SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. 1)
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
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
MICROTEST, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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MICROTEST, INC.
4747 North 22nd Street
Phoenix, Arizona 85016
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NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 24, 1999
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To Our Shareholders:
The 1999 Annual Meeting of Shareholders (the "Annual Meeting") of
Microtest, Inc. (the "Company") will be held at 10:00 a.m., local time, on
Monday, May 24, 1999 at the Doubletree La Posada Resort, 4949 East Lincoln
Drive, Paradise Valley, Arizona, for the following purposes:
1. To elect two Class III directors to the Board of Directors to serve
for a three-year term;
2. To vote to amend the Employee Stock Purchase Plan by increasing the
number of shares by 200,000; and
3. To transact such other business as may properly come before the Annual
Meeting.
Each outstanding share of the Company's common stock entitles the holder of
record at the close of business on April 15, 1999 to vote at the Annual Meeting
or any adjournment thereof. Shares can be voted at the Annual Meeting only if
the holder is present or represented by proxy. A copy of the Company's 1998
Annual Report to shareholders (which includes the Company's Form 10-K for the
year ended December 31, 1998 and audited financial statements), is enclosed.
Management cordially invites you to attend the Annual Meeting.
By Order of the Board of Directors
/s/ Daniel J. Predovic
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Daniel J. Predovic
Secretary
Phoenix, Arizona
April 23, 1999
IMPORTANT
SHAREHOLDERS ARE EARNESTLY REQUESTED TO SIGN, DATE AND MAIL THE ENCLOSED
PROXY. A POSTAGE-PAID ENVELOPE IS PROVIDED FOR MAILING IN THE UNITED STATES.
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MICROTEST, INC.
4747 North 22nd Street
Phoenix, Arizona 85016
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PROXY STATEMENT
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This Proxy Statement is furnished to the shareholders of Microtest, Inc.
(the "Company") in connection with the solicitation of proxies to be used in
voting at the Annual Meeting of Shareholders (the "Annual Meeting") to be held
on May 24, 1999. The enclosed proxy is solicited by the Board of Directors of
the Company. This proxy statement and the enclosed proxy will be mailed first on
or about April 23, 1999, to shareholders of record at the close of business on
April 15, 1999.
A person giving the enclosed proxy has the power to revoke it at any time
before it is exercised by either: (i) attending the Annual Meeting and voting in
person; (ii) duly executing and delivering a proxy bearing a later date; or
(iii) sending written notice of revocation to the Secretary of the Company at
4747 North 22nd Street, Phoenix, Arizona 85016.
The Company will bear the cost of the solicitation of proxies, including
the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of the outstanding common stock of
the Company. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone or telefax.
VOTING SECURITIES OUTSTANDING
Only holders of record of common stock at the close of business on April
15, 1999, will be entitled to vote at the Annual Meeting. As of April 15, 1999,
there were 8,289,136 shares of common stock outstanding. Each share of common
stock is entitled to one vote on all matters on which shareholders may vote.
There is no cumulative voting in the election of directors.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspector of elections appointed for the meeting and such inspector will
determine whether or not a quorum is present. The inspector of elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum, but as unvoted for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Board of Directors of the Company currently consists of six members.
The present terms of Roger C. Ferguson and Vincent C. Hren, who are Class III
incumbent directors, will expire at the Annual Meeting. Mr. Ferguson and Mr.
Hren have been nominated for re-election as Class III directors of the Company
and, unless otherwise noted thereon, the shares represented by the enclosed
proxy will be voted for the election of Mr. Ferguson and Mr. Hren as directors
of the Company. If either of them becomes unavailable for any reason, or if a
vacancy should occur before election (which events are not anticipated), the
shares represented by the enclosed proxy
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may be voted for such other person or persons as may be determined by the
holders of such proxy. The nominees receiving the highest number of votes cast
at the Annual Meeting will be elected. The directors elected will serve for
three years and until their successors are duly elected and qualified.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors, with each respective director abstaining as to his
nomination, unanimously recommends a vote "FOR" the election of Mr. Ferguson and
Mr. Hren as directors.
APPROVAL OF THE MICROTEST, INC. AMENDMENT TO
THE EMPLOYEE STOCK PURCHASE PLAN
(PROPOSAL NO. 2)
Effective May 18, 1992, the Board of Directors of Microtest, Inc. approved
the adoption of the Microtest, Inc. Employee Stock Purchase Plan. The Company
adopted the Microtest Employee Stock Purchase Plan to encourage employees to
remain in its employment and to enhance the ability of the Company to attract
new employees by providing an opportunity to have a vested interest in the
success of the Company.
The Company's Board of Directors has approved, and recommends that the
stockholders approve, an amendment to the Microtest, Inc. Employee Stock
Purchase Plan. The Company desires to amend the Plan to increase the maximum
number of shares of the Company's common stock available for sale under the Plan
from 200,000 to 400,000 shares. The proposal to amend the Employee Stock
Purchase Plan will be approved if a majority of the votes cast at the Annual
Meeting are cast in its favor.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors unanimously recommends a vote "FOR" approval of the
amendment to the Plan.
DESCRIPTION OF THE PLAN
The Employee Stock Purchase Plan and the First and Second Amendments to the
Plan (collectively referred to as the "Plan") are set forth in full as Appendix
A to this proxy statement. The following description of the material features of
the Plan is qualified in its entirety by reference to Appendix A.
Under the terms of the Plan, participants purchase the shares of common
stock directly from the Company. The Board of Directors administers the Plan,
although the Board may delegate some or all of its administrative duties to a
committee appointed by the Board. The Board or committee has authority to
administer, interpret and apply the Plan, and make final determinations under
the Plan, which are binding on all the Participants.
Any employee of the Company is eligible to participate in the Plan, except
those employees who work less than 20 hours per week, or less than five months
per year, and any other employee who owns five percent or more of the total
combined voting power or value of all outstanding shares of all classes of
securities of the Company or any subsidiary. An eligible employee may enroll for
any six-month offering period, commencing on January 1 and July 1 of
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each year, by filing an enrollment form with the Company before the offering
period begins. After initial enrollment in the Plan, the employee is
automatically re-enrolled in the Plan for subsequent offering periods unless he
or she files a notice of withdrawal, terminates employment, or otherwise becomes
ineligible to participate.
All employee contributions are made by means of direct payroll deduction.
Upon enrollment in the Plan, the employee must elect a rate at which he or she
will make payroll contributions to purchase shares. The contribution rate
elected by a participant will continue in effect until modified by the
participant. An employee generally may elect to make contributions in an amount
not less than one percent nor more than ten percent of the employee's earnings
(or such higher or lower rates as the Board may specify). An employee's
contributions will be adjusted downward or refunded to the extent necessary to
ensure that he or she will not purchase during any offering period shares that
have a fair market value, as of the beginning of the offering period, in excess
of $12,500 (representing an annual limit of $25,000).
The Company sells shares at a price equal to the lesser of 85% of the fair
market value of common stock at the beginning of the six month offering period,
or 85% of the fair market value of common stock at the end of the offering
period. Shares of the Company's common stock are purchased on a prescribed
purchase date. Promptly after the purchase, certificates representing the shares
purchased upon exercise of a participant's option are delivered to each such
participant. Cash remaining in a participant's account after the purchase of
shares in an offering period is returned to the participant. No interest is
credited on payroll contributions pending investment in shares. Participants do
not have an interest or voting right in shares until they are purchased.
Participant's rights under the Plan are nontransferable except by will, the laws
of descent and distribution or a "qualified domestic relations order."
A participant's enrollment in the Plan may be terminated at any time by
giving written notice. Enrollment will also terminate upon termination of a
participant's employment. Upon termination of enrollment, cash amounts resulting
from previous payroll contributions are repaid to the participant.
With certain exceptions, the Board may amend or terminate the Plan without
further shareholder approval, except shareholder approval must be obtained
within one year after the effectiveness of an action if required by law or
regulation or under the rules of any automated quotation system (such as the
NASDAQ Stock Market) or securities exchange on which the shares are then quoted
or listed, or if shareholder approval is necessary for the Plan to continue to
meet the requirements of Section 423 of the Internal Revenue Code. In addition,
the Board must obtain prior shareholder approval to amend the Plan if the
amendment would materially increase benefits due participants under the Plan,
increase the number of shares of Stock available to be issued under the Plan, or
materially modify eligibility requirements for the Plan. The Plan will continue
until May 18, 2002, unless it is terminated sooner by action of the Board.
On April 15, 1999, the last reported sale price of the Company's common
stock on the NASDAQ Stock Market was $2.28 per share.
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FEDERAL INCOME TAX CONSEQUENCES
The Company believes that under present law the following federal income
tax consequences would generally result under the Plan. Rights to purchase
shares under the Plan are intended to constitute "options" issued pursuant to an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code. The following sets forth the intended consequences of the Plan.
(1) If the participant disposes of shares less than two years after the first
day of an offering period with respect to which he or she purchased the
shares, the participant will realize ordinary income in an amount equal to
the fair market value of the shares on the date of purchase, minus the
amount of the participant's payroll deductions used to purchase the shares.
(2) No taxable income results to the participants upon the grant of a right to
purchase or upon the purchase of shares for his or her account under the
Plan (although the amount of a participant's payroll contributions under
the Plan will be taxable as ordinary income to the participant).
(3) If the participant holds the shares for at least two years after the first
day of an offering period with respect to which he or she purchased the
shares, then at the time the participant disposes of the shares he or she
will realize ordinary income in an amount equal to the lesser of (i) the
fair market value of the shares on the first day of the offering period
minus the amount of the participant's payroll deductions used to purchase
the shares, and (ii) the fair market value of the shares on the date of
disposition minus the amount of the participant's payroll deductions used
to purchase the shares.
(4) In addition, the participant will realize a long-term or short-term capital
gain or loss, as the case may be, in an amount equal to the difference
between the amount realized upon any sale of the shares and the
participant's basis in the shares. (i.e., the purchase price plus the
amount, if any, taxed to the participant as ordinary income, as described
in (2) and (3) above).
(5) If the statutory holding period described in (2) and (3) above is
satisfied, the Company is not entitled to a deduction for federal income
tax purposes with respect to any discount in the sale price of the shares
applicable to such participant. If the statutory holding period is not
satisfied, the Company generally should be entitled to a tax deduction in
an amount equal to the amount taxed to the participant as ordinary income.
The foregoing provides only a general description of the application of
federal income tax laws to the Plan. The summary does not address the effects of
other federal taxes or taxes imposed under state, local, or foreign tax laws.
Because of the complexities of the tax laws, participants are encouraged to
consult a tax advisor as to their individual circumstances.
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INFORMATION CONCERNING DIRECTORS, NOMINEES AND OFFICERS
Information concerning the names, ages, terms, positions with the Company
and business experience of the Company's current directors, director nominees
and executive officers is set forth below.
NAME AGE POSITION TERM EXPIRES
- ---- --- -------- ------------
Kent C. Mueller(1)(2) 58 Chairman of the Board 2001
Steven G. Mihaylo (2) 55 Director 2001
Roger C. Ferguson (1) 55 Director 1999
William C. Turner (1)(2) 69 Director 2000
Dianne C. Walker (1)(2) 42 Director 2000
Richard G. Meise 63 Director 2001
Vincent C. Hren 49 Director, President and Chief 1999
Executive Officer
Daniel J. Predovic 57 Chief Financial Officer, --
Secretary and Treasurer
David R. Coffin 45 Vice President, Research and --
Development
Klaus M. Romanek 49 Vice President and Managing --
Director, European Operations
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(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
KENT C. MUELLER has served as a director of the Company since December
1997, and was appointed to Chairman of the Board replacing Richard Meise in
January 1999. Mr. Mueller has served as the President and Chief Executive
Officer of Kent Mueller Ventures, a high technology investment fund, since March
1996. In August 1986, Mr. Mueller founded Mastersoft, Inc., a computer software
developer, and served as its President and Chief Executive Officer until it was
acquired by Adobe Systems, Inc. in October 1995. Prior to Mastersoft, Inc., Mr.
Mueller held senior executive positions with Capex/Computer Associates, Intel
Corporation and Ampex Corporation. In addition, Mr. Mueller has served as
Chairman and director of XANTEL Corporation, director of Quality Care Solutions,
Inc. and director of CoreData. Mr. Mueller is a trustee and member of the
executive committee of Westminster College in Fulton, Missouri, is a founder of
the Arizona Software Association, and was named INC. Magazine's Arizona High
Tech Entrepreneur of the Year in 1994.
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STEVEN G. MIHAYLO has served as a director of the Company since August
1994. Since 1969, he has been the Chief Executive Officer of Inter-Tel, Inc., a
publicly-held company that designs, manufactures and services digital and analog
telephone systems, and voice processing systems, and provides long distance
services. Mr. Mihaylo has also served as a director of MicroAge, Inc., a
publicly-held company that markets and distributes information technology
products and services, since 1988. Mr. Mihaylo is the brother of Charles V.
Mihaylo. Charles V. Mihaylo was President and Chief Operating Officer of
Microtest from June 1997 through December 1998.
ROGER C. FERGUSON has served as a director of the Company since September
1993. He served as Chairman of the Board from March 1994 to March 1997. Mr.
Ferguson is a Managing Principal with Vencraft in Woodside, California, an
investment company. He was the President and Chief Executive Officer of
Datatools, Inc., a software tools manufacturer, from August 1993 until the
Company was sold in 1997. From December 1987 to June 1993, Mr. Ferguson was the
Chief Operating Officer of Network General, a publicly-held company that
manufacturers diagnostic products for local area networks.
WILLIAM C. TURNER has served as a director of the Company since February
1995. Mr. Turner has been the Chairman of the Board and Chief Executive Officer
of Argyle Atlantic Corporation, an international consulting firm to
multi-national corporations, since 1977. Since 1985, Mr. Turner has served as
Chairman of the International Advisory Council for Avon products, a
publicly-held company that manufactures cosmetics and related products. Mr.
Turner has also served as a director for Goodyear Tire and Rubber Company, a
publicly-held company that manufactures tires and related products, since 1978,
and a director of Rural/Metro Corporation, a publicly-held company that provides
emergency transport services, since 1993.
DIANNE C. WALKER has served as a director of the Company since January
1994. Ms. Walker is an independent consultant on electric utility mergers and
acquisitions and asset purchase transactions. Ms. Walker served as an electric
energy consultant for Bear Stearns and Kidder Peabody from January 1990 to
December 1994. From January 1983 to October 1989, Ms. Walker served as an
assistant Vice President of Pacific Telecom, Inc.'s Venture Capital Portfolio.
Pacific Telecom is an independent telephone company and a subsidiary of
PacifiCorp where Ms. Walker served as a Director of Mergers and Acquisitions
from May 1987 to October 1989. Ms. Walker currently is on the Board of Directors
of Comdial Corporation, a publicly-held company that manufactures telephone
equipment. In addition, Ms. Walker serves on the Board of Directors of MicroAge,
Inc. a global provider of technology computing solutions, and Arizona Public
Service, a utility company.
RICHARD G. MEISE retired from his position as Chief Executive Officer of
Microtest on January 17, 1999. He will stay on the board as an outside director
and assist the Company in a transitional role. Mr. Meise served as Chief
Executive Officer from September 1993 through January 17, 1999. Mr. Meise has
been a director of the Company since September 1993. In March 1997, he was
elected to serve as the Chairman of the Board. Mr. Meise served as the Company's
President from October 1993 until June 1997, and as the Company's Executive Vice
President from June 1993 until September 1993. From February 1991 to June 1993,
Mr. Meise was the President and Chief Executive Officer of Fluent, Inc., a
digital video network manufacturer. From 1989 to 1991, Mr. Meise served as the
President and Chief Executive Officer of Alloy Computer Products, Inc., a PC and
software products company. Mr. Meise was the President and Chief Operating
Officer of Banyan Systems, Inc., a publicly-held manufacturer of networking
software, from 1986 to 1989.
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VINCENT C. HREN joined Microtest in January 1999 as President and Chief
Executive Officer. Prior to joining Microtest, Mr. Hren was the President and
Chief Executive Officer of Three-Five Systems, Inc., a company that designs and
manufactures interface devices for operational control and informational display
functions used in products of original equipment manufacturers. Mr. Hren joined
Three-Five Systems in 1996, was promoted to Chief Operating Officer, and became
President and Chief Executive Officer in July 1998. He served as Vice President
and General Manager at Graco, Inc. from 1994 to 1996. Mr. Hren held various
management positions at Emerson Electric from 1973 to 1994.
DANIEL J. PREDOVIC joined Microtest on March 22, 1999 as its Chief
Financial Officer, Secretary, and Treasurer. Prior to joining Microtest, Mr.
Predovic served as Chief Financial Officer at AECX Corporation, a provider of
same-day delivery services of large-format construction documents for
architects, engineers, and contractors, from July 1997 to March 1999. Prior to
joining AECX he was Chief Financial Officer for a start-up developer of software
application systems for higher education, and served as Vice President, Finance
for Artisoft, Inc., a publicly-held international developer and manufacturer of
networking solutions and computer telephony products, from 1994 through 1997.
From 1985 through 1994, he was Chief Financial Officer, Secretary, and Treasurer
of Syntellect Inc., a publicly-held international manufacturer of
telecommunication voice response systems. Mr. Predovic is a Certified Public
Accountant.
DAVID R. COFFIN was named Vice President, Research and Development for the
Company in July 1997. He joined Microtest in 1996 as Vice President of the
Network Connectivity Division. Prior to Microtest, Mr. Coffin was President and
Chief Executive Officer for Irys Networking Corporation, a microcomputer
networking technology development firm, from 1991 to 1995. He also was Director
of the Networked MicroSystems operation of Group Bull from 1987 to 1990. From
1982 to 1986, Mr. Coffin held positions in Product Marketing, and Strategic and
Marketing management at Intel Corporation. He is on the Arizona Software
Association's Board of Directors and is a published writer of technical articles
and research papers.
DR. KLAUS ROMANEK joined Microtest in October 1997 as Vice President and
Managing Director, European Operations, and a member of the Board of Directors
of Microtest GmbH, Microtest Europe Limited, and H+H Zebtrumfuer
Rechnerkommunikation GmbH. Before joining Microtest, Dr. Romanek worked for six
years at Wavetek, where he served as Vice President and General Manager of the
Munich based Sales and Marketing Operation and later for the Wireless Division
in Germany. He also served on the Board of Directors for Wavetek's Austrian
Division. Prior to his employment at Wavetek, Dr. Romanek worked in a number of
marketing functions for Kontron Elektronik GmbH, a subsidiary of Hofmann
LaRoche, and later, BMW. During that time, he served as a member of the Board of
Directors for Createc GmbH, a wholly owned subsidiary of Kontron. Dr. Romanek
holds a Master's Degree and Ph.D. in Physics from the University of Stuttgart,
Germany, where he specialized in semiconductor and laser physics.
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MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1998, the Board of Directors of the
Company met or acted by written consent on nine occasions. Each of the Company's
directors attended more than 75% of the meetings of the Board of Directors and
the meetings held by committees of the Board on which such director served.
COMPENSATION COMMITTEE: The Compensation Committee of the Board of
Directors, which met or acted by written consent eight times during 1998,
reviews all aspects of compensation of officers of the Company and determines or
makes recommendations on such matters to the full Board of Directors. The report
of the Compensation Committee for 1998 is set forth below.
AUDIT COMMITTEE: The Audit Committee, which met three times during 1998,
represents the Board of Directors in evaluating the quality of the Company's
financial reporting process and internal financial controls through
consultations with the independent auditors, internal management and the Board
of Directors.
OTHER COMMITTEES: The Company does not maintain a standing nominating
committee or other committees performing similar functions.
DIRECTOR COMPENSATION
During 1998, the Company paid each non-employee director an $8,000 annual
retainer for their service as a Board member plus a $2,000 annual retainer for
each committee membership. In addition, non-employee directors received $1,500
per Board meeting attended, $1,000 per committee meeting attended, and $750 per
telephonic Board or committee meeting attended.
Non-employee directors are also granted stock options under the 1998
Director Compensation Plan. The 1998 Director Compensation Plan, adopted by
shareholders at the 1998 annual meeting, replaced two other plans; the 1993
Non-Employee Directors Stock Option Plan, and the Annual Non-Employee Directors
Stock Option Plan, both of which have been terminated except for grants of
options already outstanding.
Under the Annual Non-Employee Directors Stock Option Plan adopted by the
Company in 1994, each non-employee director was entitled to a grant of 5,000
options each year at the end of the third business day after public announcement
of the Company's annual earnings. The options vested six months and a day after
the date of grant. Under this plan, Roger Ferguson, Steven Mihaylo, William
Turner, Kent Mueller, and Dianne Walker were each granted an option to purchase
4,000 shares of Company common stock on February 9, 1998 at an exercise price of
$6.6250. This plan has been terminated, except for grants of options already
outstanding. None of the non-employee directors exercised any of their options
under the Annual Non-employee Directors Stock Option Plan during 1998.
Under the 1998 Director Compensation Plan non-employee Directors are
entitled to two types of option grants. The first is the annual option grant
under which the non-employee directors were granted an option to purchase 1,000
shares in 1998, and will be granted 5,000 shares thereafter, of the Company's
common stock, on the third business day following the public release of the
Company's fiscal year-end earnings information. These annual option
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grants are immediately exercisable and the exercise price is equal to the fair
market value of the per share price of the Company's common stock on the date of
grant.
The second type of option grant is the anniversary option grant under which
each non-employee director is granted an option to purchase 10,000 shares of the
Company's common stock upon first being elected or appointed to the Board and
thereafter on the third business day following the public release of the
Company's fiscal or quarterly earnings information immediately following the
third anniversary of the non-employee director's election or appointment to the
Board and each successive third year anniversary thereafter. Twenty-five percent
of the anniversary option grant is immediately exercisable and 25% vests over
each of the next three years. In the event of a "Change of Control", as defined
in the 1998 Director Compensation Plan, all options will become exercisable. The
exercise price of the anniversary option grants is equal to the fair market
value of the per share price of the Company's common stock on the date of grant.
Under this Plan, Ms. Walker, Mr. Ferguson, Mr. S. Mihaylo, Mr. Turner, and
Mr. Mueller were each granted an option to purchase 1,000 shares of the
Company's common stock on May 12, 1998 at an exercise price of $4.6250. Ms.
Walker and Mr. Ferguson were each granted an option to purchase 10,000 shares of
the Company's common stock on May 12, 1998 at an exercise price of $4.75 under
the Plan's anniversary grant provision. Mr. S. Mihaylo and Mr. Turner were each
granted an option to purchase 10,000 shares of Company's common stock on
December 15, 1998 at an exercise price of $2.78 under the Plan's anniversary
grant provision. None of the non-employee directors exercised any of their
options under the 1998 Director Compensation Plan during 1998.
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services in all capacities to the Company for the years ended
December 31, 1998, 1997, and 1996, of those persons who were, at December 31,
1998, (i) the Chief Executive Officer, and (ii) the other executive officers of
the Company whose annual salary and bonus exceeded $100,000 (collectively, the
"Named Officers").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation Awards
------------------------- -------------------------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Stock Options Compensation(1)
- ------------------ ---- ------ ----- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Meise(2) 1998 $235,000 $ 9,757 $ 5,675(5) 25,000 $61,558
Chief Executive Officer 1997 $235,000 $ -- $ 6,000(5) -- $61,433
1996 $200,000 $83,750(3) $ 6,000(5) 15,887 $69,963
Charles V. Mihaylo(6) 1998 $188,462 $ 8,304 $ 5,240(5) -- $ 2,404
President and Chief 1997 $117,565 $75,000(4) $ 5,500(5) 325,000 $ 689
Operating Officer
John J. O'Block(7) 1998 $126,769 $ 4,794 $ -- 6,000 $ --
Vice President, Operations
Chief Financial Officer
Treasurer and Secretary
David R. Coffin(8) 1998 $132,077 $ 5,020 $ -- 30,000 $17,670
Vice President, Research 1997 $125,000 $14,467 $ -- 25,000 $16,945
and Development
Tim M. Furst(9) 1998 $ 91,399 $20,000 $ 31,644(9) -- $ 8,328
Vice President, Sales-Asia 1997 $105,000 $ -- $151,146(9) 71,166 $ 8,203
Pacific and the Americas
Robert M. Tanner(11) 1998 $144,538 $18,020 $ 2,610(5) 35,000 $32,463
Sr. Vice President, Marketing, 1997 $125,000 $ -- $ 51,353(12) -- $30,909
Sales and Customer Service 1996 $125,000 $ -- $ 60,000(12) 7,985 $42,247
</TABLE>
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(1) Detail of amounts reported in the "All Other Compensation" column for 1998
and 1997 is provided in the table below. Split dollar insurance represents
the present value of the interest projected to accrue for employee's
benefit on current year's insurance premium paid by the Company. For a
discussion of the Company's split-dollar life insurance program, see the
report of the Compensation Committee for 1998 set forth below.
<TABLE>
<CAPTION>
Item Mr. Meise Mr. Mihaylo Mr. Coffin Mr. Furst Mr. Tanner
---- ---------------- ------------ ---------------- -------------- ----------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
------- ------- ------ ---- ------- ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Company contribution
to defined contribution
savings plan $ 2,500 $ 2,375 $2,404 $689 $ 2,500 $ 1,775 $2,500 $2,375 $ 2,500 $ 946
Split-dollar insurance
premium value 59,058 59,058 -- -- 15,170 15,170 5,828 5,828 29,963 29,963
------- ------- ------ ---- ------- ------- ------ ------ ------- -------
Total all other compensation $61,558 $61,433 $2,404 $689 $17,670 $16,945 $8,328 $8,203 $32,463 $30,909
======= ======= ====== ==== ======= ======= ====== ====== ======= =======
</TABLE>
(2) Mr. Meise retired from the Company January 17, 1999.
(3) Represents the portion of 1994 deferred compensation that vested during the
fiscal year ended December 31, 1996.
(4) Represents a signing bonus.
(5) Represents a car allowance.
(6) Mr. Mihaylo was hired by the Company in June 1997 and left the Company on
December 7, 1998.
11
<PAGE>
(7) Mr. O'Block was hired by the Company November 1997 and left the Company on
March 1, 1999.
(8) Mr. Coffin was named Vice President, Research and Development in July 1997.
(9) Mr. Furst was named Vice President, Sales - Asia Pacific and the Americas
in July 1997 and left the Company on July 31, 1998.
(10) Represents a car allowance of $3,500 and $5,500 and sales commissions of
$28,143 and $145,646 for the years ended December 31, 1998 and 1997,
respectively.
(11) Mr. Tanner was hired by the Company in May 1994 and left the Company on
March 3, 1999.
(12) Represents sales commissions of $51,353 and $60,000 for the years ended
December 31, 1997 and 1996, respectively.
Except as otherwise noted, the following table sets forth information with
respect to the grants of stock options pursuant to the Company's Long-Term
Incentive Plan during the fiscal year ended December 31, 1998, to the Named
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- ------------------------------------------------------------------------------
Potential Realizable
Number of % of Total Value at Assumed Annual
Securities Options Rates of Stock Price
Underlying Granted to Exercise or Base Appreciation for Option
Options Employees in Price (per Expiration Term (2)
Name Granted # Fiscal Year share) (1) Date 5% ($) 10% ($)
---- ---------- ------------ ---------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Meise 25,000(3) 8.1% $4.6875 1/01/08 $ 73,719 $186,799
David R. Coffin 30,000(4) 9.7% $4.6250 5/11/08 $ 87,259 $221,132
John O'Block 6,000(4) 1.9% $4.6250 5/11/08 $ 17,452 $ 44,226
Robert M. Tanner 35,000(4) 11.3% $4.6250 5/11/08 $101,802 $257,987
</TABLE>
- ----------
(1) All options were granted at the fair market value (the closing price of the
common stock on the NASDAQ National Market, as reported in the WALL STREET
JOURNAL) on the date of grant. The exercise price and tax withholding
obligations related to exercise may be paid by delivery of already owned
shares or by offset of the underlying shares, subject to certain
conditions.
(2) Gains are reported net of option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises are dependent
on the future performance of the common stock, overall stock market
conditions, as well as the option-holder's continued employment through the
vesting period. The amounts reflected in this table may not necessarily be
achieved.
(3) Non-qualified stock options granted on January 2, 1998, which vest 72
months after the Date of the Grant.
(4) Non-qualified stock options granted on May 12, 1998, which vest at the end
of a five-year period ending May 12, 2002. Mr. O'Block and Mr. Tanner left
the Company on March 1, 1999 and March 3, 1999, respectively. Any options
not yet vested on those dates terminated. Any options vested by those dates
will remain exercisable for ninety days following their departure from the
Company.
The following table sets forth information with respect to the exercise and
value of stock options granted pursuant to the Company's Incentive Stock Option
Plan, Non-Qualified Stock Option Plan and Long-term Incentive Plan, during the
fiscal year ended December 31, 1998, to the Executive Officers.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at Fiscal In-the-Money Options at Fiscal
Shares Value Year End (#) Year End ($)(2)
Acquired on Realized ------------------------------- ------------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Meise -- $ -- 187,308 33,579 $-- $ --
Charles V. Mihaylo -- $ -- 60,000 265,000 $-- $ --
David M. Coffin -- $ -- 26,626 79,732 $-- $ --
John O'Block -- $ -- 10,000 46,000 $-- $ --
Klaus Romanek -- $ -- 18,750 56,250 $-- $ --
Robert M. Tanner -- $ -- 78,673 39,312 $-- $ --
</TABLE>
- ----------
(1) Represents the selling price of the underlying securities on the date of
exercise minus the exercise price of the options.
(2) Represents the difference between the closing price of the Company's common
stock on December 31, 1998 and the exercise price of the options.
EMPLOYMENT AGREEMENTS
On June 9, 1997, the Company entered into an employment agreement with
Charles V. Mihaylo that established Mr. Mihaylo's annual base salary at
$200,000, provided for a bonus paid upon signing of the employment agreement of
$75,000, included non-qualified grants of 150,000 and 175,000 stock options,
enabled Mr. Mihaylo to participate in an executive bonus program, and provided
for severance compensation in the amount of one year's salary in the event he
was terminated without cause. For information on the stock option grants, see
"Option Grants in Last Fiscal Year" included above. The agreement was for a term
of five years, but was terminable by the Company for cause. The agreement
defines "cause" generally as breach of the employment agreement, failure to
follow the Board's directions, acts of dishonesty with respect to the Company,
or criminal conduct. The employment agreement prohibits Mr. Mihaylo from
competing with the Company for a period of one-year following termination of
employment with the Company. On December 4, 1998, the Company entered into a
severance agreement with Mr. Mihaylo, under which Mr. Mihaylo will receive a
consulting fee bi-weekly based on an annual salary of $200,000. Under the
agreement, Mr. Mihaylo will provide consulting services to the Company through
July 31, 1999. The Company agreed to extend the exercise period for his 60,000
vested unexercised options through October 31, 1999.
13
<PAGE>
On January 7, 1999, the Company entered into a Retirement Agreement and
Mutual Release with Mr. Meise, its former Chairman and Chief Executive Officer.
Under the agreement, the Company may request that Mr. Meise provide consulting
services. Mr. Meise will be paid an annual fee of $100,000 through December 22,
2000. Mr. Meise will also receive medical insurance benefits equivalent to
executive staff through February 2001, and the exercise period for his vested
options was extended through February 28, 2001. The agreement prohibits Mr.
Meise from competing with the Company for one-year after his term as a
consultant and as a director.
The Company currently does not have employment agreements with any of its
executive officers.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed entirely
of independent outside members of the Company's Board of Directors. The
Committee reviews and approves each of the elements of the executive
compensation program of the Company and periodically assesses the effectiveness
and competitiveness of the program in total. In addition, the Committee
administers the key provisions of the executive compensation program and reviews
with the Board of Directors the compensation program for the Company's
executives. The committee has furnished the following report on executive
compensation.
OVERVIEW AND PHILOSOPHY
The Company's compensation program for executive officers is primarily
comprised of base salary, annual bonus, and long-term incentives in the form of
stock option grants. Executives also participate in various other benefit plans,
including medical and retirement plans, generally available to all employees of
the Company.
The Company's philosophy is to pay base salaries to executives that enable
the Company to attract, motivate, and retain highly qualified executives. The
annual bonus program is designed to reward for performance based primarily on
financial results. Stock option grants are intended to result in no reward if
the stock price does not appreciate, but may provide substantial rewards to
executives as shareholders benefit from stock price appreciation.
BASE SALARY
Each Company executive receives a base salary which, when aggregated with
their maximum bonus amount, is intended to be competitive with similarly
situated executives in the electronics industry. In determining salaries, the
Committee also takes into account individual experience and performance and
specific needs particular to the Company. The Company decreased the base
salaries for several of its executive officers during 1997 to properly align
their base salaries with the other executives in the Company as well as with
other similar positions in companies comparable to Microtest. In 1998, the
Company maintained these base salaries, with the exception of normal raises.
14
<PAGE>
ANNUAL BONUS PROGRAM
In addition to a base salary, executives are eligible to receive an annual
bonus. At the beginning of each year, the Committee establishes a targeted
maximum bonus for each executive and establishes performance criteria for the
executive to achieve the bonus. The amount of the targeted bonus and the
performance criteria vary with the position and role of the executive within the
Company, although all bonuses are significantly tied to the Company's financial
performance. Selected bonuses were paid in 1998.
OPTIONS
The Company believes that it is important for executives to have an equity
stake in the Company and, toward this end, makes option grants to key executives
from time to time. In making option awards, the Committee reviews the level of
awards granted to executives at other technology companies, the awards granted
to other executives within the Company and the individual officer's specific
role at the Company.
In January 1999, the Company hired Vincent C. Hren as its President and
Chief Executive Officer. In connection with that hiring, the Company granted Mr.
Hren options to acquire shares of common stock. The grant was a significant
inducement for him to join the Company and, accordingly, was not granted under a
plan previously approved by the Company's shareholders. If, as a result of
substantial appreciation in the Company's stock and the exercise of substantial
option holdings, Mr. Hren's compensation were to exceed $1 million in a given
year the excess may not be deductible. The compensation element of an option
generally does not, however, result in a charge to earnings on the Company's
financial statements.
OTHER BENEFITS
Executive officers are eligible to participate in benefit programs designed
for all full-time employees of the Company. These programs include medical,
disability and life insurance and a qualified retirement program allowed under
Section 401(k) of the Internal Revenue Code, as amended.
In addition, the Company may purchase split-dollar life insurance for
certain key personnel, including officers of the Company, to assist the Company
in attracting, retaining and rewarding key personnel by providing tax-deferred
capital accumulation. The Company pays the annual split-dollar life insurance
premium in return for which the Company retains an assignment against the policy
cash value and death benefit equal to its cumulative contributions.
INTERNAL REVENUE CODE - SECTION 162(m)
In 1994, the Internal Revenue Code was amended to add a limitation on the
tax deduction a publicly-held company may take on compensation aggregating more
than $1 million for selected executives in any given year. The law and related
regulations are subject to numerous qualifications and exceptions. Gains
realized on non-qualified stock options, or incentive stock options that are
subject to a "disqualifying disposition," are subject to the new tax limitation
unless they meet certain requirements. To date, the Company has not been subject
to the deductibility limitation and has generally structured its equity-based
compensation to comply with the exception to the limitation.
15
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
In September 1993, Richard G. Meise was hired as the Company's Chief
Executive Officer. At the time he was hired, Mr. Meise entered into an
employment agreement with the Company providing for an annual base salary, a
bonus plan and stock options. The Agreement terminated in 1996 and after that
time Mr. Meise's compensation was established annually by the Compensation
Committee based upon the factors described above.
During 1998, Mr. Meise received an annual base salary of $235,000. He also
received a bonus award of $9,757. As of December 31, 1998, Mr. Meise held
options to purchase an aggregate of 220,887 shares with exercise prices ranging
from $4.6875 to $7.8750 per share. Mr. Meise resigned from the Company on
January 17, 1999.
This report is made by Dianne C. Walker, Roger C. Ferguson, and William C.
Turner, who served on the Company's Compensation Committee for all of 1998, and
Kent C. Mueller who joined the Committee on May 14, 1998.
DIANNE C. WALKER, ROGER C. FERGUSON, WILLIAM C. TURNER, KENT C. MUELLER
16
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return of the Company, the
Standard & Poor's (S&P) 500 Stock Index and the H&Q Technology Index from
December 31, 1993 to December 31, 1998. The graph assumes that $100 was invested
on December 31, 1993, and any dividends were reinvested.
MICROTEST, INC. STOCK PERFORMANCE
TOTAL RETURN DATA
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
Microtest, Inc. 100 257 108 105 50 30
H&Q Technology 100 120 180 223 262 407
Nasdaq Stock Market 100 98 138 170 209 293
17
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
The Company believes that during the Company's preceding fiscal year all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of April 15, 1999, the number and
percentage of outstanding shares of common stock beneficially owned by each
person known by the Company to beneficially own more than 5% of such stock and
by each director and Named Officer of the Company and by all directors and
executive officers of the Company as a group.
NAME AND ADDRESS OF
BENEFICIAL OWNER(1) SHARE BENEFICIALLY OWNED(1) PERCENT OWNED
- ------------------- --------------------------- -------------
Richard G. Meise(2) 226,360 2.7%
Charles V. Mihaylo(3) 88,889 1.1%
John J. O'Block(4) 19,637 *
David M. Coffin(5) 41,838 *
Tim M. Furst(6) 3,602 *
Robert M. Tanner(7) 80,110 *
William C. Turner(8) 51,358 *
Dianne C. Walker(9) 43,700 *
Robert C. Ferguson(10) 45,300 *
Steven G. Mihaylo(11) 40,800 *
Kent C. Mueller(12) 30,000 *
Klaus Romanek(13) 20,367 *
Heartland Advisors(14) 721,200 8.7%
Dimensional Fund
Advisors, Inc.(15) 463,400 5.6%
All Directors and executive
officers as a group
(13 persons) (16) 691,961 8.3%
* Less than 1% of the outstanding shares of common stock.
18
<PAGE>
(1) To the Company's knowledge, the persons named in the table have sole voting
and sole investment power with respect to all shares of common stock shown
as beneficially owned by them, subject to community property laws, where
applicable, and the information contained in the footnotes hereunder.
(2) Represents 190,167 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days and 36,193 shares held by Mr.
Meise. Mr. Meise was the Chairman of the Board and Chief Executive Officer
of the Company through January 17, 1999.
(3) Represents 60,000 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days, and 28,889 shares held by Mr.
Mihaylo. Does not include 265,000 options that terminated upon his
departure from the Company. Mr. Mihaylo was the President and Chief
Operating Officer of the Company until December 4, 1998.
(4) Represents 10,000 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days and 9,637 shares held by Mr.
O'Block. Does not include 46,000 options that terminated upon his departure
from the Company. Mr. O'Block was Vice President of Operations and Chief
Financial Officer. He left the Company March 1, 1999.
(5) Represents 35,870 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days and 5,968 shares held by Mr.
Coffin. Does not include 70,488 shares issuable upon exercise of other
options. Mr. Coffin is the Vice President, Research and Development.
(6) Represents 3,602 shares held by Mr. Furst. He holds no other shares or
options. Mr. Furst was Vice President, Sales-Asia Pacific and the Americas.
He left the Company July 31, 1998.
(7) Represents 80,110 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days. Does not include 37,875 options
that terminated upon his departure from the Company. Mr. Tanner was Senior
Vice President, Marketing, Sales and Customer Services. He left the Company
March 3, 1999.
(8) Represents 41,358 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days and 10,000 shares held by Mr.
Turner. Does not include 8,200 shares issuable upon exercise of other
options. Mr. Turner is a director of the Company.
(9) Represents 38,300 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days, and 5,400 shares held by Ms.
Walker. Does not include 5,700 shares issuable upon exercise of other
options. Ms. Walker is a director of the Company.
(10) Represents 35,300 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days and 10,000 shares held by Mr.
Ferguson. Does not include 8,200 shares issuable upon exercise of other
options. Mr. Ferguson is a director of the Company.
(11) Represents 35,800 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days and 5,000 shares held by Mr.
Mihaylo. Does not include 8,200 shares issuable upon exercise of other
options. Mr. Mihaylo is a director of the Company.
(12) Represents 10,000 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days and 20,000 shares held by Mr.
Mueller. Does not include 5,000 shares issuable upon exercise of other
options. Mr. Mueller is a director of the Company.
(13) Represents 18,750 shares issuable upon exercise of options that either are
exercisable immediately or within 60 days and 1,617 shares held by Mr.
Romanek. Does not include 56,250 shares issuable upon exercise of other
options. Mr. Romanek is Vice President and Managing Director of the
European Operations and a member of the Board of Directors of Microtest
GmbH, Microtest Europe Ltd., and H+H Zebtrumfuer Rechnerkommunikation Gmbh.
(14) Heartland Advisors, Inc. is a registered investment advisor located at 790
N. Milwaukee Street, Milwaukee, WI 53202. Heartland Advisors, Inc. has sole
voting power with respect to 350,100 shares and sole dispositive power with
respect to 721,200 shares. The information contained in this section was
obtained from a Schedule 13G dated February 2, 1999 filed by Heartland
Advisor, Inc. with the Securities and Exchange Commission. The percentage
is based on the number of common shares outstanding as of December 31,
1998. The Company makes no representation as to the accuracy or
completeness of the information reported.
19
<PAGE>
(15) Dimensional Fund Advisors, Inc. is a registered investment advisor located
at 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401. Dimensional Fund
Advisors, Inc. has sole voting power and sole dispositive power with
respect to 463,400 shares. The information contained in this section was
obtained from a Schedule 13G dated February 11, 1999 filed by Dimensional
Fund Advisors, Inc. with the Securities and Exchange Commission. The
percentage is based on the number of common shares outstanding as of
December 31, 1998. The Company makes no representation as to the accuracy
or completeness of the information reported.
(16) Includes all shares included in notes (2) through (13) above.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Company believes all transactions it has entered into with affiliates
are at arm's length and on terms equivalent or similar to terms under which the
Company would conduct business with unaffiliated third parties.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The principal independent public accounting firm utilized by the Company
during the fiscal year ended December 31, 1998, was Deloitte & Touche LLP,
independent certified public accountants. It is presently contemplated that
Deloitte & Touche LLP will be retained as the principal accounting firm to be
utilized by the Company during the current fiscal year. A representative of
Deloitte & Touche LLP will attend the Annual Meeting for the purpose of
responding to appropriate questions and will be afforded an opportunity to make
a statement if they so desire.
SHAREHOLDER PROPOSALS
The Board of Directors will consider proposals from shareholders for
nominations to the class of directors whose terms expire at the 2000 Annual
Meeting of Shareholders that are made in writing to the Secretary of the
Company, are received at least 90 days prior to the 2000 Annual Meeting, and
contain sufficient background information concerning the nominee to enable
proper judgment to be made as to his or her qualifications, as more fully
provided in the Company's Certificate of Incorporation and Bylaws. Proposals of
shareholders as to other matters intended to be presented at the 2000 Annual
Meeting must be received by the Company by December 7, 1999, for inclusion in
the Company's proxy materials relating to such Meeting.
OTHER MATTERS
The Board of Directors does not intend to present at the Annual Meeting any
matters other than those described herein and does not presently know of any
matters that will be presented by other parties.
Dated: April 23, 1999
20
<PAGE>
APPENDIX A
MICROTEST, INC.
EMPLOYEE STOCK PURCHASE PLAN
(as amended and restated through October 1, 1992)
---------------------------------------------------
The following constitute the provisions of the Microtest, Inc. Employee
Stock Purchase Plan.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company
or Committee, if one has been appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the common stock of the Company
described in the Company's Certificate of Incorporation, as amended
from time to time.
(d) "Company" shall mean Microtest, Inc., a Delaware
corporation.
(e) "Compensation" shall mean all basic straight time wages
and salary, including payments for overtime or commissions, but
excluding profit sharing, bonuses and other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole
discretion as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of
the Company for purposes of tax withholding under Section 3401 of the
Code whose customary employment with the Company or any Designated
Subsidiary is at least twenty (20) hours per week and more than five
(5) months in any calendar year. For purposes of the Plan, the
employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's
right to reemployment is not guaranteed either by statute or
21
<PAGE>
by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
(j) "Offering Period" shall mean an initial period commencing
on the date the Company's registration statement on Form S-1 respecting
its initial public offering is declared effective by the Securities
Exchange Commission and ending on June 30, 1993, and subsequent six
month exercise periods thereafter commencing on July 1, 1993, during
which options granted pursuant to the Plan may be exercised.
(k) "Plan" shall mean this Employee Stock Purchase Plan.
(l) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50 percent or more of the combined
total voting power of all issues of stock of such corporation are held
by the Company or a Subsidiary, whether or not such corporation now
exists or is hereafter organized or acquired by the Company or a
Subsidiary.
(m) "Trading Day" shall mean a day on which national stock
exchanges and the National Association of Securities Dealers Automated
Quotation (NASDAQ) System are open for trading.
3. Eligibility.
(a) Any Employee as defined in paragraph 2 who shall be
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan
(i) if, immediately after the grant, such Employee would own stock
(including stock ownership attributable to such Employee pursuant to
the attribution rules of Section 424(d)) and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the
Company or of any Subsidiary of the Company or (ii) which permits his
rights to purchase stock under all employee stock purchase plans of the
Company and its Subsidiaries to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at
the fair market value of the shares at the time such option is granted)
for each calendar year in which such option is outstanding at any time.
4. Offerings Periods. The Plan shall be implemented by consecutive
Offering Periods after the initial Offering Period with a new Offering Period
commencing on the first Trading Day of July and January of each year, or on such
other date as the Board shall determine, and continuing thereafter until
terminated in accordance with paragraph 19 or 22 hereof. The Board shall have
the power to change the duration of Offering Periods with respect to future
22
<PAGE>
offerings without stockholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first Offering Period
to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions
in the form of Exhibit "A" to this Plan and filing it with the
Company's payroll office at such time as is specified by the Company
and is prior to the applicable Enrollment Date (unless a later time for
filing the subscription agreement is set by the Board for all eligible
Employees with respect to a given Offering Period). Once properly made,
an eligible Employee's election to participate shall be automatically
renewed for each subsequent offering period, subject to any termination
or withdrawal as provided in paragraph 10.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is
applicable, unless sooner terminated by the participant as provided in
paragraph 10.
6. Payroll Deductions.
(a) At the time a participant files his subscription
agreement, he shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not exceeding ten
percent (10%) of the Compensation which he receives on each payday
during the Offering Period, and the aggregate of such payroll
deductions during the Offering Period shall not exceed ten percent
(10%) of the participant's Compensation during said Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments
into such account.
(c) A participant may discontinue his participation in the
Plan as provided in paragraph 10, or may decrease (but not increase)
the rate of his payroll deductions during the offering period by
completing or filing with the Company a new authorization for payroll
deduction. The change in rate shall be effective fifteen (15) days
following the Company's receipt of the new authorization.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a
participant's payroll deductions may be decreased to 0% at such time
during any Offering Period which is scheduled to end during the current
calendar year (the "Current Offering Period") that the aggregate of all
payroll deductions which were previously used to purchase stock under
the Plan in a prior Offering Period which ended during that calendar
year plus all payroll deductions accumulated with respect to the
Current Offering Period equal $21,250. Payroll deductions shall
recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by
the participant as provided in paragraph 10.
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<PAGE>
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under
the Plan is disposed of, the participant must make adequate provision
for the Company's federal, state, or other tax withholding obligations,
if any, which arise upon the exercise of the option or the disposition
of the Common Stock. At any time, the Company may, but will not be
obligated to, withhold from the participant's Compensation the amount
necessary for the Company to meet applicable withholding obligations,
including any withholding required to make available to the Company any
tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option.
(a) On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date for such Offering
Period (at the per share option price) up to a number of shares of the
Company's Common Stock determined by dividing such Employee's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the
Company's Common Stock at the time such option is granted or (ii)
eighty-five percent (85%) of the fair market value of a share of the
Company's Common Stock at the time such option is exercised; provided
that in no event shall an Employee be permitted to purchase during each
Offering Period more than a number of shares determined by dividing
$12,500 by the fair market value of a share of the Company's Common
Stock on the Enrollment Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12
hereof; provided, further, options granted for the initial Offering
Period shall be granted at the same time as the Company's registration
statement respecting its public offering is declared effective and the
fair market value as of such time shall be the offering price set forth
in the prospectus of the Company's initial public offering. Exercise of
the option shall occur as provided in Section 8, unless the participant
has withdrawn pursuant to Section 10, and shall expire on the last day
of the Offering Period. Fair market value of a share of the Company's
Common Stock shall be determined as provided in Section 7(b) herein.
(b) The option price per share of the shares offered in a
given Offering Period shall be the lower of: (i) 85% of the fair market
value of a share of the Common Stock of the Company at the time such
option is granted or (ii) 85% of the fair market value of a share of
the Common Stock of the Company on the Exercise Date. The fair market
value of the Company's Common Stock for the initial Offering Period
shall be the lower of the offering price set forth in the prospectus of
the Company's initial public offering or the closing bid price of the
Common Stock on the Exercise Date as reported by the NASDAQ National
Market System or, in the event the Common Stock is listed on a stock
exchange, the fair market value per share shall be the closing price on
such exchange on such date, as reported in the Wall Street Journal, and
thereafter, the fair market value shall be the closing bid price of the
Common Stock for the applicable Enrollment Date or Exercise Date, as
reported by the NASDAQ National Market
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<PAGE>
System, or, in the event the Common Stock is listed on a stock
exchange, the fair market value per share shall be the closing price on
such exchange on such date, as reported in the Wall Street Journal. In
the event the Enrollment Date or the Exercise Date occurs on a weekend
or legal holiday, the fair market value shall be based on the closing
bid price on the next trading day.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in paragraph 10 below, his option for the purchase of shares will be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable option price with the accumulated payroll deductions in his account.
In no event can an option be exercised after the expiration of five years from
the date such option is granted. No fractional shares will be purchased. During
a participant's lifetime, a participant's option to purchase shares hereunder is
exercisable only by him or her, except as provided in Section 15 hereof.
9. Delivery. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, a certificate representing the shares purchased upon exercise of
his option. Any cash remaining to the credit of a participant's account under
the Plan after a purchase by him of shares at the termination of each Offering
Period, or which is insufficient to purchase a full share of Common Stock of the
Company, shall be returned to said participant.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all, but not less than all, the
payroll deductions credited to his account and not yet used to exercise
his option under the Plan at any time by giving written notice to the
Company in the form of Exhibit "B" to this Plan. All of the
participant's payroll deductions credited to his account will be paid
to such participant promptly after receipt of notice of withdrawal and
such participant's option for the Offering Period will be automatically
terminated, and no further payroll deductions for the purchase of
shares will be made during the Offering Period. If a participant
withdraws from an Offering Period, payroll deductions will not resume
at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement in
accordance with Section 5 hereof.
(b) Upon a participant's ceasing to be an Employee for any
reason or upon termination of a participant's employment relationship
(as described in Section 2(g)), the payroll deductions credited to such
participant's account during the Offering Period but not yet used to
exercise the option will be returned to such participant or, in the
case of his death, to the person or persons entitled thereto under
paragraph 14, and such participant's options will be automatically
terminated.
(c) In the event an Employee fails to remain an Employee of
the Company for at least twenty (20) hours per week during an Offering
Period in which the Employee is a participant, he will be deemed to
have elected to withdraw from the Plan and the payroll deductions
credited to his account will be returned to such participant and such
participant's options terminated.
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<PAGE>
(d) A participant's withdrawal from an Offering Period will
not have any effect upon his eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding
Offering Periods which commence after the termination of the Offering
Period from which the participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 200,000
shares, subject to adjustment upon changes in capitalization of the
Company as provided in paragraph 18. If, on a given Exercise Date, the
number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Company
shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and such other person indicated by the participant.
13. Administration. The Plan shall be administered by the Board of the
Company or a committee appointed by the Board; provided, however, that
administration of the Plan shall be consistent with Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934. The administration, interpretation or
application of the Plan by the Board or a committee appointed by the Board shall
be final, conclusive and binding upon all participants.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's
death subsequent to an Exercise Date on which the option is exercised
but prior to delivery to such participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary
who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to exercise of the
option.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of
a participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor
or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to
the spouse or to any one or more dependents or relatives of
26
<PAGE>
the participant, or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, a "qualified domestic relations order" under the Code or the
Employee Retirement Income Security Act ("ERISA"), or as provided in paragraph
14 hereof) by the participant. Any such attempt at assignment, transfer, pledge
or other disposition shall be without effect, except that the Company may treat
such act as an election to withdraw funds from an Offering Period in accordance
with paragraph 10.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the per share purchase price, the number of shares purchased
and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board. In
the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Exercise Date (the "New
Exercise Date"). If the Board shortens the Offering Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least thirty (30) days
prior to the New Exercise Date, that the Exercise Date for his option has been
changed to the New Exercise Date and that his option will be exercised
automatically on the New Exercise Date, unless prior to such date he has
withdrawn from the
27
<PAGE>
Offering Period as provided in paragraph 10. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 425(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of Common Stock and the
sale of assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
(a) The Board may at any time and for any reason terminate the
Plan. The Board may also amend the Plan from time to time in such
respects as the Board may deem advisable. Except as provided in
paragraph 18, no such termination can affect options previously
granted, provided that an Offering Period may be terminated by the
Board of Directors on any Exercise Date if the Board determines that
the termination of the Plan is in the best interests of the Company and
its stockholders. Except as provided in paragraph 18, no amendment may
make any change in any option theretofore granted which adversely
affects the rights of any participant. To the extent required by
applicable law, the Company shall obtain stockholder approval of an
amendment or termination.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the
Offering Periods, limit the frequency and/or number of changes in the
amount withheld during an Offering Period, establish the exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and
crediting procedures to ensure that amounts applied toward the purchase
of Common Stock for each participant properly correspond with amounts
withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in
its sole discretion advisable which are consistent with the Plan.
28
<PAGE>
(c) Notwithstanding the foregoing, the Board or a committee
appointed by the Board may not amend the Plan formula for determining
the amount, price or timing of options to purchase shares of the
Company's Common Stock granted under the Plan more than once every six
months, other than to comport with changes in the Code and ERISA.
Further, the Board may not amend the Plan without prior approval of the
stockholders of the Company if such amendment would materially increase
the benefits accruing to participants under the Plan, materially
increase the number of shares of Common Stock which may be issued under
the Plan or materially modify the requirements as to eligibility for
participation in the Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under paragraph 19.
23. Gender. For purposes of this Plan, words used in the masculine
gender shall include the female and neuter, and the singular shall include the
plural and vice versa, as appropriate.
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<PAGE>
SECOND AMENDMENT
TO THE
MICROTEST, INC.
EMPLOYEE STOCK PURCHASE PLAN
Effective May 18, 1992, the Board of Directors of Microtest, Inc. (the
"Company") approved the adoption of the Microtest, Inc. Employee Stock Purchase
Plan (the "Plan"). By this Amendment, the Company desires to amend the Plan to
increase the maximum number of shares of the Company's Common Stock available
for sale under the Plan from 200,000 to 400,000 shares, subject to the
adjustments as provided in Section 18 of the Plan.
1. This Amendment shall amend only those Sections specified in this
Amendment and those Sections not amended remain in effect.
2. Section 12(a) of the Plan regarding Stock is amended as follows:
"200,000" in the first sentence of Section 12(a) is hereby replaced with
"400,000."
3. This Amendment shall be effective as of March 22, 1999.
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<PAGE>
- --------------------------------------------------------------------------------
PLEASE PRESENT THIS TICKET FOR ADMISSION TO THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MAY 24, 1999, AT 10:00 A.M., ARIZONA TIME, AT THE
DOUBLETREE LA POSADA RESORT, 4949 EAST LINCOLN DRIVE, PARADISE VALLEY, ARIZONA.
- --------------------------------------------------------------------------------
A Please mark your votes as in this example: [X]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
VOTE FOR
NOMINEES
LISTED WITHHELD
BELOW FOR ALL FOR AGAINST ABSTAIN
1. ELECTION [ ] [ ] Nominees: 2. Approval of an [ ] [ ] [ ]
OF TWO Roger C. increase in authorized
DIRECTORS Ferguson shares for the
Vincent C. Hren Employee Stock
Purchase Plan
WITHHELD FOR (Write that nominee's name in the
space provided below)
- ---------------------------------------------- THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE
- ---------------------------------------------- ELECTION OF DIRECTOR NOMINEES, APPROVAL OF AN INCREASE
IN AUTHORIZED SHARES FOR THE EMPLOYEE STOCK PURCHASE
PLAN, AND AS PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.
</TABLE>
Signature(s)_________________________________________ Date ____________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
31
