock Option is exercised by tendering
shares, either directly or by attestation, to the Company as full or partial
payment for such exercise under this Plan, only the number of shares issued net
of the shares tendered shall be deemed issued for purposes of determining the
maximum number of shares available for issuance under the Plan. Subject to
adjustment as provided in Section 13 hereof, no individual shall be eligible to
receive Awards aggregating more than 100,000 shares of Common Stock reserved
under the Plan in any one calendar year. The Company shall take whatever actions
are necessary to file required documents with the U.S. Securities and Exchange
Commission and any other appropriate governmental authorities and stock
exchanges to make shares of Common Stock available for issuance pursuant to
Awards.
5. Administration. The Plan shall be administered by the Committee,
which shall have full and exclusive power to interpret the Plan, to determine
which persons are Participants, to grant waivers of Award restrictions, and to
adopt such rules, regulations and guidelines for carrying out the Plan as it may
deem necessary or proper. All decisions of the Committee shall be final,
conclusive and binding on all persons, including the Company, Participants, and
their estates and beneficiaries.
6. Delegation of Authority. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
delegate to the chief executive officer and to other senior
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<PAGE> 20
officers of the Company its duties under the Plan pursuant to such conditions or
limitations as the Committee may establish. Any such delegation may be revoked
by the Committee at any time.
7. Awards. The Committee shall set forth in the related Award Agreement
the terms, conditions, performance requirements, and limitations applicable to
each Award including, but not limited to, continuous service with the Company,
forfeiture of Awards and proceeds from Awards in the event the Participant
competes with the Company or violates any confidentiality or nonsolicitation
obligations owed to the Company, conditions under which acceleration of vesting
will occur, and achievement of specific business objectives. In all events, all
Awards will become fully vested and immediately exercisable if the Participant
is in the service of the Company upon the occurrence of a Change of Control.
8. Stock Option Exercise. The price at which shares of Common Stock may
be purchased under a Stock Option shall be paid in full at the time of the
exercise in cash or, if permitted by the Committee, by means of tendering shares
of Common Stock either directly or by attestation, which have been held by the
Participant for more than six months and have not been used within the prior
six-month period to exercise an option, valued at Fair Market Value on the date
of exercise, or any combination thereof.
9. Tax Withholding. The Company shall have the right to deduct
applicable taxes from any Award payment and withhold, at the time of delivery or
vesting of shares under the Plan, an appropriate number of shares for payment of
taxes (but only the minimum amount required by law) or to take such other action
as may be necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes. The Company may defer making delivery with respect to
Common Stock obtained pursuant to an Award hereunder until arrangements
satisfactory to it have been made with respect to any such withholding
obligation. If Common Stock is used to satisfy tax withholding, such stock shall
be valued based on the Fair Market Value when the tax withholding is required to
be made.
10. Amendment or Termination of the Plan. The Board may, at any
time, amend or terminate the Plan; provided, however, that
(a) subject to Section 13 hereof, no amendment or termination
may, in the absence of written consent to the change by the affected
Participant (or, if the Participant is not then living, the affected
beneficiary), adversely affect the rights of any Participant or
beneficiary under any Award granted under the Plan prior to the date
such amendment is adopted by the Board; and
(b) without further approval of the shareholders of the
Company, no amendment shall increase the number of shares of Common
Stock which may be issued pursuant to Awards hereunder, except for
increases resulting from Section 13 hereof.
11. Termination of Service. If the service-providing relationship of a
Participant terminates, or a non-employee director no longer serves on the
Board, other than pursuant to paragraphs (a) through (c) of this Section 11, all
Awards shall immediately terminate, unless the Award Agreement provides
otherwise. If the status of a Participant's relationship with the Company
changes, e.g., from a consultant to an employee or vice versa, it will not be a
termination of the service-providing relationship. Notwithstanding the
foregoing, if a Participant's service is terminated for Cause, to the extent the
Award is not effectively exercised or has not vested prior to such termination,
it shall lapse or be forfeited to the Company immediately upon termination. In
all events, an Award will not be exercisable after the end of its term as set
forth in the Award Agreement.
(a) Retirement. When a Participant's employment or service
terminates as a result of retirement, or early retirement with the
consent of the Committee, the Committee (in the form of
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<PAGE> 21
an Award Agreement or otherwise) may permit Awards to continue in
effect beyond the date of retirement, or early retirement, and the
exercisability and vesting of any Award may be accelerated.
(b) Resignation in the Best Interests of the Company. When a
Participant resigns from the Company or the Board and, in the judgment
of the chief executive officer or other senior officer designated by
the Committee, the acceleration and/or continuation of outstanding
Awards would be in the best interests of the Company, the Committee may
authorize, where appropriate taking into account any regulatory or
accounting implications of such action, the acceleration and/or
continuation of all or any part of Awards granted prior to such
termination.
(c) Death or Disability of a Participant.
(i) In the event of a Participant's death, the
Participant's estate or beneficiaries shall have a period
specified in the Award Agreement within which to receive or
exercise any outstanding Award held by the Participant under
such terms, and to the extent, as may be specified in the
applicable Award Agreement. Rights to any such outstanding
Awards shall pass by will or the laws of descent and
distribution in the following order: (a) to beneficiaries so
designated by the Participant; if none, then (b) to a legal
representative of the Participant; if none, then (c) to the
persons entitled thereto as determined by a court of competent
jurisdiction. Subject to subparagraph (iii) below, Awards so
passing shall be exercised or paid out at such times and in
such manner as if the Participant were living.
(ii) In the event a Participant is deemed by the
Company to be disabled within the meaning of the Company's
long-term disability plan, or, if the Company does not have
such a plan, Section 22(e)(3) of the Code, the Award shall be
exercisable for the period, and to the extent, specified in
the Award Agreement. Awards and rights to any such Awards may
be paid to or exercised by the Participant, if legally
competent, or a legally designated guardian or representative
if the Participant is legally incompetent by virtue of such
disability.
(iii) After the death or disability of a Participant,
the Committee may in its sole discretion at any time (1)
terminate restrictions in Award Agreements; and (2) accelerate
any or all installments and rights.
(iv) In the event of uncertainty as to interpretation
of or controversies concerning this paragraph (c) of Section
11, the Committee's determinations shall be binding and
conclusive.
(d) No Service Rights. The Plan shall not confer upon any
Participant any right with respect to continuation of employment by, or
service with, the Company or service on the Board, nor shall it
interfere in any way with the right of the Company to terminate any
Participant's employment or service with the Company or on the Board at
any time.
12. Nonassignability. Except as provided in subsection (c) of Section
11 and this Section 12, no Award under the Plan shall be assignable or
transferable, or payable to or exercisable by anyone other than the Participant
to whom it was granted. Notwithstanding the foregoing, the Committee (in the
form of an Award Agreement or otherwise) may permit Awards, other than incentive
stock options within the meaning of Section 422 of the Code, to be transferred
to members of the Participant's immediate family, to trusts for the benefit of
the Participant and/or such immediate family members, and to partnerships or
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other entities in which the Participant and/or such immediate family members own
all the equity interests. For purposes of the preceding sentence, "immediate
family" shall mean a Participant's spouse, issue and spouses of his issue.
13. Adjustments. In the event of any change in the outstanding Common
Stock of the Company by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, spin-off, or similar
event, the Committee shall equitably adjust (a) the number of shares of Common
Stock (i) reserved under the Plan, (ii) available for ISOs, (iii) for which
Awards may be granted to an individual Participant, and (iv) covered by
outstanding Awards denominated in stock, (b) the stock prices related to
outstanding Awards; and (c) the appropriate Fair Market Value and other price
determinations for such Awards. In the event of any other change affecting the
Common Stock or any distribution (other than normal cash dividends) to holders
of Common Stock, such adjustments as may be deemed equitable by the Committee,
including adjustments to avoid fractional shares, shall be made to give proper
effect to such event. In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation, the
Committee shall be authorized to issue or assume Stock Options, whether or not
in a transaction to which Section 424(a) of the Code applies, by means of
substitution of new Stock Options for previously issued Stock Options or an
assumption of previously issued Stock Options.
14. Notice. Any notice to the Company required by any of the provisions
of the Plan shall be addressed to the director of human resources or to the
chief executive officer of the Company in writing, and shall become effective
when it is received by the office of either of them.
15. Governing Law. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of Wisconsin
without giving effect to its conflicts of law provisions.
16. Effective and Termination Dates. The effective date of the Plan is
December 14, 2000. The Plan shall terminate on December 13, 2010, subject to
earlier termination by the Board pursuant to Section 10, after which no Awards
may be made under the Plan, but any such termination shall not affect Awards
then outstanding or the authority of the Committee to continue to administer the
Plan.
17. Other Benefit and Compensation Programs. Payments and other
benefits received by a Participant pursuant to an Award shall not be deemed a
part of such Participant's regular, recurring compensation for purposes of the
termination or severance plans of the Company and shall not be included in, nor
have any effect on, the determination of benefits under any other employee
benefit plan, contract or similar arrangement, unless the Committee expressly
determines otherwise.
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EXHIBIT B
ARI NETWORK SERVICES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide eligible employees
of the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Code. The provisions of the Plan, accordingly,
shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change of Control" shall mean the first to occur of the
following:
(i) the acquisition by an individual, entity or group, acting
individually or in concert (a "Person") of beneficial ownership of more
than 50% of the then outstanding shares of common stock of the Company
(the "Outstanding Common Stock"); provided, however, that for purposes
of this Subsection 2(e)(i), the following acquisitions shall not
constitute a Change in Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (D) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (A), (B) and (C) of Subsection 2(e)(ii) below; or
(ii) consummation of a reorganization, merger or
consolidation, share exchange, or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, immediately following such
Business Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners of the Outstanding Common
Stock immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Common Stock, (B) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, more than 50% of, respectively, the then outstanding
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination, and (C) at least a majority
of the members of the Board of the corporation resulting from such
Business Combination were members of the Board of the Company at the
time of the execution of the initial agreement providing for such
Business Combination; or
(iii) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
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(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the Compensation Committee of the Board
or such other persons or committee as the Board shall
designate to administer the Plan.
(e) "Common Stock" shall mean the $.001 par value common stock of
the Company.
(f) "Company" shall mean ARI Network Services, Inc., a Wisconsin
corporation.
(g) "Designated Subsidiary" shall mean a corporation of which not
less than 50% of the voting power is held by the Company,
directly or indirectly, whether such corporation now exists or
is hereafter organized or acquired by the Company, directly or
indirectly, other than an otherwise eligible corporation which
has been designated by the Board or Committee from time to
time as not eligible to participate in the Plan.
(h) "Employee" shall mean any regular full time or part-time
employee of the Company or a Designated Subsidiary customarily
employed to work at least (a) 20 hours per week or (b) five
months in any calendar year.
(i) "Employer Corporation" shall mean the corporation which
employs the Employee.
(j) "Enrollment Date" shall mean the first day of each Offering
Period.
(k) "Enrollment Period" shall mean the period specified by the
Committee during which eligible Employees may elect to
participate in the Plan for the upcoming Offering Period.
(l) "Exercise Date" shall mean the last day of each Offering
Period.
(m) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on the Nasdaq National
Market (the "Nasdaq"), its Fair Market Value shall be
the closing sales price for such stock as quoted on
the Nasdaq for the date of such determination (or if
no sale of Common Stock of the Company is made on the
Nasdaq on any such date, then the closing price of
the Common Stock of the Company on the next preceding
day on which a sale was made on said Nasdaq), as
reported in the Midwest Edition of The Wall Street
Journal or such other source as the Board deems
reliable; or
(2) If the Common Stock is not so listed, the Fair Market
Value thereof shall be determined in good faith by
the Committee.
(n) "Offering Period" shall mean a period of approximately twelve (12)
months at the end of which an option granted pursuant to the Plan may be
exercised, commencing on January 1 and ending on December 31. The duration of
Offering Periods may be changed pursuant to Section 4 of this Plan.
(o) "Parent Corporation" shall have the same meaning as contained
in Section 424(e) of the Code.
(p) "Plan" shall mean this ARI Network Services, Inc. 2000
Employee Stock Purchase Plan.
(q) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(r) "Subsidiary Corporation" shall have the same meaning as
contained in Section 424(f) of the Code.
3. Eligibility.
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(a) Any person who is an Employee, other than executive officers,
will be eligible to participate in the Plan provided he or she has a minimum
period of continuous service with the Company of six (6) months as of the first
day of an Offering Period.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase such stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Employer Corporation or of its Parent Corporation
or Subsidiary Corporation or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Employer
Corporation and its Parent Corporation(s) and Subsidiary Corporation(s) accrues
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
These limitations are in addition to any other limitations set forth herein,
including any limits that the Committee establishes in accordance with Section
6(a).
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the
first business day on or after January 1 each year, or on such
other date as the Committee shall determine. The Committee shall
have the power to change the duration of Offering Periods
(including the commencement dates thereof) without shareholder
approval.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
approved by the Committee and filing it with the Company's payroll department
during the applicable Enrollment Period. A participant must file a new
subscription agreement for each Offering Period.
(b) Payroll deductions for a participant shall begin on the first
payroll date following the Enrollment Date and shall end on the last payroll
date in the Offering Period to which such authorization is applicable, unless
sooner discontinued or terminated by the participant as provided in Section 6(c)
or Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount set forth in the subscription agreement,
stated in terms of whole dollars not less than $5 for each pay period or in
whole number percentages, up to a maximum of 10% of the compensation to be
received during the Offering Period (or during such portion thereof in which an
Employee may elect to participate). Notwithstanding the foregoing, the Committee
annually may determine, in its sole discretion, to establish any maximum dollar
amount or percentage of compensation that an eligible Employee is entitled to
authorize for payroll deductions during a calendar year, which limitations shall
apply to all eligible Employees. Any such limit established by the Committee
shall fall within the parameters of Section 423 of the Code.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional payments into such account.
(c) A participant may withdraw from the Plan as provided in
Section 10 hereof. Alternatively, a participant may elect to discontinue making
additional payroll deductions during the Offering Period by completing and
filing with the Company's payroll department a written notice in such form
approved by the Committee. The election shall be effective no later than the
first payroll date following ten (10) business days after the Company's receipt
of the notice. If a participant elects to discontinue making additional payroll
deductions, all payroll deductions previously credited to his or her
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account will purchase Common Stock at the end of the Offering Period subject to
the other terms of the Plan. A participant may increase or decrease his or her
payroll deduction rate by filing a new subscription agreement at least ten (10)
business days before the beginning of the pay period during which such increase
or decrease is to take effect. A participant's payroll deduction rate may be
increased only once and reduced only once during any Offering Period.
(d) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock and the
Company is authorized to take any action reasonably necessary to enforce the
withholding requirements including without limitation withholding the
appropriate amount from the proceeds of any stock sale by the participant. At
any time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall
be granted an option to purchase on the Exercise Date of such
Offering Period (at the applicable Purchase Price) a number of
shares of the Company's Common Stock determined by dividing such
Employee's payroll deductions accumulated on or prior to such
Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price, but in no event
more than 5,000 shares (subject to adjustment as provided in
Section 18 hereof), provided that such purchase shall be subject
to the limitations set forth in Sections 3(b), 6(a) and 13 hereof.
Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section
10 hereof. The Option shall expire immediately following the
Exercise Date.
8. Exercise of Option. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the
purchase of shares shall be exercised automatically on the
Exercise Date, and the maximum number of whole shares subject to
option shall be purchased for such participant at the applicable
Purchase Price with the accumulated payroll deductions in his or
her account, but in no event more than 5,000 shares (subject to
adjustment as provided in Section 18 hereof). A participant in the
Plan will be issued a stock certificate as of the Exercise Date,
and the balance of any payroll deductions credited to a
participant's account during the Offering Period shall be
delivered to the participant. During a participant's lifetime, a
participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Registration of Certificates. Certificates will be registered only
in the name of the participant. If a participant submits a written
request to the Committee, the Committee may cause the certificates
to be issued in the participant's name jointly with a member of
his or her family with right of survivorship.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in such form approved by the Committee. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
after receipt of notice of withdrawal as soon as administratively practicable
and such participant's option for the Offering Period shall be automatically
terminated. Payroll deductions for the purchase of shares during the Offering
Period shall cease as soon as administratively practicable. If a participant
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<PAGE> 27
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee of the Company for any reason (including without
limitation upon death, disability or retirement), he or she shall
be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during
the Offering Period but not yet used to exercise the option shall
be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 15
hereof, and such participant's option shall be automatically
terminated.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 18 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 75,000 shares. If, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of shares then
available under the Plan, the Committee shall make a pro rata allocation of the
shares remaining available for purchase among the participants in such manner as
it may determine in its sole discretion.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
14. Administration. The Plan shall be administered by the Committee.
The Committee shall have full and exclusive discretionary
authority to construe, interpret and apply the terms of the Plan,
to determine eligibility and to adjudicate all disputed claims
filed under the Plan. Every finding, decision and determination
made by the Committee shall, to the full extent permitted by law,
be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may designate, on the subscription agreement
filed with the Committee, a beneficiary who is to receive any shares and cash,
if any, from the participant's account under the Plan in the event of such
participant's death subsequent to an Exercise Date but prior to delivery of such
shares and cash to the participant. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the estate of the participant.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise
of an option or to receive shares under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (other
than by will, the laws of descent and distribution or as provided
in Section 15 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election
to withdraw funds from an Offering Period in accordance with
Section 10 hereof.
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17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any
corporate purpose, and the Company shall not be obligated to
segregate such payroll deductions.
18. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the shares reserved for issuance under the
Plan, as well as the price per share and the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company. Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive.
(b) Change of Control. In the event of a Change of Control, the
Offering Period then in progress shall be shortened by the Committee's setting a
new Exercise Date (the "New Exercise Date"). The New Exercise Date shall be
before the date of the Change of Control. The participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof. Immediately following such New Exercise Date, the Plan shall terminate.
19. Amendment or Termination.
(a) The Board may at any time, or from time to time, amend this
Plan in any respect; provided, however, that no amendment shall be made without
the approval of the shareholders of the Company to increase the aggregate number
of shares which may be issued under this Plan (other than as provided in
Paragraph 13(a) or 18(a) hereof) or for which shareholder approval is required
under applicable tax, securities or other laws.
(b) This Plan and all rights of Employees under any offering
hereunder may terminate at any time, at the discretion of the Board or
Committee. Upon any termination of this Plan, all amounts in the accounts of
participating Employees shall be either (i) promptly refunded in total or (ii)
refunded to the extent not used to purchase Common Stock, in the sole discretion
of the Board or Committee. Such amendments shall be made without the approval of
the shareholders of the Company or the consent of any participating Employees.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the
Company at the location, or by the person, designated by the
Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and
the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
22. Term of Plan. The Plan shall become effective upon its adoption by
the Board, but shall be subject to its approval by the
shareholders of the Company. It shall continue in effect for a
term of ten (10) years unless sooner terminated under Section 19
hereof.
23. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as directors or as members of the
Committee, the members of the Committee shall be indemnified by
the Company against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the
defense of any action, suit or
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proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken
or failure to act under or in connection with the Plan or any
option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding, that such Committee
member is liable for gross negligence or willful misconduct in the
performance of his duties; provided that within 60 days after the
institution of any such action, suit or proceeding, a Committee
member shall in writing offer the Company the opportunity, at its
own expense, to handle and defend the same.
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EXHIBIT C
ARI NETWORK SERVICES, INC.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The Audit Committee of ARI Network Services, Inc. (the "Company") shall
assist the Board of Directors in fulfilling its responsibility to the
shareholders, to the investment community and to governmental agencies relating
to corporate accounting, financial reporting practices, and the quality and
integrity of the financial reports of the Company.
II. COMMITTEE COMPOSITION
The Committee shall be comprised of at least three members, comprised
solely of "independent" directors who are "financially literate" or become
"financially literate" within a reasonable period of time after his or her
appointment to the Committee. Committee members may enhance their familiarity
with finance and accounting by participating in educational programs.
A director is "independent" and "financially literate" if he or she
meets the requirements set forth in the rules of the Nasdaq Stock Market. The
current requirements for independence and financial literacy are attached hereto
as Appendix A, which may be supplemented from time to time as such requirements
are modified. One director who is not independent and who is not a current
employee or an immediate family member of a current executive officer may serve
on the Committee, provided that the Board determines that such director's
membership on the Committee is required by the best interests of the Company and
its shareholders.
At least one member of the Committee shall have accounting or related
financial management experience in accordance with NASD requirements.
The members of the Committee shall be elected by the Board to hold such
office until their successors shall be duly elected and qualified. Unless a
Chair is elected by the Board, the members of the Committee may designate a
Chair by majority vote of the full Committee membership.
III. MEETINGS AND REPORTS
The Committee shall meet as frequently as the Committee deems
necessary, but the Committee shall meet at least annually. Special Meetings of
the Committee may be called at any time by any member thereof on not less than
three days' notice. In order to foster open communication, the Committee should
meet at least annually with management, the director of the internal auditing
function, and the independent auditors in separate executive sessions to discuss
any matters that the Committee or each of these groups believe should be
discussed privately. The Committee shall report periodically to the Board of
Directors regarding the Committee's activities, findings and recommendations.
The Committee shall also meet with the independent auditors to review the
arrangements (including proposed fees) and scope of the annual audit.
The Committee may conduct its business and affairs at any time or
location it deems appropriate. Attendance and participation in a meeting may
take place by conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other. Any
action to be taken at any meeting of the Committee may be taken without a
meeting, if all members of the Committee consent thereto in writing and such
writing or writings are filed with the minutes of the Committee. All decisions
of the Committee shall be determined by the affirmative vote of a majority of
the members thereof, and a report of any actions taken by the Committee shall be
delivered at the next meeting of the Board of Directors.
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IV. RESPONSIBILITIES AND POWERS
The Committee shall be responsible for the following:
- Review and assess the adequacy of this Charter on at least an annual basis.
- Review and assess on an annual basis whether the Committee has satisfied
its responsibilities during the prior year in compliance with this Charter.
- Recommend to the Board of Directors the independent public accountants to
audit the books and records of the Company and to review the fees charged
for such audits. Monitor and evaluate the performance, independence and
qualifications of the independent public accountants. Approve any proposed
discharge of the independent public accountants when circumstances warrant
(or nominate the independent public accountants to be proposed for
shareholder approval in any proxy statement of the Company). Review the
scope, costs and results of the independent audit of the Company's books
and records through conferences and direct, private communications with the
independent public accountants.
- Review and discuss with the independent public accountants the independent
public accountants' ultimate accountability to the Board of Directors and
the Audit Committee.
- Ensure the independence of the Company's independent public accountants.
The Committee shall obtain a formal written statement listing all
relationships between the independent public accountants and the Company
from the independent public accountants on an annual basis. Review and
discuss with the independent public accountants any disclosed relationships
or services that may impact the objectivity and independence of the
independent public accountants and recommend that the Board of Directors
take appropriate action to ensure the independent public accountants'
independence.
- Review the programs that the Company has instituted to correct any
deficiencies noted by the independent public accountants in their annual
review.
- Review and approve significant nonaudit services, such as management
consulting services, proposed by the independent public accountants or
other professionals retained by the Company.
- Review with management and the independent public accountants the
objectives and scope of the internal audit process; monitor with management
the competency and quality of the internal auditors; and review
periodically the internal audit program.
- Review with management and the independent public accountants the
independent public accountants' judgments about the quality of the
Company's accounting principles as applied in the Company's financial
reporting, including the clarity of the Company's financial disclosures,
the degree of aggressiveness or conservatism of the Company's accounting
principles and underlying estimates and other significant decisions made by
management in preparing the Company's financial disclosures.
- Review audit reports received from the independent public accountants and
internal auditors and take such action in respect of such reports as the
Committee deems appropriate to ensure the integrity of financial
information and the compliance with all applicable laws, regulations and
Company policies.
- Review with management the programs established to provide for compliance
with applicable laws and regulations, including, without limitation, the
Foreign Corrupt Practices Act, and to review lawsuits and claims against
the Company which pose significant risk of loss.
- Review and discuss with management and discuss with the independent public
accountants the Company's audited financial statements to be included in
the Company's Annual Report on Form 10-K and all major accounting and
disclosure policies involved in the preparation of such report. Make a
recommendation to the Board of Directors regarding inclusion of the audited
financial statements in the Company's Form 10-K.
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- When required under the SEC's rules, provide an Audit Committee Report to
be included in the Company's annual proxy statement, which states whether
the Committee has: (a) reviewed and discussed with management the Company's
audited financial statements; (b) discussed with the independent public
accountants the matters required to be discussed by SAS 61; (c) received
the written disclosures and the letter from the independent public
accountants required by ISB Standard No. 1 and discussed with the
independent public accountants the independent public accountants'
independence; and (d) based on the review and discussion of the audited
financial statements with management and discussions with the independent
public accountants, the Committee recommended to the Board of Directors
that the audited financial statements be included in the Company's Form
10-K for the last fiscal year for filing with the SEC.
- Periodically review with management and the independent public accountants
the Company's unaudited financial statements included in the Company's
Quarterly Reports on Form 10-Q and all major accounting and disclosure
policies involved in the preparation of such reports.
- Review with management any changes in accounting principles significantly
affecting the Company, as well as any significant unusual nonoperating or
nonrecurring items and the general quality of earnings reported by the
Company.
- Review any significant disagreements between management and the independent
public accountants or the internal auditors in connection with the
preparation of the Company's financial statements.
- Review any material transaction to which the Company is a party involving a
conflict of interest with a director, executive officer or other affiliate
of the Company.
- Establish, review and update periodically an Ethical Code of Conduct and
ensure that management has established a system to enforce this Code.
- Direct and supervise an investigation into any matter the Committee deems
necessary and appropriate, including the authority to retain outside
counsel or other professional services.
- Review the Company's protection of assets programs including insurance.
- Take action in connection with such other powers and responsibilities as
the Board of Directors may, from time to time, determine.
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Appendix A
NASD DEFINITIONS
NASD Definition of "Independent" Directors
The following directors would not be considered independent:
(a) a director who is currently an employee of the Company or any of
its affiliates or who was an employee of the Company or any of its
affiliates during the past three years;
(b) a director who accepted any compensation from the Company or any
of its affiliates in excess of $60,000 during the previous fiscal year,
other than compensation for Board service, benefits under a
tax-qualified retirement plan or non-discretionary compensation;
(c) a director who is an immediate family member of an individual
who is or has been during the past three years an executive officer of
the Company or any of its affiliates;
(d) a director who is a partner in, or a controlling shareholder or
an executive officer of, any for-business organization to which the
Company made, or from which the Company received, payments (other than
those arising from investments in the Company's securities) that
exceeded 5% of the Company's or business organization's consolidated
gross revenues for that year, or $200,000, whichever is more, in any of
the past three years; and
(e) a director who is employed as an executive of another entity
where any of the Company's executives serves on that entity's
compensation committee.
NASD Definition of "Financially Literate"
A financially literate director is one who is able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement and cash flow statement.
NASD Definition of Accounting/Financial Expertise
A director has accounting or related financial management expertise if he or she
has past employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the director's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities.
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EXHIBIT D
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directore. The duties of the Audit Committee are to: (1)
evaluate the independent auditors; (2) make recommendations as to the selection
of independent auditors; (3) review the audit plan and scope with the
independent auditors; (4) review audit results; (5) review transactions between
management and the Company; (6) review reports of the accounting staff of the
Company and its auditors as to the adequacy and quality of its system of
internal controls; and (7) make appropriate inquiries respecting financial
matters to the auditors and others. Management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the committee
reviewed the audited financial statements the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the committee under
generally accepted auditing standards. In addition, the committee has discussed
with the independent auditors the auditors' independence from management and the
Company including the matters in the written disclosures required by the
Independence Standards Board.
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal controls, and the overall quality of the Company's financial
reporting. The Committee held one (1) meeting during fiscal 2000.
In reliance on the views and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended July 31, 2000 for filing with the Securities and Exchange
Commission. The Committee and the Board have also recommended, subject to
shareholder approval, the selection of the Company's independent auditors.
/s/ Francis Brzezinski
----------------------------------------------
Francis Brzezinski, Audit Committee Chair
/s/ George D. Dalton
----------------------------------------------
George D. Dalton, Audit Committee Member
/s/ Gordon Bridge
----------------------------------------------
Gordon Bridge, Audit Committee Member
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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 Jason D. Bartel, 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 November
3, 2000, at the 2000 Annual Meeting of Shareholders of the Company to be held on
December 14, 2000 at 9:00 a.m. and at any and all adjournments thereof.
1. ELECTION OF DIRECTORS:
[ ] FOR the nominees below to serve [ ] WITHHOLD AUTHORITY to vote
until the Company's 2003 Annual for the nominees listed
Meeting and until their successors below.
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.)
GORDON J. BRIDGE
TED C. FEIERSTEIN
2. RATIFICATION OF DIRECTOR APPOINTMENT:
[ ] FOR the nominee below to serve [ ] WITHHOLD AUTHORITY to vote
until the Company's 2002 Annual for the nominees listed
Meeting and until his successor below.
is 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.)
D. BRUCE MERRIFIELD, JR.
3. To approve the 2000 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve the 2000 Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To ratify the selection of Ernst & Young LLP as the Company's Independent
Public Accountants for fiscal 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. In their discretion, the proxy holders are authorized to vote upon such
other matters as may properly come before the 2000 Annual Meeting and at
any adjournment or postponement thereof.
(Continued and to be signed on the reverse side)
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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 THE NOMINEES FOR DIRECTORS, "FOR" THE
RATIFICATION OF THE APPOINTMENT OF THE OTHER DIRECTOR, AND "FOR" THE OTHER
PROPOSALS.
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: , 2000
-------------------------
-----------------------------------------------
(Signature of Shareholder)
-----------------------------------------------
(Signature of Shareholder - if held jointly)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENVELOPE PROVIDED.
35
