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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
METRICOM, INC.
(Name of Registrant as Specified In Its Charter)
Not applicable
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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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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5. Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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9. Date Filed:
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METRICOM, INC.
980 UNIVERSITY AVENUE
LOS GATOS, CALIFORNIA 95030-2375
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 2000
TO THE STOCKHOLDERS OF METRICOM, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of METRICOM,
INC., a Delaware corporation (the "Company"), will be held on Monday, June 26,
2000, at 1:30 p.m., local time, at the San Jose Museum of Art located at 110
South Market Street, San Jose, California, for the following purposes:
1. To elect two directors to hold office until the 2003 Annual Meeting of
Stockholders.
2. To approve the Company's 1997 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 3,000,000 shares.
3. To approve the Company's 1991 Employee Stock Purchase Plan, as amended,
to increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 300,000 shares.
4. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common
Stock from 150,000,000 to 500,000,000.
5. To ratify the selection of Arthur Andersen LLP as independent auditors
of the Company for its fiscal year ending December 31, 2000.
6. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 28, 2000,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ DALE W. MARQUART
Dale W. Marquart
Secretary
Los Gatos, California
May 22, 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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METRICOM, INC.
980 UNIVERSITY AVENUE
LOS GATOS, CALIFORNIA 95030-2375
------------------------
PROXY STATEMENT
------------------------
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 26, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Metricom, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on Monday, June 26, 2000, at 1:30 p.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the San Jose Museum of Art located at 110
South Market Street, San Jose, California. The Company intends to mail this
proxy statement and accompanying proxy card on or about May 22, 2000, to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of capital stock at the close of business on April
28, 2000 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 28, 2000, the Company had outstanding and entitled to
vote 30,623,868 shares of Common Stock. Each holder of record of Common Stock on
such date will be entitled to one vote for each share held on all matters to be
voted upon at the Annual Meeting. At the close of business on April 28, 2000,
the Company also had outstanding, 60,000,000 shares of Preferred Stock. These
shares have voting rights only to the limited extent provided in the Company's
Restated Certificate of Incorporation or as required by law.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but, except with respect to Proposal 4, are not counted for any purpose
in determining whether a matter has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 980
University Avenue, Los Gatos, California 95030-2375, a written notice of
revocation or a duly
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executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not by itself
revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 Annual
Meeting of Stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission (the "SEC"), as well as the deadline for submitting a stockholder
proposal or a nomination for director that is not to be included in such proxy
statement and proxy, is January 23, 2001. Stockholders are advised to review the
Company's By-laws, which contain additional requirements with respect to advance
notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws provide
that the Board of Directors will be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the Board of Directors) will serve for the remainder of the full
term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of seven members. There are
two directors in the class whose term of office expires in 2000: David Moore and
William Savoy. Each of the nominees for election to this class is currently a
director of the Company. Mr. Savoy was previously elected by the stockholders
and Mr. Moore was elected by the Board.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote on the matter at the meeting. Under
the Company's Restated Certificate of Incorporation, the holders of outstanding
shares of Preferred Stock are not entitled to vote those shares with respect to
these nominees.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of all of the nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected, and management has no reason to believe that any
nominee will be unable to serve.
Set forth below is biographical information for each director nominated and
for each of the directors continuing in office.
NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2003 ANNUAL MEETING
DAVID M. MOORE
David M. Moore, 45, has served as a director of the Company since January
1999. Mr. Moore has served as Business Development Director of Vulcan Northwest,
Inc., a venture capital firm affiliated with Vulcan Ventures Incorporated
("Vulcan"), the Company's largest stockholder, since November 1998. Prior to
joining Vulcan Northwest, Mr. Moore served as President of Paralex Corporation,
a provider of technical due diligence and consulting services, from October 1997
to November 1998; Director of Development for Microsoft Corporation from June
1996 to October 1997; and Director of Development for the Worldwide Product
Group of Microsoft Corporation from September 1988 to June 1996. Mr. Moore is
also a director of BSQUARE Corporation.
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WILLIAM D. SAVOY
William D. Savoy, 35, has served as a director of the Company since January
1998. Mr. Savoy has served as President of Vulcan Northwest, Inc., since
November 1990 and Vice President and a director of Vulcan since November 1990.
Mr. Savoy is a director of Charter Communications, Inc., CNET, Inc., Go2Net,
Inc., Harbinger Corporation, High Speed Access Corp., Telescan, Inc.,
Ticketmaster Online-City Search, Inc., USA Networks, Inc. and Value America.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
RALPH DERRICKSON
Ralph Derrickson, 41, has served as a director of the Company since April
1998. Mr. Derrickson has been a partner of Watershed Capital, LLC, a private
equity investment firm, since September 1998. Previously, Mr. Derrickson was
employed in a business development position at Vulcan Northwest, Inc. from
December 1996 to September 1998. He also served as a Vice President of Product
Development at Starwave Corporation, an internet technology company and creator
and producer of online sports, news and entertainment services, from June 1993
to December 1996. He has also held engineering and management positions with
NeXT Computer, Sun Microsystems and Digital Research, Inc.
ROBERT P. DILWORTH
Robert P. Dilworth, 58, has served as a director since August 1987. Since
September 1999, Mr. Dilworth has been an independent consultant. From May 1998
through September 1999, Mr. Dilworth served as an Executive Vice President and a
director of VLSI Technology, Inc., a semi-conductor manufacturer. Mr. Dilworth
also served as President of the Company from September 1987 to March 1997 and as
Chief Executive Officer of the Company from August 1987 to May 1998. Prior to
joining the Company, he served as President of Zenith Data Systems Corp., a
microcomputer manufacturer and a wholly owned subsidiary of Zenith Electronics
Corp., from May 1985 to November 1987. Mr. Dilworth is also a director of
GraphOn Corporation and eOn Communications Corporation.
TIMOTHY A. DREISBACH
Timothy A. Dreisbach, 50, has served as President and Chief Executive
Officer and a director of the Company since May 1998 and has served as Chairman
of the Board since February 2000. From January 1997 through January 1998, Mr.
Dreisbach served as President and Chief Executive Officer of Premenos Technology
Corporation, an electronic commerce software company that merged with Harbinger
Corp. in December 1997. From April 1992 to December 1996, Mr. Dreisbach served
as Senior Vice President, North American Sales and Service, for Boole & Babbage
Inc., an enterprise management software company.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING
ROBERT S. CLINE
Robert S. Cline, 62, has served as a director of the Company since January
1994. He currently serves as Chairman and Chief Executive Officer of Airborne
Freight Corp., an air express company. Mr. Cline has been employed by Airborne
Freight Corp. since 1968. In addition to Airborne Freight Corp., Mr. Cline is
also a director of SAFECO Corp. and Esterline Technologies Corp.
JUSTIN S. CLINE
Justin L. Jaschke, 42, has served as a director of the Company since June
1996. Mr. Jaschke has served as Chief Executive Officer and a director of Verio
Inc., an Internet service provider since March 1996. Prior to forming Verio, Mr.
Jaschke served as Chief Operating Officer of Nextel Communications, a
telecommunications company, following its merger in July 1995 with OneComm
Corporation, a telecommunications
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company, from July 1995 to March 1996. From April 1993 to July 1995, he served
as OneComm's president and a member of its Board of Directors. From May 1990 to
April 1993, he served as President and Chief Executive Officer of Bay Area
Cellular Telephone Company, a provider of cellular service in the San Francisco
Bay Area and, from November 1987 to May 1990, as Vice President of Corporate
Development for PacTel Cellular, a telecommunications company. Mr. Jaschke is
also a director of Verio and Dobson Communications.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1999, the Board of Directors held
eight meetings. The Board has an Audit Committee, a Compensation Committee and a
Non-Officer Stock Option Administration Committee. The Board does not have a
nominating committee or any committee that functions as a nominating committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements, recommends to the Board the independent auditors to be retained, and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. During fiscal 1999, the Audit Committee was composed of two
non-employee directors: Messrs. Jaschke and Savoy. It met one time during such
fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. During fiscal 1999, the Compensation Committee was composed of two
non-employee directors: Messrs. Cline and Moore. It met twice during such fiscal
year.
The Non-Officer Stock Option Administration Committee administers the
Company's stock option plans for non-officer employees only and makes stock
option grants to such employees not in excess of 25,000 shares. All option
grants in excess of this limit and all option grants to officers must be
approved by the Compensation Committee. The Non-Officer Stock Option
Administration Committee is composed of Mr. Dreisbach, who is the Chief
Executive Officer of the Company.
During fiscal 1999, each Board member except Mr. Derrickson attended 75% or
more of the aggregate of the meetings of the Board and of the committees on
which he served, held during the period for which he was a director or committee
member, respectively.
PROPOSAL 2
APPROVAL OF 1997 EQUITY INCENTIVE PLAN, AS AMENDED
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors in March 1997 and approved by the stockholders in May
1997. As of February 15, 2000, there were 2,275,000 shares authorized for
issuance under the Incentive Plan.
As of January 6, 2000, options (net of cancelled or expired options)
covering an aggregate of approximately 2,221,500 shares had been granted under
the Incentive Plan and 53,500 shares (plus any shares that might in the future
be returned to the Incentive Plan as a result of cancellations or expiration of
options) remained available for future grant under the Incentive Plan. On
February 18, 2000, the Board approved an amendment to the Incentive Plan,
subject to stockholder approval, to increase the number of shares authorized for
issuance under the Incentive Plan by 3,000,000 shares, from 2,275,000 to
5,275,000.
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Stockholders are requested in this Proposal 1 to approve the Incentive
Plan, as amended. The affirmative vote of the holders of a majority of the
shares of Common Stock present in person or represented by proxy and entitled to
vote on the matter at the meeting will be required to approve the Incentive
Plan, as amended. Abstentions will be counted toward the tabulation of votes
cast on the proposals and will have the same effect as negative votes. Broker
non-votes are counted toward a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Incentive Plan, as amended, are outlined
below:
GENERAL
The Incentive Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock purchase awards and stock bonuses
(collectively, "Stock Awards") to employees, directors and consultants.
Incentive stock options granted under the Incentive Plan are intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock options
granted under the Incentive Plan are not intended to qualify as incentive stock
options under the Code. See "Federal Income Tax Information" for a discussion of
the tax treatment of the various awards included in the Incentive Plan. To date,
the Company has granted only stock options under the Plan.
PURPOSE
The Incentive Plan provides a means by which selected employees of and
consultants to the Company, and its affiliates, and directors of the Company may
be given an opportunity to purchase Common Stock of the Company. The Company, by
means of the Incentive Plan, seeks to retain the services of persons who are now
employees of or consultants to the Company, or its affiliates, and directors of
the Company to secure and retain the services of new employees, directors and
consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its affiliates. Approximately 85% of the
Company's approximately 523 employees are eligible to participate in the
Incentive Plan.
ADMINISTRATION
The Board administers the Incentive Plan. Subject to the provisions of the
Incentive Plan, the Board has the power to construe and interpret the Incentive
Plan and the Stock Awards granted under it and to determine from time to time
which of the persons eligible under the Incentive Plan will be granted awards,
the type of awards to be granted, when and how each award will be granted, and
to establish, amend and revoke rules and regulations for the Incentive Plan's
administration. The Board may correct any defect in the Incentive Plan or in any
award agreement to make the Incentive Plan fully effective.
The Board has the power to delegate administration of the Incentive Plan to
a committee composed of one or more Board members. In the discretion of the
Board, a committee may consist solely of non-employee directors (as defined
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or
two or more outside directors (as defined under the Code). If administration is
delegated to a committee, the committee will have, in connection with the
administration of the Incentive Plan, the powers possessed by the Board,
subject, however, to such resolutions, not inconsistent with the provisions of
the Incentive Plan, as may be adopted from time to time by the Board. The
committee may delegate to a subcommittee any of the administrative powers the
committee is authorized to exercise. The Board may abolish a committee or
subcommittee at any time and revest in the Board the administration of the
Incentive Plan. The Board has generally delegated the administration of the
Incentive Plan to the Compensation Committee and, to a limited extent, the
Non-Officer Stock Option Administration Committee. See "Proposal 1 -- Election
of Directors -- Board Committees and Meetings." The Board has the authority to
revest in itself the administration of the Incentive Plan at any time or for any
purpose. As used herein, with respect to the Incentive Plan, the "Board"
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refers to the Compensation Committee, and where applicable, the Non-Officer
Stock Option Administration Committee, as well as to the Board itself.
SHARES SUBJECT TO THE PLAN
Subject to approval of this proposal, the Common Stock that may be issued
pursuant to awards under the Incentive Plan may not exceed in the aggregate
5,275,000 shares of the Company's Common Stock. If any award expires or
terminates, in whole or in part, without having been exercised in full, the
stock not purchased under such award will revert to and again become available
for issuance under the Incentive Plan. The Common Stock subject to the Incentive
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.
ELIGIBILITY
Incentive stock options may be granted only to employees (including
officers) of the Company and its affiliates. Nonstatutory stock options,
restricted stock purchase awards and stock bonuses may be granted to employees
of or consultants to the Company, and its affiliates, and directors of the
Company.
No person is eligible for the grant of an incentive stock option if, at the
time of grant, such person owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company unless the exercise
price of such option is at least 110% of the fair market value of such Common
Stock subject to the option at the date of grant and the option is not
exercisable after the expiration of five years from the date of grant. No person
is eligible to be granted Stock Awards covering more than 400,000 shares of the
Company's Common Stock in any calendar year.
TERM AND TERMINATION
The maximum term of options under the Incentive Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Incentive Plan generally terminate three months after
termination of the optionee's status as an employee, director or consultant
unless (i) termination is due to the optionee's permanent and total disability
(as defined in the Code), in which case the option may be exercised (to the
extent the option was exercisable at the time of the termination of service) at
any time within 12 months of such termination; (ii) the optionee dies before the
optionee's service has terminated, or within three months after termination of
service, in which case the option may be exercised (to the extent the option was
exercisable at the time of the optionee's death) within 18 months of the
optionee's death by the person or persons to whom the rights to such option pass
by will or by the laws of descent and distribution; or (iii) the option by its
terms specifically provides otherwise. An optionee may designate a beneficiary
who may exercise the option following the optionee's death. Individual option
grants by their terms may provide for exercise within longer or shorter periods
of time following termination of service.
An optionee's option agreement may also provide that, if the exercise of
the option following the termination of the optionee's continuous status as an
employee, director or consultant would result in liability under Section 16(b)
of the Exchange Act, then the option will terminate on the earlier of (a) the
expiration of the term of the option set forth in the option agreement and (b)
the tenth day after the last date on which the exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an optionee's option
agreement may also provide that, if the exercise of the option following the
termination of the optionee's continuous status as an employee, director or
consultant would be prohibited at any time solely because the issuance of shares
would violate the registration requirements under the Securities Act of 1933, as
amended (the "Securities Act"), then the option will terminate on the earlier of
(a) the expiration of the term of the option as set forth in the immediately
preceding paragraph and (b) the expiration of a period of three months after the
termination of the optionee's continuous status as an employee, director or
consultant during which the exercise of the option would not be in violation of
such registration requirements.
In the event a stock bonus or restricted stock recipient's continuous
status as an employee, director or consultant terminates, the Company may
repurchase or otherwise reacquire any or all of the shares of stock
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held by that person that have not vested as of the date of termination under the
terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
EXERCISE/PURCHASE PRICE
The exercise price of each incentive stock option will not be less than
100% of the fair market value of the Company's Common Stock on the date of
grant. The exercise price of each nonstatutory stock option will not be less
than 85% of the fair market value on the date of grant. The purchase price of
restricted stock will not be less than 85% of the fair market value of the
Company's Common Stock on the date the award is made. Stock bonuses may be
awarded in consideration of past services actually rendered to the Company or
for its benefit. If options are granted with exercise prices below market value,
deductions for compensation attributable to the exercise of such options could
be limited by Section 162(m) of the Code. See "Federal Tax Information." At
March 15, 2000, the closing price of the Company's Common Stock as reported on
the Nasdaq National Market was $60.375 per share.
CONSIDERATION
The purchase price of stock acquired pursuant to a Stock Award is paid
either in cash at the time of exercise or purchase, or (if determined by the
Board at the time of grant for an option) by deferred payment or other
arrangement or in any other form of legal consideration that may be acceptable
to the Board. Additionally, in the case of an option and in the discretion of
the Board at the time of the grant of an option, by delivery to the Company of
other Common Stock of the Company. In the case of any deferred payment
arrangement, interest will be payable at least annually and will be charged at
the minimum rate of interest necessary to avoid the treatment as interest of
amounts that are not stated to be interest.
TRANSFERABILITY
An incentive stock option is not transferable except by will or by the laws
of descent and distribution, and is exercisable during the lifetime of the
person to whom the incentive stock option is granted only by such person. A
stock bonus or restricted stock award is not transferable except by will or by
the laws of descent and distribution or pursuant to a domestic relations order.
A nonstatutory stock option is transferable only to the extent specifically
provided for in the option agreement evidencing the nonstatutory stock option,
provided that if the nonstatutory stock option agreement does not provide for
transferability, then the option is not transferable except by will or by the
laws of descent and distribution or pursuant to a domestic relations order. A
holder of a stock award may designate a beneficiary who may exercise his or her
award after death.
VESTING
The total number of shares of stock subject to an option may, but need not,
be allotted in periodic installments. The option agreement may provide that from
time to time during each of such installment periods, the option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period or any prior period as to which the option became vested but was
not fully exercised. The option agreement may also provide that an optionee may
exercise an option prior to full vesting, provided that the Company may have a
repurchase right with respect to any unvested shares.
Restricted stock purchase awards and stock bonuses granted under the
Incentive Plan may be granted pursuant to a repurchase option in favor of the
Company in accordance with a vesting schedule determined by the Board.
ADJUSTMENTS UPON CHANGES IN STOCK
If any change is made in the Common Stock subject to the Incentive Plan, or
subject to any Stock Award, without receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the class(es) and
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maximum number of shares subject to the Incentive Plan, the maximum annual award
applicable under the Incentive Plan and the class(es) and number of shares and
price per share of stock subject to outstanding Stock Awards will be
appropriately adjusted.
In the event of a merger, consolidation, liquidation, dissolution or the
sale of substantially all of the Company's assets or a reverse merger in which
the Company is the surviving corporation but the shares of the Company's Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, any surviving corporation will assume any Stock Awards outstanding
under the Incentive Plan or will substitute similar awards for those outstanding
under the Incentive Plan. In the event a surviving corporation refuses to assume
the Stock Awards or substitute similar awards, then, with respect to Stock
Awards held by persons then performing services as employees, directors or
consultants, the time during which the Stock Awards may be exercised will be
accelerated prior to completion of such transaction and the Stock Awards
terminated if not exercised prior to such transaction. In addition, with respect
to any person who was providing services as an employee, director or consultant
immediately prior to such transaction, the time during which Stock Awards may be
exercised will be accelerated and any repurchase right of the Company with
respect to the Stock Awards will lapse if such person is terminated without
cause within 12 months following such transaction. The acceleration of a Stock
Award in the event of an acquisition or similar corporate event may be viewed as
an antitakeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
AMENDMENT OF THE INCENTIVE PLAN
The Board at any time, and from time to time, may amend the Incentive Plan.
However, no amendment will be effective unless approved by the stockholders of
the Company within 12 months before or after the adoption of the amendment,
where the amendment will increase the number of shares reserved for issuance
under the Incentive Plan, modify the requirements as to eligibility for
participation or in any other way if such modification requires stockholder
approval in order for the Incentive Plan to satisfy the requirements of Section
422 of the Code or to comply with the requirements of Rule 16b-3 of the Exchange
Act. The Board may in its sole discretion submit any other amendment to the
Incentive Plan for stockholder approval.
TERMINATION OR SUSPENSION OF THE INCENTIVE PLAN
The Board may suspend or terminate the Incentive Plan at any time. Unless
sooner terminated, the Incentive Plan will terminate in March 2007. No Stock
Awards may be granted under the Incentive Plan while the Incentive Plan is
suspended or after it is terminated.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
INCENTIVE STOCK OPTIONS. Incentive stock options under the Incentive Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are 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.
If an optionee holds stock acquired 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 capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these
8
<PAGE> 11
holding periods (a "disqualifying disposition"), at the time of disposition, the
optionee will realize taxable ordinary income equal to the lesser of (a) the
excess of the stock's fair market value on the date of exercise over the
exercise price and (b) 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 optionee held the stock for more than one
year.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, Code Section 162(m) and the satisfaction of a
tax reporting obligation) to a corresponding business expense deduction in the
tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options generally have the
following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. With respect to employees, the Company is generally
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, Code Section 162(m) and the satisfaction of a tax reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income realized by the optionee. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the option.
Such gain or loss will be short-term or long-term depending on whether the stock
was held for more than one year. Slightly different rules may apply to optionees
who acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
RESTRICTED STOCK PURCHASE AWARDS AND STOCK BONUSES. Restricted stock
purchase awards and stock bonuses granted under the Incentive Plan generally
have the following federal income tax consequences:
Upon acquisition of the stock, the recipient normally will recognize
taxable ordinary income equal to the excess of the stock's fair market value
over the purchase price, if any. However, to the extent the stock is subject to
certain types of vesting restrictions, the taxable event will be delayed until
the vesting restrictions lapse unless the recipient elects to be taxed on
receipt of the stock. With respect to employees, the Company is generally
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, Code Section 162(m) and the satisfaction of a tax reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income realized by the optionee. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon acquisition (or
vesting) of the stock. Such gain or loss will be long-term or short-term
depending on whether the stock was held for more than one year. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain covered employees in a taxable year to the extent that compensation
exceeds $1 million for a covered employee. It is possible that compensation
attributable to awards granted in the future under the Incentive Plan, when
combined with all other types of compensation received by a covered employee
from the Company, may cause this limitation to be exceeded in any particular
year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a committee comprised solely of "outside
directors" and either: (a) the
9
<PAGE> 12
option plan contains a per-employee limitation on the number of shares for which
options may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the option is no less
than the fair market value of the stock on the date of grant or (b) the option
is granted (or exercisable) only upon the achievement (as certified in writing
by the committee) of an objective performance goal established in writing by the
committee while the outcome is substantially uncertain, and the option is
approved by stockholders.
Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
committee composed solely of "outside directors" and (ii) the purchase price of
the award is no less than the fair market value of the stock on the date of
grant. Stock bonuses qualify as performance-based compensation under the
Treasury regulations only if: (i) the award is granted by a committee comprised
solely of "outside directors;" (ii) the award is granted (or exercisable) only
upon the achievement of an objective performance goal established in writing by
the committee while the outcome is substantially uncertain; (iii) the committee
certifies in writing prior to the granting (or exercisability) of the award that
the performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the amount) payable upon attainment of the
performance goal).
PROPOSAL 3
APPROVAL OF 1991 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
The 1991 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors and approved by the Company's stockholders in November
1991. As of February 15, 2000, 750,000 shares were authorized for issuance under
the Purchase Plan. At February 15, 2000, an aggregate 558,533 shares had been
issued under the Purchase Plan and 191,467 shares remained for the grant of
future rights under the Plan. On February 18, 2000, the Board of Directors
adopted an amendment to the Purchase Plan, subject to stockholder approval, to
increase the number of shares authorized for issuance under the Purchase Plan
from 750,000 shares to 1,050,000 shares.
During the last fiscal year, shares were purchased by the executive
officers and other employees of the Company in the amounts and at the weighted
average prices per share under the Purchase Plan as follows: Timothy Dreisbach,
1,983 shares ($6.003), Dale Marquart, 624 shares ($6.003), all current executive
officers as a group, 2,607 shares ($6.003) and all employees (excluding
executive officers) as a group, 85,549 shares ($6.014).
Stockholders are requested in this Proposal 3 to approve the Purchase Plan,
as amended. The affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy and entitled to vote on
the matter at the meeting will be required to approve the Purchase Plan, as
amended. Abstentions will be counted toward the tabulation of votes cast on the
proposal and will have the same effect as negative votes. Broker non-votes are
counted toward a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Purchase Plan, as amended, are outlined
below:
PURPOSE
The purpose of the Purchase Plan is to provide a means by which employees
of the Company (and any parent or subsidiary of the Company designated by the
Board of Directors to participate in the Purchase Plan) may be given an
opportunity to purchase Common Stock of the Company through payroll deductions,
to assist the Company in retaining the services of its employees, to secure and
retain the services of new employees, and to provide incentives for such persons
to exert maximum efforts for the success of the Company.
10
<PAGE> 13
Approximately 57% of the Company's approximately 523 employees are currently
eligible to participate in the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, which has the
final power to construe and interpret the Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether the employee of any parent or subsidiary of the
Company will be eligible to participate in such plan. The Board has the power,
which it has not exercised, to delegate administration of such plan to a
committee of not less than two Board members. The Board may abolish any such
committee at any time and revest in the Board the administration of the Purchase
Plan.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. For each offering, the Board may
determine the term and other provisions (which need not be identical), within
the limitations of the Purchase Plan. Such offerings may have a term of up to 27
months. To date, the Board has authorized offerings of one year duration, which
are divided into two shorter "purchase periods" of approximately six months
duration. In the future, the Board may authorize offerings with terms different
than those described here.
ELIGIBILITY
The Board may establish certain eligibility requirements for participation
under the offerings it authorizes. For example, the Board may require that
employees complete a period of service of up to two years before they become
eligible to participate in an offering.
In addition, as required by the Code, no employee is eligible for the grant
of any rights under the Purchase Plan if, immediately after such grant, the
employee would own, directly or indirectly, stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company or
of any parent or subsidiary of the Company (including any stock which such
employee may purchase under all outstanding rights and options), nor will any
employee be granted rights that would permit him to buy more than $25,000 worth
of stock (determined at the fair market value of the shares at the time such
rights are granted) under all employee stock purchase plans of the Company in
any calendar year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering
to the Company, prior to the date selected by the Board as the offering date for
an offering, an agreement authorizing payroll deductions of up to 15% of such
employees' base salary compensation during the offering.
PURCHASE PRICE
The Board may authorize the purchase price per share at which shares of
Common Stock will be sold in an offering under the Purchase Plan. The purchase
price may not be less than the lower of (a) 85% of the fair market value of a
share of Common Stock on the date of commencement of the offering and (b) 85% of
the fair market value of a share of Common Stock on the last day of the
offering.
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<PAGE> 14
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the course of each offering that is authorized under the Purchase Plan. At any
time during the offering, a participant may reduce or terminate his or her
payroll deductions (See "Withdrawal" below). Under each offering, the Board may
establish the time or times at which participants may increase or decrease their
payroll deductions. All payroll deductions made for a participant are credited
to his or her account under the Purchase Plan and deposited with the general
funds of the Company. Unless authorized under an offering, participants may not
make any additional payments into such accounts.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under such plan. In connection with offerings
made under the Purchase Plan, the Board may specify a maximum number of shares
any employee may be granted the right to purchase and the maximum aggregate
number of shares which may be purchased pursuant to such offering by all
participants. If the aggregate number of shares to be purchased upon exercise of
rights granted in the offering would exceed the maximum aggregate number, the
Board would make a pro rata allocation of shares available in a uniform and
equitable manner. Unless the employee's participation is discontinued, his right
to purchase shares is exercised automatically at the end of the offering at the
applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by delivering to the Company a notice of withdrawal from the
Purchase Plan. Such withdrawal may be elected at any time prior to the end of
the applicable offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
stock on the employee's behalf during such offering, and such employee's
interest in the offering will be automatically terminated. The employee will not
be entitled to again participate in such offering. An employee's withdrawal from
an offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason. Upon any
such termination, the Company will distribute to the employee all of his or her
accumulated payroll deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the stockholders within 12 months of its
adoption by the Board if the amendment would (a) increase the number of shares
of Common Stock reserved for issuance under the Purchase Plan or (b) modify the
requirements relating to eligibility for participation in the Purchase Plan.
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<PAGE> 15
Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of such plan without
the consent of the person to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger of
the Company, the surviving corporation either will assume the rights under the
Purchase Plan or substitute similar rights, or the exercise date of any ongoing
offering will be accelerated such that the outstanding rights may be exercised
immediately prior to, or concurrent with, any such event.
SHARES SUBJECT TO PURCHASE PLAN
Subject to approval of this proposal, an aggregate of 1,050,000 shares of
Common Stock is authorized for issuance under the Purchase Plan. If rights
granted under the Purchase Plan expire, lapse or otherwise terminate without
being exercised, the Common Stock not purchased under such rights will again
become available for issuance under the Purchase Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Other than this, except as described
below with respect to possible FICA and FUTA liability, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchased shares.
If the stock is disposed of more than two years after the beginning of the
offering and more than one year after the stock is transferred to the
participant, then the lesser of (a) the excess of the fair market value of the
stock at the time of such disposition over the exercise price and (b) the excess
of the fair market value of the stock as of the beginning of the offering over
the exercise price (determined as of the beginning of the offering) will be
treated as ordinary income. Any further gain or any loss will be taxed as a
long-term capital gain or loss. Such capital gains currently are generally
subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition. The balance of any gain will be treated
as capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income will be
attributed to the participant and a capital loss may be recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be short-term or long-term
depending on whether the stock had been held for more than one year.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. However, upon exercise
of an employee's rights under the Purchase Plan, the Company may be required to
withhold and pay FICA (Federal Insurance Contribution Act) and FUTA (Federal
Unemployment Tax Act) taxes. The Company is entitled to a deduction to the
extent amounts are taxed as ordinary income to a participant upon the
disposition by the participant of stock before the satisfaction of the holding
periods described above (subject to the requirement of reasonableness and the
satisfaction of a tax reporting obligation).
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<PAGE> 16
PROPOSAL 4
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
GENERAL
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Restated Certificate of Incorporation to increase the
authorized number of shares of capital stock from 230,000,000 shares to
580,000,000 shares and to increase the Company's authorized number of shares of
Common Stock from 150,000,000 to 500,000,000.
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of current stockholders, except for the effects
incidental to increasing the number of shares of the Company's Common Stock
outstanding, such as dilution of the earnings per share and voting rights of
current stockholders. If the amendment is adopted, it will become effective upon
filing of a Certificate of Amendment of the Company's Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware.
In addition to the 30,598,518 shares of Common Stock outstanding at March
15, 2000, the Board has reserved an aggregate of approximately 67,025,252 shares
of Common Stock for issuance upon (a) exercise of outstanding options granted
under the Company's stock option plans, (b) exercise of outstanding warrants,
(c) exercise of rights under the Company's employee stock purchase plan, and (d)
conversion of the Company's 60,000,000 outstanding shares of Preferred Stock.
Although, at present, the Board of Directors has no other plans to issue
the additional shares of Common Stock, it desires to have such shares available
to provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval, for various purposes including, without
limitation, raising capital, providing equity incentives to employees, officers
or directors, establishing strategic relationships with other companies and
expanding the Company's business or product lines through the acquisition of
other businesses or products.
The additional shares of capital stock that would become available for
issuance if this Proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board of Directors could adopt a "poison pill" which would, under certain
circumstances related to an acquisition of shares not approved by the Board,
give certain holders the right to acquire additional shares of capital stock at
a low price, or the Board could strategically sell shares of capital stock in a
private transaction to persons or entities that would oppose a takeover or favor
the current Board. Although this Proposal to increase the authorized capital
stock has been prompted by business and financial considerations and not by the
threat of any hostile takeover attempt (nor is the Board currently aware of any
such attempts directed at the Company), nevertheless, stockholders should be
aware that approval of the Proposal could facilitate future efforts by the
Company to deter or prevent changes in control of the Company, including
transactions in which the stockholders might otherwise receive a premium for
their shares over then current market prices.
STOCKHOLDER APPROVAL
Stockholders are requested in this Proposal 4 to approve the amendment to
the Restated Certificate in substantially the form attached as Annex A. The
affirmative vote of the holders of a majority of the outstanding shares of both
the Common Stock and Preferred Stock, voting together as a class, and the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock, voting as a single class, will be required to approve this
amendment to the Company's Restated Certificate of Incorporation. As a result,
abstentions and broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
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<PAGE> 17
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Arthur Andersen LLP
has audited the Company's financial statements since its inception in 1988.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Arthur Andersen LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Arthur Andersen LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote on the
matter at the Annual Meeting will be required to ratify the selection of Arthur
Andersen LLP. Abstentions will be counted toward the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
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<PAGE> 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 15, 2000, by: (a) each current
director and nominee for director; (b) each of the executive officers named in
the Summary Compensation Table under the caption "Executive Compensation" below;
(c) all current executive officers and directors of the Company as a group; and
(d) all those known by the Company to be beneficial owners of more than five
percent of its Common Stock.
In addition to the outstanding Common Stock reflected in the table below,
Vulcan holds 30,000,000 shares of the Company's Series A2 Redeemable Convertible
Preferred Stock and MCI WorldCom holds 30,000,000 shares of the Company's Series
A1 Redeemable Convertible Preferred Stock. The shares held by Vulcan are
convertible on a one-for-one basis into shares of the Company's Common Stock at
Vulcan's option at any time. Accordingly, as required by applicable regulations
of the Securities and Exchange Commission (the "SEC"), the shares of Common
Stock shown in the following table as being beneficially owned by Vulcan include
the 30,000,000 shares of Common Stock issuable upon conversion of Vulcan's
Preferred Stock. The shares of Preferred Stock held by MCI WorldCom are
convertible into shares of the Company's Common Stock, on a one-for-one basis,
beginning in May 2002. Because these shares are not convertible into Common
Stock within 60 days of March 15, 2000, MCI WorldCom is not deemed to
beneficially own the underlying Common Stock for purposes of the following
table. If all of the Company's outstanding shares of Preferred Stock were
converted into Common Stock, the percentages of Common Stock beneficially owned
by Vulcan and MCI WorldCom, respectively, would be approximately 43% and 33%.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------------------
NAME NUMBER OF SHARES PERCENT OF TOTAL
---- ---------------- ----------------
<S> <C> <C>
Vulcan Ventures Incorporated(2)....................... 39,121,745 64.6%
110-110th Avenue NE, Suite 550
Bellevue, WA 98004
FMR Corporation(3).................................... 3,853,330 12.6%
82 Devonshire Street
Boston, MA 02109
Robert S. Cline(4).................................... 57,999 *
Ralph Derrickson(4)................................... 2,333 *
Robert P. Dilworth(4)................................. 17,333 *
Timothy A. Dreisbach(4)............................... 292,982 *
Lee M. Gopadze(4)..................................... 37,808 *
Justin L. Jaschke(4).................................. 49,499 *
Dale W. Marquart(4)................................... 39,730 *
David Moore(4)(5)..................................... 39,124,078 64.6%
Robert W. Mott(4)..................................... 28,812 *
William D. Savoy(4)(5)................................ 39,128,744 64.6%
Robert H. Schellman................................... -- *
James E. Wall......................................... -- *
John G. Wernke(4)..................................... 9,376 *
Directors and executive officers as a group (12
persons)(6)......................................... 39,629,141 64.9%
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by directors, executive
officers and principal stockholders and Schedules 13D and 13G filed with the
SEC. Unless otherwise indicated below, the persons named in the table have
sole voting and investment power with respect to all shares beneficially
owned by them, subject to community property laws where applicable. For
purposes of this table, shares held by stockholders include any shares held
as tenants in common or joint tenants with spouses. Percentages are based on
a total of shares of common stock outstanding on March 15, 2000, adjusted in
accordance with the rules promulgated by the SEC. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that
16
<PAGE> 19
person that are exercisable within 60 days of the date of this table and
shares of Common Stock issuable to that person upon conversion of
convertible preferred stock that is convertible within 60 days of the date
of this table are also deemed outstanding. These shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of
any other person.
(2) Based on a Schedule 13D filed with the SEC on October 28, 1993, and most
recently amended on November 30, 1999. Includes 25,000 shares held by Paul
Allen, the sole stockholder of Vulcan. Also includes 30,000,000 shares of
Redeemable Convertible Preferred Stock held by Vulcan. Vulcan's preferred
shares are convertible into shares of the Company's Common Stock, on a
one-for-one basis, at Vulcan's option at any time.
(3) Based on a Schedule 13G filed with the SEC on February 11, 2000, and most
recently amended on March 10, 2000. Fidelity Management & Research Company
("FM&RC"), a wholly-owned subsidiary of FMR Corp. and a registered
investment advisor, beneficially owns 3,853,330 of such shares as the result
of acting as an investment advisor to several registered investment
companies ("Funds"). FMR Corp., through its control of FM&RC, has sole
investment power with respect to these shares. Voting power over these
shares resides with each respective Fund's Board of Trustees. Fidelity
Growth Company Fund ("FGCF"), beneficially owns 2,090,200 of such shares.
Edward C. Johnson III, FMR Corp., through its control of FM&RC, and the
Funds has sole investment power over these shares.
(4) Includes shares of common stock subject to options exercisable within 60
days of the date of this table as follows: 54,999 for Mr. Cline, 2,333 for
Mr. Derrickson, 2,333 for Mr. Dilworth, 272,999 for Mr. Dreisbach, 37,808
for Mr. Gopadze, 49,499 for Mr. Jaschke, 39,730 for Mr. Marquart, 2,333 for
Mr. Moore, 28,812 for Mr. Mott, 6,999 for Mr. Savoy and 9,376 for Mr.
Wernke.
(5) Includes 39,096,745 shares owned directly by Vulcan. Messrs. Moore and Savoy
are affiliated with Vulcan Northwest, Inc., a venture capital fund
affiliated with Vulcan. Messrs. Moore and Savoy disclaim beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Exchange Act. The addresses of Messrs. Moore and Savoy are the same as that
of Vulcan.
(6) Includes the information reflected in the notes above, as applicable.
Excludes shares beneficially owned by Lee M. Gopadze, a former executive
officer.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with, except that three
reports, covering an aggregate of 30 transactions, were inadvertently filed late
by Mr. Dilworth.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives an annual retainer of
$6,000 and a per meeting fee of $1,000 (plus $250 for each committee meeting
attended by committee members). In the fiscal year ended December 31, 1999, the
total compensation paid to non-employee directors was $41,500. Members of the
Board of Directors are also eligible for reimbursement for their expenses
incurred in connection with attendance at Board of Directors and committee
meetings in accordance with Company policy.
17
<PAGE> 20
Each non-employee director of the Company also receives stock option grants
under the 1993 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company or an affiliate of such
directors (as defined in the Code) are eligible to receive options under the
Directors' Plan. Options granted under the Directors' Plan are intended by the
Company not to qualify as incentive stock options under the Code.
Option grants under the Directors' Plan are non-discretionary. On January 1
of each year (or the next business day should such date be a legal holiday),
each member of the Company's Board of Directors who is not an employee of the
Company, is automatically granted under the Directors' Plan, without further
action by the Company, the Board of Directors or the stockholders of the
Company, an option to purchase 7,000 shares of Common Stock of the Company. No
other options may be granted at any time under the Directors' Plan. The exercise
price of options granted under the Directors' Plan is 100% of the fair market
value of the Common Stock subject to the option on the date of the option grant.
Options granted under the Directors' Plan may not be exercised until the date
upon which the optionee has provided one year of continuous service as a
non-employee director following the date of grant of the option. At that time,
the option will become exercisable as to one-third of the option shares and one
third of the option shares will become exercisable each year thereafter in
accordance with its terms. The term of options granted under the Directors' Plan
is 10 years. In the event of a merger of the Company with or into another
corporation or a consolidation, acquisition of assets or other change-in-control
transaction involving the Company, the vesting of each option will accelerate
and the option will terminate if not exercised prior to the consummation of the
transaction.
During the last fiscal year, the Company granted options covering 7,000
shares to each of Messrs. Cline, Derrickson, Jaschke, Moore and Savoy, at
exercise prices of $4.878 per share, except for the option granted to Mr. Moore,
which had an exercise price of $6.00 per share. The exercise prices were equal
to the respective fair market values of such Common Stock on the date of grant
(based on the closing sale price reported on the Nasdaq National Market for the
date of grant). During 1999, Mr. Derrickson exercised an option under the
Directors' Plan for 2,333 shares. Upon sale of the shares, Mr. Derrickson
realized proceeds of $39,150. During 1999, Mr. Cline exercised options under the
Directors' Plan for an aggregate of 5,000 shares. Upon sale of the shares, Mr.
Cline realized proceeds of $159,124.
In addition, during fiscal 1999, under the Key Employee Severance Plan, Mr.
Dilworth received payments from the Company in the amount of $409,512,
continuation of his health, life and other insurance for five years and
accelerated vesting of a portion of his stock options in connection with the
termination of his employment from the Company after the sale of Common Stock to
Vulcan in January 1998.
Directors who are employees of the Company do not receive separate
compensation for their services as directors.
18
<PAGE> 21
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1999,
1998 and 1997 compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer, Chief Financial Officer and the five other most highly
compensated executive officers ("Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------
AWARDS
----------------
ANNUAL SHARES OF COMMON
-------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY(2) BONUS(3) OPTIONS(4) COMPENSATION(5)
------------------------------ ---- --------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Timothy A. Dreisbach................ 1999 $253,349 $111,035 75,000 $1,578
President and Chief 1998 148,616 90,756 550,000 2,578
Executive Officer
Lee M. Gopadze...................... 1999 198,977 100,646 75,000 578
Former Senior Vice 1998 166,179 88,906 65,000 2,966
President of Field 1997 122,950 49,317 20,000 --
Operations
Dale W. Marquart.................... 1999 166,291 90,578 75,000 1,251
General Counsel, Senior 1998 83,654 45,000 75,000 258
Vice President of Administration
and Secretary
Robert W. Mott...................... 1999 187,361 98,124 75,000 1,226
Senior Vice President of 1998 53,846 85,000 75,000 1,220
Engineering and Manufacturing
Robert H. Schellman................. 1999 79,478 41,922 125,000 1,321
Senior Vice President of Network
Operations and Services
James E. Wall....................... 1999 86,993 45,726 125,000 449
Chief Financial Officer
John G. Wernke...................... 1999 168,254 128,315 75,000 1,251
Senior Vice President of 1998 54,808 36,562 75,000 349
Marketing and Sales
</TABLE>
- ---------------
(1) Mr. Dreisbach joined the Company in May 1998, Mr. Gopadze in February 1997,
Mr. Marquart in June 1998, Mr. Mott and Mr. Wernke in August 1998, Mr.
Schellman in July 1999 and Mr. Wall in August 1999. Mr. Gopadze resigned
from the Company in March 2000.
(2) In accordance with the rules of the SEC, the compensation described in this
table does not include medical or group life insurance or other benefits
that are generally available to all salaried employees or certain
perquisites and other personal benefits received by the named executive
officers that do not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in this table.
(3) For 1998 and 1997, includes shares of stock issued in connection with the
Company's annual bonuses paid in cash and stock. In 1997, Mr. Gopadze
received stock valued at $9,367, based on a per share value of $11.31, the
fair market value of the Company's Common Stock on the date bonuses were
paid (based on the average of the previous day's high and low sales price
reported in the Nasdaq National Market). In 1998, Messrs. Gopadze and
Marquart received stock valued at $13,151 and $1,667, respectively, based on
a per share value of $8.25, the fair market value of the Company's Common
Stock on the date bonuses were paid (based on the average of the previous
day's high and low sales reported in the Nasdaq National Market). Included
in Mr. Mott's bonus in 1998 is an advance payment of $37,500. In 1998, Mr.
Wernke received an automobile allowance of $1,662. Mr. Dreisbach received
stock valued at $90,756, based on a per share value of $7.56, the fair
market value of the Company's Common Stock on the date the bonus
19
<PAGE> 22
was paid (based on the average of the previous day's high and low sales
reported in the Nasdaq National Market). In 1999, Messrs. Gopadze and Wernke
received automobile allowances of $3,250 and $4,200, respectively.
(4) In August 1997, the Board approved the replacement of each outstanding
option held by an employee with a per share exercise price of $7.00 per
share or greater, upon the timely request of the optionee, with a
nonstatutory stock option having an exercise price of $4.53 per share and
certain delayed exercise provisions. Amounts for 1997 include 20,000 shares
subject to repriced options for Mr. Gopadze.
(5) For 1998, includes the Company's matching payment of $1,000 for each
executive officer under the Company's 401(k) plan, except for Messrs.
Gopadze, Marquart, Mott and Wernke, who received $0, $0, $942 and $0 in
matching payments, respectively. For 1999, includes the Company's matching
payment of $1,000 for each executive officer under the Company's 401(k)
plan, except for Messrs. Gopadze and Wall. For 1998, includes payments for
term life insurance in the amounts of $1,578, $2,966, $258, $278 and $349
for Messrs. Dreisbach, Gopadze, Marquart, Mott and Wernke, respectively. For
1999, includes payments for term life insurance in the amounts of $578,
$578, $251, $226, $321, $449 and $251 for Messrs. Dreisbach, Gopadze,
Marquart, Mott, Schellman, Wall and Wernke, respectively.
COMPENSATION PURSUANT TO PLANS
Generally, the Company grants options to its executive officers under the
Incentive Plan. The following tables show, for the fiscal year ended December
31, 1999, certain information regarding options granted to, exercised by and
held at year end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN LAST FISCAL YEAR
--------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE
SHARES OF GRANTED AT ASSUMED ANNUAL RATES OF
COMMON STOCK TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------------
GRANTED(1) YEAR(2) SHARE DATE 5% 10%
------------ ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Dreisbach................. 75,000 3.9% $29.25 10/18/09 $1,379,637 $3,496,272
Mr. Gopadze................... 75,000 3.9% $29.25 10/18/09 $1,379,637 $3,496,272
Mr. Marquart.................. 75,000 3.9% $29.25 10/18/09 $1,379,637 $3,496,272
Mr. Mott...................... 75,000 3.9% $29.25 10/18/09 $1,379,637 $3,496,272
Mr. Schellman................. 125,000 6.5% $26.34 08/02/09 $2,070,934 $5,248,153
Mr. Wall...................... 125,000 6.5% $22.53 08/06/09 $1,770,849 $4,487,679
Mr. Wernke.................... 75,000 3.9% $29.25 10/18/09 $1,379,637 $3,496,272
</TABLE>
- ---------------
(1) Options granted under the Company's employee stock option plans typically
vest at the rate of 25% after one year and approximately two percent per
month thereafter, such that the options are fully vested in four years.
(2) Based on options covering a total of 1,921,770 shares of Common Stock
granted to employees in 1999.
(3) For new grants, the potential realizable value is calculated based on the
term of the option at the time of grant (10 years). Potential realizable
value is calculated by assuming that the stock price on the date of grant
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated stock price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the SEC and do not represent the
Company's estimate or projection of future Common Stock price. No gain to
the optionee is possible unless the stock price increases over the option
term, which will benefit all stockholders.
20
<PAGE> 23
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OF OPTIONS AT IN-THE-MONEY OPTIONS AT
COMMON STOCK VALUE FISCAL YEAR-END FISCAL YEAR-END(2)
ACQUIRED REALIZED --------------------------- ---------------------------
ON EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Dreisbach.......... 2,000 $ 87,785 215,708 407,292 $14,722,071 $26,382,054
Mr. Gopadze............ 5,000 $ 249,568 30,103 124,897 $ 2,183,263 $ 7,315,642
Mr. Marquart........... 3,000 $ 139,379 24,083 122,917 $ 1,685,241 $ 7,061,955
Mr. Mott............... 5,000 $ 272,786 19,999 125,001 $ 1,439,928 $ 7,303,197
Mr. Schellman.......... -- $ -- -- 125,000 $ -- $ 6,535,150
Mr. Wall............... -- $ -- -- 125,000 $ -- $ 7,012,313
Mr. Wernke............. 25,936 $1,221,080 1,563 125,001 $ 110,192 $ 7,228,196
</TABLE>
- ---------------
(1) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise (the closing sale price reported on the Nasdaq
National Market on that date) minus the exercise price, and does not
necessarily indicate that the optionee sold the stock.
(2) Value of unexercised options at fiscal year-end is based on the fair market
value of the Company's Common Stock at December 31, 1999 of $78.63 (based on
the closing sale price reported on the Nasdaq National Market on that date)
minus the exercise price of the option.
CHANGE OF CONTROL AND SEVERANCE ARRANGEMENTS
EMPLOYMENT ARRANGEMENTS. In May 1998, the Company entered into an
employment agreement with Mr. Dreisbach, which provided for salary, bonus and
option grants for the ensuing year. In addition, under the agreement, in the
event that the Company were to terminate Mr. Dreisbach's employment other than
for cause (as defined in the agreement) at any time or if Mr. Dreisbach were to
voluntarily terminate his employment for good reason (as defined in the
agreement) within 90 days prior to or 180 days after a change in control of the
Company, the Company would pay to Mr. Dreisbach, for a period of 12 months, the
base compensation and health benefits to which he was entitled on the date of
his termination. In addition, under Mr. Dreisbach's non-plan option, in the
event of a change in control, the option would come fully vested if, within 90
days prior to or 180 days following such change in control, his employment were
terminated for any reason other than for cause or if he terminated his
employment for good reason. In addition, under the non-plan option, if Mr.
Dreisbach were terminated without cause or voluntarily terminated his employment
for good reason, he could exercise his options (to the extent exercisable) for
up to two years following such termination.
In addition, the Company's employment arrangements with each of the current
executive officers, other than Mr. Dreisbach, provide that upon a change in
control of the Company that results in the elimination of, or a material
reduction in, the scope of the officers' responsibilities, they would be
entitled to severance benefits consisting of six months' salary and continuation
of benefits as well as the acceleration of vesting of their options for periods
ranging from one to two years.
ACCELERATION OF VESTING UNDER STOCK OPTION PLANS. Two of the Company's
three stock option plans for the benefit of employees and consultants, the 1997
Equity Incentive Plan and the 1997 Non-Officer Equity Incentive Plan, provide
for acceleration of vesting under certain circumstances. Options to purchase
approximately 2,030,657 and 827,513 shares of Common Stock, respectively, were
outstanding under these plans as of December 31, 1999. The 1997 Equity Incentive
Plan and the 1997 Non-Officer Equity Incentive Plan provide that, in the event
an optionee is terminated other than for cause within 12 months after a change
in control, as defined in the plans, the options held by the optionee under the
plans will become fully vested.
21
<PAGE> 24
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Committee currently
consists of Robert S. Cline, who is Chairman of the Committee, and David M.
Moore, neither of whom is an employee of the Company. The Compensation Committee
is responsible for establishing the Company's compensation programs for all
employees, including executives. The Company applies a consistent methodology to
compensation for all employees, including executive officers. It is based on the
premise that the Company's results are achieved through the coordinated efforts
of all individuals working toward meeting customer and stockholder expectations.
The goals of the Company's compensation program are to align compensation
with business objectives and performance while enabling the Company to attract,
retain and reward employees who contribute to the long-term success of the
Company. In all cases, attention is given to fairness in the administration of
compensation and to assuring that all employees understand the related
performance evaluation and administrative process. The Company has taken careful
steps in an effort to make executive compensation consistent with that of other
similar companies in the electronics and communications industries and, where
appropriate, contingent upon the Company's achievement of near- and long-term
objectives and goals. For fiscal 1999, the principal measures the Compensation
Committee looked to in evaluating the Company's progress towards these
objectives and goals were (1) the extent of completion of the development and
testing of the Company's high-speed network, (2) the extent of completion of
right-of-way agreements, utility agreements and other network site agreements in
both new and existing areas where the Company's service will be offered, (3)
achieving certain financial performance levels and (4) increasing the Company's
subscriber base.
For 1999, the Company's executive compensation program included the
following components: (i) base salary, (ii) merit increases, (iii) annual
incentives in the form of cash bonuses and (iv) options to purchase shares of
Common Stock of the Company.
BASE SALARY
Base salary is targeted toward the middle of the range established by
surveys of comparable companies in the electronics and communications
industries. Base salaries are reviewed annually to ensure that the Company's
salaries are competitive within the target range. For the purpose of
establishing these levels for fiscal 1999, the Company relied in part on an
executive compensation survey of U.S.-based high technology companies conducted
by a nationally recognized compensation consulting firm and on data obtained
from executive search firms that place executives with Silicon Valley companies.
The companies in the above-mentioned survey and data sources include a broad
range of companies because the Company competes for talented executives with a
wide range of companies in various industries. The Company believes the highly
competitive employment environment of Silicon Valley has the greatest impact on
base salary levels.
MERIT INCREASE
Merit increases are designed to encourage management to perform at
consistently high levels. Salaries for executives are reviewed by the
Compensation Committee on an annual basis and may be increased at that time
based on the Compensation Committee's agreement that the individual's overall
contribution to the Company deserves recognition. The base salaries paid to the
Company's executive officers were increased in 1999 by amounts ranging from 8%
to 20%, reflecting primarily changed responsibilities and their contributions to
the Company's near- and long-term strategic objectives set forth above.
- ---------------
1The material in this report is not "soliciting material" is not deemed "filed"
with the SEC, and is not to be incorporated by reference into any filing of the
Company under the Securities Act or the Exchange Act, whether made before or
after the date hereof and irrespective of any general incorporation language
contained in such filing.
22
<PAGE> 25
CASH BONUSES
Bonuses for executives are considered to be "pay at risk" and as such are
used as an incentive to encourage management to perform at a high level or to
recognize a particular contribution by an employee or exceptional Company
performance. Generally, the higher the employee's level of job responsibility,
the larger the portion of the individual's compensation package that is
represented by a bonus. Whether a bonus will be given, and the amount of any
such bonus, is determined on a yearly basis.
For fiscal 1999, the Compensation Committee's objectives for the payment of
bonuses to executives were to recognize and reward performance, to encourage
executives to exert maximum efforts to enable the Company to meet and exceed its
objectives, as well as to ensure that the Company's compensation remains
competitive to enable the Company to hire and retain top-performing executives.
At the beginning of 1999, the Compensation Committee and the Board of Directors
reviewed and approved the annual performance objectives for the Company. The
actual cash bonus earned in 1999 by an executive officer depended upon the
extent to which the Company's objectives were achieved.
For 1999, in awarding cash bonuses to executive officers, the Compensation
Committee evaluated the Company's performance against the objectives set forth
above as follows: In fiscal 1999, the Company completed the development and
testing of the Company's high-speed network and, prior to the end of the year,
began the initial phases of the network deployment. The Company increased the
overall subscriber base during fiscal 1999 and entered into an agreement with
MCI WorldCom to sell subscriptions to the Company's service. The Company also
made substantial progress in obtaining right-of-way agreements with
municipalities, pole attachment agreements and supply agreements with utility
companies and lease agreements with the owners of buildings or radio towers
governing the lease of space for the deployment of the networks wired access
points. In light of the Company's success in achieving important objectives in
fiscal 1999, the Compensation Committee decided to award bonuses to executives
at 125.8% of their target levels, prorated for the time each executive had been
with the Company during the year. The Company's executive officers received
bonuses ranging from 40% to 60% of their base salaries. Bonus awards are
approved by the Chief Executive Officer and the Compensation Committee in the
case of executives other than the Chief Executive Officer and by the
Compensation Committee alone in the case of the Chief Executive Officer.
STOCK OPTIONS
The Compensation Committee believes that stock ownership by management is
beneficial in aligning the interests of management and stockholders with respect
to enhancing stockholder value. Stock options are also used to retain executives
and motivate them to improve long-term Stockholder value. Stock options are
granted at the prevailing market value and will only have future value if the
Company's stock price increases. Generally, stock option grants vest 25% after
the first year and monthly thereafter in 36 equal amounts over three years.
The Compensation Committee determines the number of options to be granted
based upon the competitive marketplace, with a particular focus on determining
what level of equity incentive is necessary to retain a particular individual.
Outstanding historical performance by an individual is additionally recognized
through larger than normal option grants. The Company's executive officers
received options to purchase Common Stock at levels ranging from 75,000 for
continuing executive officers to 125,000 shares for executive officers joining
the Company during the year.
CHIEF EXECUTIVE OFFICER
The Compensation Committee uses the same philosophy described above with
respect to other executive officers in setting the compensation for its Chief
Executive Officer, Mr. Dreisbach. In May 1999, the base salary of Mr. Dreisbach
was increased by 12.5%, largely reflecting his contributions toward the
Company's near- and long-term strategic objectives set forth above. In addition,
Mr. Dreisbach was eligible to receive a bonus for 1999 equal to 50% of his base
salary if the Company achieved a targeted level of certain performance
objectives. In light of the progress made towards the Company's objectives
during the year, the Compensation Committee approved a cash bonus award to Mr.
Dreisbach of 125.8% of his targeted bonus of 50% of his
23
<PAGE> 26
increased base salary pro rated for 1999. In addition, the Compensation
Committee approved a grant of an option to purchase 75,000 shares of Common
Stock.
SECTION 162(m)
Section 162(m) of the Code, generally imposes on the Company an annual
corporate deduction limitation of $1 million on the compensation paid to certain
executive officers. Compensation in excess of $1 million may be deducted if it
is performance-based compensation within the meaning of the Code. The
Compensation Committee has not yet adopted a policy with respect to the
treatment of all forms of compensation under Section 162(m); however, the
Committee has determined that stock options granted under the Company's 1997
Equity Incentive Plan with an exercise price at least equal to the fair market
value of the Company's Common Stock on the date of grant should, where
practicable, be treated as "performance-based compensation," and the 1997 Equity
Incentive Plan contains provisions designed to allow compensation recognized by
an executive as a result of the grant of a stock option to be deductible by the
Company.
1999 COMPENSATION COMMITTEE
Robert S. Cline, Chairman
David Moore
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For 1999, the Compensation Committee was composed of Messrs. Cline and
Moore. Mr. Moore is affiliated with Vulcan. In October 1998, the Company entered
into a $30 million line of credit agreement with Vulcan, and in June 1999, the
Company entered into a $30 million bridge loan with Vulcan. On November 15,
1999, the Company sold 30 million shares of Series A1 Preferred Stock to MCI
WorldCom and 30 million shares of Series A2 Preferred Stock to Vulcan at a price
of $10 per share to each purchaser. The net proceeds of the sale of preferred
stock to Vulcan were used to repay outstanding indebtedness to Vulcan on
November 15, 1999 of approximately $61.7 million, including accrued interest.
24
<PAGE> 27
PERFORMANCE MEASUREMENT COMPARISON(1)
The following table shows the total stockholder return of an investment of
$100 in cash on December 31, 1994 for (a) the Company's Common Stock, (b) the
Nasdaq Stock Market (U.S.) Index, and (c) the Nasdaq Telecommunications Index
("Nasdaq Telecommunications"). All values assume reinvestment of the full amount
of all dividends and are calculated as of December 31 of each year:
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
AMONG METRICOM, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
NASDAQ STOCK NASDAQ
METRICOM, INC. MARKET (U.S.) TELECOMMUNICATIONS
-------------- ------------- ------------------
<S> <C> <C> <C>
12/94 100 100 100
12/95 91 141 131
12/96 100 174 134
12/97 64 213 195
12/98 35 300 324
12/99 524 556 572
</TABLE>
- ---------------
* $100 Invested on 12/31/94 in stock or index, including reinvestment of
dividends. Fiscal year ending December 31.
(1) The material in this section is not "soliciting material" is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act or the Exchange Act, whether
made before or after the date hereof and irrespective of any general
incorporation language contained in such filing.
CERTAIN TRANSACTIONS
The Company's By-laws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its By-laws to enter into indemnification agreements with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to these provisions, the Company
has entered into indemnification agreements with each of its directors and
officers and has obtained director and officer liability insurance.
On November 15, 1999, the Company sold 30 million shares of Series A1
Preferred Stock to MCI WorldCom at a price of $10 per share. In connection with
the purchase of shares of Series A1 Preferred Stock, MCI WorldCom was given the
right to elect one member of the Company's Board of Directors. As of April 1,
2000, MCI WorldCom had not yet exercised this right. In addition, the Company
has entered into a Reseller
25
<PAGE> 28
Agreement with MCI WorldCom dated June 20, 1999, as amended, pursuant to which
MCI WorldCom would sell subscriptions to the Ricochet service. Pursuant to this
agreement, MCI WorldCom has agreed to pay the Company at least $388 million in
revenue over the five years following the launch of the Company's service,
subject to the timely deployment of the Company's network, the Company's ability
to meet agreed upon performance standards and the ability of the Company to
attract a significant number of subscribers through other partners. To date, MCI
WorldCom has not paid any amounts to the Company under the Reseller Agreement.
MCI WorldCom and/or its subsidiaries have also entered into ordinary course
agreements with the Company regarding the provisioning of circuits for the
Company's network and the purchase of telecommunications services for which the
Company paid MCI WorldCom and its subsidiaries a total of approximately $2.9
million in 1999.
See "Compensation Committee Interlocks and Insider Participation" for
information regarding certain transactions with Vulcan.
By Order of the Board of Directors
/s/ DALE W. MARQUART
Dale W. Marquart
Secretary
May 22, 2000
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SEC ON FORM 10-K, FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1999 IS AVAILABLE WITHOUT CHARGE (EXCLUDING
CERTAIN EXHIBITS) UPON WRITTEN OR ORAL REQUEST OF ANY PERSON TO WHOM A PROXY
STATEMENT IS DELIVERED. REQUESTS SHOULD BE DIRECTED TO: CORPORATE SECRETARY,
METRICOM, INC., 980 UNIVERSITY AVENUE, LOS GATOS, CALIFORNIA 95030-2375 OR
TELEPHONE: (408) 399-8200.
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<PAGE> 29
ANNEX A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
METRICOM, INC.
(A DELAWARE CORPORATION)
METRICOM, INC., a Delaware corporation (the "Corporation"), does hereby
certify:
FIRST: The name of the Corporation is METRICOM, INC.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is October 24,
1991.
THIRD: The Board of Directors of the Corporation, acting in accordance with
Sections 141 and 242 of the General Corporation Law of the State of Delaware,
adopted resolutions to amend Paragraph A of Article IV of the Restated
Certificate of Incorporation of the Corporation to read in its entirety as
follows:
"A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is five
hundred eighty million (580,000,000) shares, five hundred million
(500,000,000) shares of which shall be Common Stock (the "Common Stock")
and eighty million (80,000,000) shares of which shall be Preferred Stock
(the "Preferred Stock"). The Preferred Stock shall have a par value of one
tenth of one cent ($0.001) per share and the Common Stock shall have a par
value of one tenth of one cent ($0.001) per share."
FOURTH: Thereafter, pursuant to a resolution of the Board of Directors,
this Certificate of Amendment was submitted to the stockholders of the
Corporation for their approval, and was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: All other provisions of the Restated Certificate of Incorporation
shall remain in full force and effect.
IN WITNESS WHEREOF, METRICOM, INC. has caused this Certificate of Amendment
to be signed by its President and attested to by its Secretary in Los Gatos,
California this day of , 2000.
METRICOM, INC.
--------------------------------------
Timothy A. Dreisbach
President
ATTEST:
- ---------------------------------------------------------
Dale W. Marquart
Secretary
A-1
<PAGE> 30
METRICOM, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 2000
The undersigned hereby appoints TIMOTHY A. DREISBACH and DALE W. MARQUART,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Metricom, Inc. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
Metricom, Inc. to be held at the San Jose Museum of Art located at 110 South
Market Street, San Jose, California on Monday, June 26, 2000 at 1:30 p.m. (local
time), and at any and all postponements, continuations and adjournments thereof,
with all powers that the undersigned would possess if personally present, upon
and in respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that
may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect David M. Moore and William D. Savoy to hold office until
the 2003 Annual Meeting of Stockholders.
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below). listed below.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3, 4 AND 5.
PROPOSAL 2: To approve the Company's 1997 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for issuance
under such plan by 3,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: To approve the Company's 1991 Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 300,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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<PAGE> 31
PROPOSAL 4: To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock from
150,000,000 to 500,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 5: To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for its fiscal year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED
------------------------------ ----------------------------------
----------------------------------
SIGNATURE(S)
Please sign exactly as your name appears hereon. If the stock is
registered in the names of two or more persons, each should sign.
Executors, administrators, trustees, guardians and
attorneys-in-fact should add their titles. If signer is a
corporation, please give full corporate name and have a duly
authorized officer sign, stating title. If signer is a
partnership, please sign in partnership name by authorized
person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
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