SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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|_| Preliminary Proxy Statement
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|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Network Appliance, Inc.
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(Name of Registrant as Specified In Its Charter)
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NETWORK APPLIANCE, INC.
495 East Java Drive
Sunnyvale, CA 94089
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Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Annual Meeting") of Network Appliance, Inc. (the "Company") which will be
held on October 11, 2000, at 3:00 p.m., local time, at the Company's
headquarters, 495 East Java Drive, Sunnyvale, California 94089.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (i) to elect eight directors of the Company, (ii) to
approve an amendment to the 1999 Stock Option Plan, and (iii) to ratify the
appointment of Deloitte and Touche LLP as independent accountants of the Company
for the fiscal year ending April 27, 2001.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting. After careful consideration, the
Company's Board of Directors has unanimously approved the proposals and
recommends that you vote FOR each such proposal.
After reading the Proxy Statement, please mark, date, sign and return the
enclosed proxy card in the accompanying reply envelope. If you decide to attend
the Annual Meeting and would prefer to vote in person, please notify the
Secretary of the Company that you wish to vote in person and your proxy will not
be voted. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE
ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's 2000 Annual Report has been mailed concurrently
herewith to all shareholders entitled to notice of and to vote at the Annual
Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
DANIEL J. WARMENHOVEN
Chief Executive Officer
Sunnyvale, California
August 28, 2000
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IMPORTANT
Please mark, date and sign the enclosed proxy and return it at your earliest
convenience in the enclosed postage-prepaid return envelope so that if you are
unable to attend the Annual Meeting, your shares may be voted.
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NETWORK APPLIANCE, INC.
495 East Java Drive
Sunnyvale, CA 94089
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held October 11, 2000
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TO OUR SHAREHOLDERS:
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Annual Meeting") of Network Appliance, Inc., a California corporation (the
"Company"), to be held on October 11, 2000 at 3:00 p.m., local time, at the
Company's headquarters, 495 East Java Drive, Sunnyvale, California 94089, for
the following purposes:
1. To elect the new directors to serve for the ensuing year or until
their respective successors are duly elected and qualified. The
nominees are Daniel J. Warmenhoven, Donald T. Valentine, Sanjiv
Ahuja, Carol A. Bartz, Larry R. Carter, Michael R. Hallman, Sachio
Semmoto and Robert T. Wall.
2. To approve an amendment to the Company's 1999 Stock Option Plan (the
"1999 Plan") to increase the share reserve under the plan by an
additional 15,000,000 shares of Common Stock.
3. To ratify the appointment of Deloitte and Touche LLP as independent
accountants of the Company for the fiscal year ending April 27,
2001.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice.
Shareholders of record at the close of business on August 14, 2000 are
entitled to notice of and to vote at the Annual Meeting and at any continuation
or adjournment thereof.
All shareholders are cordially invited and encouraged to attend the Annual
Meeting. In any event, to ensure your representation at the meeting, please
carefully read the accompanying Proxy Statement which describes the matters to
be voted on at the Annual Meeting and sign, date and return the enclosed proxy
card in the reply envelope provided. Should you receive more than one proxy
because your shares are registered in different names and addresses, each proxy
should be returned to ensure that all your shares will be voted. You may revoke
your proxy at any time prior to the Annual Meeting. If you attend the Annual
Meeting and vote by ballot, your proxy will be revoked automatically and only
your vote at the Annual Meeting will be counted. The prompt return of your proxy
card will assist us in preparing for the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
By order of the board of directors,
DANIEL J. WARMENHOVEN
Chief Executive Officer
Sunnyvale, California
August 28, 2000
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. IN ANY EVENT, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU
ARE URGED TO VOTE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
PROXY STATEMENT
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FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
NETWORK APPLIANCE, INC.
To be held October 11, 2000
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General
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Network Appliance, Inc., a California corporation (the
"Company" or "Network Appliance"), of proxies to be voted at the Annual Meeting
of Shareholders (the "Annual Meeting") to be held on October 11, 2000, or at any
adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. Shareholders of record on
August 14, 2000 will be entitled to vote at the Annual Meeting. The Annual
Meeting will be held at 3:00 p.m., local time, at the Company's headquarters,
495 East Java Drive, Sunnyvale, California 94089.
It is anticipated that this Proxy Statement and the enclosed proxy card
will be mailed to shareholders on or about August 28, 2000.
All share numbers in this Proxy Statement reflect the two-for-one split of
the Common Stock on December 20, 1999 and the two-for-one split of the Common
Stock on March 22, 2000.
Voting Rights
The close of business on August 14, 2000 was the record date for
shareholders entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof. At the record date, the Company had approximately
316,213,977 shares of its Common Stock, no par value, outstanding and entitled
to vote at the Annual Meeting, and approximately 693 registered shareholders. No
shares of the Company's Preferred Stock were outstanding. Holders of Common
Stock are entitled to one vote for each share of Common Stock held by such
shareholder on August 14, 2000. A majority of the shares of Common Stock
entitled to vote will constitute a quorum for the transaction of business at the
Annual Meeting. Abstentions and broker non-votes are counted as present for the
purpose of determining the presence of a quorum.
Shareholders may vote by proxy. The enclosed proxy is solicited by the
Company's Board of Directors (the "Board of Directors" or the "Board") and when
the proxy card is returned properly completed, it will be voted as directed by
the shareholder on the proxy card. Shareholders are urged to specify their
choices on the enclosed proxy card. If a proxy card is signed and returned
without choices specified, in the absence of contrary instructions, the shares
of Common Stock represented by such proxy will be voted FOR Proposals 1, 2, and
3 and will be voted in the proxy holders' discretion as to other matters that
may properly come before the Annual Meeting.
The eight director nominees receiving the highest number of affirmative
votes will be elected. Votes against a nominee, abstentions and broker non-votes
will have no effect. Approval of Proposals 2, and 3 requires (i) the affirmative
vote of a majority of those shares present and voting and (ii) the affirmative
vote of the majority of the required quorum. Thus, abstentions and broker
non-votes can have the effect of preventing approval of a proposal where the
number of affirmative votes, though a majority of the votes cast, does not
constitute a majority of the required quorum. All votes will be tabulated by the
inspector of the election appointed for the Annual Meeting, who will separately
tabulate affirmative and negative votes, abstentions and broker non-votes.
Revocability of Proxies
Any person giving a proxy has the power to revoke it at any time before
its exercise. You may revoke or change your proxy by filing with the Secretary
of the Company an instrument of revocation or a duly executed proxy bearing a
later date, or by attending the Annual Meeting and voting in person.
Solicitation of Proxies
The Company will bear the cost of soliciting proxies. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
to forward to such beneficial owners. The Company may reimburse such persons for
their costs of forwarding the solicitation material to such beneficial owners.
The original solicitation of proxies by mail may be supplemented by solicitation
by telephone, electronic communication, or other means by directors, officers,
employees or agents of the Company. No additional compensation will be paid to
these individuals for any such services. The Company may retain a proxy
solicitor to assist in the solicitations of proxies, for which the Company would
expect to pay an estimated fee of $12,500 plus reimbursement of expenses. Except
as described above, the Company does not intend to solicit proxies other than by
mail.
Annual Report
The Annual Report of the Company for the fiscal year ended April 28, 2000
has been mailed concurrently with the mailing of the Notice of Annual Meeting
and Proxy Statement to all shareholders entitled to notice of and to vote at the
Annual Meeting. The Annual Report is not incorporated into this Proxy Statement
and is not considered proxy soliciting material.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
At the Annual Meeting, eight directors (constituting the entire board) are
to be elected to serve until the next Annual Meeting of Shareholders and until a
successor for such director is elected and qualified, or until the death,
resignation or removal of such director. It is intended that the proxies will be
voted for the eight nominees named below for election to the Company's Board of
Directors unless authority to vote for any such nominee is withheld. There are
eight nominees, each of whom is currently a director of the Company. With the
exception of Sachio Semmoto, all of the current directors were elected to the
Board by the shareholders at the last Annual Meeting. Each person nominated for
election has agreed to serve if elected, and the Board of Directors has no
reason to believe that any nominee will be unavailable or will decline to serve.
In the event, however, that any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who is designated by the current Board of Directors to fill the vacancy.
Unless otherwise instructed, the proxyholders will vote the proxies received by
them for the nominees named below. The eight candidates receiving the highest
number of affirmative votes of the shares entitled to vote at the Annual Meeting
will be elected directors of the Company. The proxies solicited by this Proxy
Statement may not be voted for more than eight nominees.
Nominees
The directors of the Company, and their ages as of May 31, 2000, are as
follows:
Name Age Position
- ---- --- --------
Daniel J. Warmenhoven ............. 49 Chief Executive Officer and Director
Donald T. Valentine ............... 67 Chairman of the Board, Director
Sanjiv Ahuja(2) ................... 43 Director
Carol A. Bartz(1) ................. 51 Director
Larry R. Carter(2) ................ 57 Director
Michael R. Hallman(2) ............. 55 Director
Sachio Semmoto .................... 57 Director
Robert. T. Wall(1) ................ 54 Director
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(1) Member of Compensation Committee.
(2) Member of Audit Committee.
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Business Experience of Nominees for Election as Directors
DANIEL J. WARMENHOVEN joined the Company in October 1994 as President and
Chief Executive Officer, and has been a member of the Board of Directors since
October 1994. In May 2000, he resigned the role of President, and currently
serves as Chief Executive Officer and Director of Network Appliance, Inc. Prior
to joining the Company, Mr. Warmenhoven served in various capacities, including
President, Chief Executive Officer and Chairman of the Board of Directors of
Network Equipment Technologies, Inc., a telecommunications company, from
November 1989 to January 1994. He presently serves on the Board of Directors of
Redback Networks, Inc., a communications products company. Mr. Warmenhoven holds
a B.S. degree in electrical engineering from Princeton University.
DONALD T. VALENTINE has been a director of the Company and Chairman of the
Board of Directors since September 1994. Mr. Valentine has been a general
partner of Sequoia Capital, a venture capital firm, since 1972. He is also
Chairman of the Board of C-Cube Microsystems Inc., Vice Chairman of Cisco
Systems, Inc., and serves on the Boards of Directors of EventSource.com and
diCarta, Inc.
SANJIV AHUJA has been a member of the Board of Directors since August
1998. Mr. Ahuja is the Founder and Chief Executive Officer of Comstellar
Technologies, Inc., a telecommunications holding company. Prior to founding
Comstellar Technologies, he was President and Chief Operating Officer of
Telcordia Technologies (formerly Bellcore), a leading provider of
telecommunications software and consulting, and a wholly-owned subsidiary of
Science Applications International Corporation (SAIC). He joined Telcordia in
1994 as Corporate Vice President and President of the Software Systems Group
after holding several key executive positions at IBM, where he began his career
in 1979. Mr. Ahuja currently serves on the Boards of Directors of Danet, Inc.,
Intesa and Tecsi. He received a Bachelor of Science degree in electrical
engineering from Delhi University, India and a Master of Science degree in
computer science from Columbia University.
CAROL A. BARTZ has been a member of the Board of Directors since September
1995. From April 1992 to the present, Ms. Bartz has served as Chairman of the
Board and Chief Executive Officer of Autodesk, Inc., a design software company.
Prior to that, Ms. Bartz was with Sun Microsystems, Inc. from September 1983 to
April 1992, most recently as Vice President of Worldwide Field Operations. In
addition, Ms. Bartz currently serves on the Boards of Directors of Cadence
Design Systems, Inc., Cisco Systems, Inc., VA Linux Systems, Inc. and BEA
Systems, Inc. Ms. Bartz received a B.A. degree in computer science from the
University of Wisconsin.
LARRY R. CARTER has been a member of the Board of Directors since April
1997. In January 1995, Mr. Carter joined Cisco Systems, Inc. as Vice President,
Finance and Administration, Chief Financial Officer and Secretary. In July 1997
he was promoted to Senior Vice President, Finance and Administration, Chief
Financial Officer and Secretary. In July 2000 he was appointed to Cisco Systems'
Board of Directors. From July 1992 to January 1995, he was Vice President and
Corporate Controller for Advanced Micro Devices, Inc. Prior to that, he was with
VLSI Technology, Inc. for four years where he held the position of Vice
President, Finance and Chief Financial Officer. Mr. Carter presently serves on
the Boards of Directors of QLogic Corporation and eSpeed, Inc. Mr. Carter
received a B.S. degree in Business Administration and Accounting from Arizona
State University.
MICHAEL R. HALLMAN has been a member of the Board of Directors since
August 1994. Mr. Hallman is President of The Hallman Group, a management
consulting firm, which he founded in June 1992. Prior to that, he served as
President and Chief Operating Officer of Microsoft Corporation, a microcomputer
software company, from March 1990 to March 1992. He presently serves on the
Boards of Directors of InFocus Systems Inc., a computer peripherals company, and
Intuit Inc., a microcomputer software company. Mr. Hallman holds B.B.A. and
M.B.A. degrees from the University of Michigan.
DR. SACHIO SEMMOTO has been a member of the Board of Directors since
December 1999. Dr. Semmoto is Chief Executive Officer of EAccess, Ltd. in Japan.
Prior to that, he spent 30 years in senior technology management positions,
including Nippon Telephone and Telegraph, Kyocera and DDI Corporation. Dr.
Semmoto is recognized as a leading Japanese academic in the areas of
entrepreneurship and information technology and has been a Professor at the
Graduate School of Business Administration, Keio University in Tokyo since 1996.
Dr. Semmoto is also a Fellow of the Institute of Electrical and Electronics
Engineers and a regular member of the Institute of Electronics and
Communications Engineers. He co-founded the Japan Academic Society of Ventures
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and Entrepreneurs as Vice President and has been supporting high tech start-ups
in the U.S. and Japan from high-level managing positions. He is a graduate of
Kyoto University, Japan and received his Ph.D. from University of Florida.
ROBERT T. WALL has been a member of the Board of Directors since January
1993. Since August 1984, Mr. Wall has been the Founder and President of On Point
Developments, LLC, a venture management and investment company. From June 1997
to November 1998, he was Chief Executive Officer and a member of the Board of
Directors of Clarity Wireless, Inc., a broadband wireless data communications
company which was acquired by Cisco Systems, Inc. in November 1998. Mr. Wall was
Chairman of the Board, President and Chief Executive Officer of Theatrix
Interactive, Inc., a consumer educational software publisher, from April 1994 to
August 1997. He presently serves on the Boards of Directors of Egghead.com,
Inc., an Internet-based discount retailer of computer products, and of
SemiSales.com, Inc., a business-to-business e-commerce marketplace for supplies
for the semiconductor industry. He received an A.B. degree in economics from De
Pauw University and an M.B.A. degree from Harvard Business School.
Board Meetings and Committees
The Board of Directors held seven (7) meetings during fiscal 2000. Each
member of the Board of Directors during fiscal 2000 attended more than eighty
percent (80%) of the aggregate of (i) the total number of meetings of the Board
of Directors held during such period and (ii) the total number of meetings held
during such period by all Committees of the Board on which he or she served.
There are no family relationships among executive officers or directors of the
Company. The Board of Directors has an Audit Committee and a Compensation
Committee.
The Audit Committee is comprised of Directors Ahuja, Carter and Hallman.
The Audit Committee reviews, acts on and reports to the Board of Directors with
respect to various auditing and accounting matters, including the selection of
the Company's auditors, the scope of the annual audits, fees to be paid to the
auditors, the performance of the Company's auditors and the accounting practices
of the Company. The Audit Committee of the Board of Directors held five (5)
meetings during fiscal 2000.
The Compensation Committee, which is comprised of Directors Bartz and
Wall, establishes salaries, incentives and other forms of compensation for
officers and other employees of the Company and administers the incentive
compensation and benefit plans of the Company. The Compensation Committee of the
Board of Directors held one (1) meeting during fiscal 2000. In addition the
Committee approved stock option grants on a monthly basis by means of Unanimous
Written Consents.
Director Compensation
Directors of the Company do not receive compensation for services provided
as a director. The Company also does not pay compensation for committee
participation or special assignments of the Board of Directors. However, the
directors are currently eligible to receive stock options under the Automatic
Option Grant Program in effect under the 1999 Stock Option Plan (the "1999
Plan"), under which option grants are automatically made at periodic intervals
to eligible non-employee Board members to purchase shares of Common Stock at an
exercise price equal to 100% of the fair market value of the option shares on
the grant date.
At the 1999 Annual Shareholders Meeting held on October 26, 1999, each of
the following individuals re-elected as a non-employee Board member at that
meeting received an option grant for 40,000 shares of Common Stock under the
Automatic Option Grant Program of the 1999 Plan with an exercise price of $16.66
per share, the fair market value per share of Common Stock on the grant date:
Messrs. Valentine, Ahuja, Carter, Hallman, and Wall and Ms. Bartz. Dr. Semmoto
received an option grant for 160,000 shares under the Automatic Option Grant
Program of the 1999 Plan with an exercise price of $31.25 per share upon his
appointment to the Board on December 1, 1999.
Each automatic option has a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service, and is
immediately exercisable for all the option shares. However, any shares purchased
upon exercise of the option are subject to repurchase by the Company, at the
option exercise price paid
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per share, should the optionee cease service on the Board prior to vesting in
those shares. The initial 160,000-share option grant made to a non-employee
Board member under the Automatic Option Grant Program vests in a series of four
(4) successive equal annual installments over the optionee's period of Board
service measured from the grant date. Each annual option grant made to a
continuing non-employee Board member vests upon the optionee's completion of one
term of Board service measured from the grant date and continuing through the
day immediately preceding the next Annual Meeting. However, each outstanding
option will immediately vest upon (i) certain changes in the ownership or
control of the Company or (ii) the death or disability of the optionee while
serving as a Board member.
On August 17, 2000, the Board amended the provisions of the Automatic
Option Grant Program to decrease the number of shares of Common Stock for which
option grants are to be made to new and continuing non-employee Board members
from 160,000 shares to 40,000 shares for the initial option grant made to each
individual who first becomes a non-employee Board member, provided such
individual has not otherwise been in the prior employ of the company, and from
40,000 shares to 15,000 shares for the annual option grants to be made at each
Annual Meeting to each individual who is to continue to serve as a non-employee
Board member, provided such individual has served on the Board for at least six
(6) months.
The Board of Directors recommends that the shareholders vote FOR election
of all of the above nominees for election as directors.
PROPOSAL NO. 2:
APPROVAL OF AMENDMENT TO THE 1999 STOCK OPTION PLAN
General
The shareholders are being asked to vote on a proposal to approve an
amendment to the Company's 1999 Stock Option Plan (the "1999 Plan") which would
increase the share reserve under that plan by an additional 15,000,000 shares of
Common Stock. The Board of Directors (the "Board") approved the amendment on
August 17, 2000, subject to shareholder approval at the Annual Meeting. The
affirmative vote of a majority of the shares of Common Stock present or
represented and voting at the Annual Meeting, together with the affirmative vote
of the majority of the required quorum, is required for approval of the proposed
share increase.
The Board believes that the proposed increase to the share reserve under
the 1999 Plan is necessary to assure that there will be a sufficient number of
shares available for issuance under the 1999 Plan in order to attract and retain
the services of individuals essential to the Company's long-term success.
All share numbers which appear in this proposal reflect the two-for-one
split of the Common Stock on December 20, 1999 and the two-for-one split of the
Common Stock on March 22, 2000.
Background
The 1999 Plan was originally adopted by the Board and approved by the
shareholders at the 1999 Annual Meeting held on October 26, 1999. The 1999 Plan
is divided into two separate components: (i) the Discretionary Option Grant
Program and (ii) the Automatic Option Grant Program. Under the Discretionary
Option Grant Program, individuals in the Company's service may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock at an exercise price not less than the fair market value of those
shares on the grant date. Under the Automatic Option Grant Program, option
grants are automatically made at periodic intervals to non-employee members of
the Board.
In addition to the 1999 Plan, the Company also maintains two other equity
incentive programs for individuals in the Company's service: the 1995 Stock
Incentive Plan (the "1995 Plan") and the Special Non-Officer Stock Option Plan
(the "Non-Officer Plan").
1995 Plan
The 1995 Plan became effective on November 20, 1995 in connection with the
initial public offering of the Company's Common Stock. The 1995 Plan is
currently divided into three separate components: (i) the
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Discretionary Option Grant Program under which individuals in the Company's
service may, at the discretion of the Compensation Committee, be granted options
to purchase shares of Common Stock at an exercise price per share not less than
the fair market value on the grant date, (ii) the Stock Issuance Program under
which such individuals may, at the discretion of the Compensation Committee, be
issued shares of Common Stock directly, through the purchase of such shares at a
price per share not less than the fair market value at the time of issuance or
as a fully paid bonus for services rendered the Company or the attainment of
designated performance goals, and (iii) the Salary Investment Option Grant
Program under which the Company's executive officers and other
highly-compensated employees may elect to have a portion of their base salary
applied each year to pre-payment of two-thirds of the exercise price of special
option grants, the remaining one-third to be paid at the time of the option
exercise.
The shareholders have previously approved a reserve of 101,700,192 shares
of Common Stock under the 1995 Plan. As of May 31, 2000, options covering
64,937,183 shares of Common Stock were outstanding under the 1995 Plan,
2,357,942 shares remained available for future option grants and direct stock
issuances, and 33,868,075 shares had been issued.
The Non-Officer Plan
The Non-Officer Plan was adopted by the Board on April 30, 1997. Options
may be granted under the Non-Officer Plan to employees of the Company (or any
parent or subsidiary corporation) who are not officers or Board members. Each
option grant will have an exercise price per share not less than the fair market
value on the grant date and will generally become exercisable in a series of
installments over the optionee's period of service with the Company.
6,400,000 shares of Common Stock were authorized by the Board for issuance
under the Non-Officer Plan. As of May 31, 2000, options covering 4,306,725
shares of Common Stock were outstanding under the Non-Officer Plan, 227,644
shares remained available for future option grants, and 1,865,631 shares had
been issued.
Share issuances under the 1999 Plan will not reduce or otherwise affect
the number of shares of Common Stock available for issuance under the 1995 Plan
or the Non-Officer Plan, and share issuances under those two plans will not
reduce or otherwise affect the number of shares of Common Stock available for
issuance under the 1999 Plan.
1999 Plan Information
The following is a summary of the principal features of the 1999 Plan.
This summary, however, does not purport to be a complete description of all the
provisions of the 1999 Plan. Any shareholder who wishes to obtain a copy of the
actual plan document may do so by sending a written request to the attention of
the Corporate Secretary at the Company's corporate offices in Sunnyvale,
California.
Administration
The 1999 Plan (other than the Automatic Option Grant Program) is
administered by the Compensation Committee of the Board. This committee (the
"Plan Administrator") will have complete discretion (subject to the provisions
of the 1999 Plan) to authorize option grants under the 1999 Plan. However, all
grants under the Automatic Option Grant Program will be made in strict
compliance with the provisions of that program, and the Plan Administrator will
exercise no administrative discretion with respect to the grants made
thereunder.
Securities Subject to 1999 Plan
Assuming shareholder approval of this Proposal, 28,200,000 shares of the
Company's Common Stock will be authorized for issuance over the 10-year term of
the 1999 Plan. As of May 31, 2000, options for 3,435,000 shares were
outstanding, and 24,765,000 shares remained available for future option grants,
assuming shareholder approval of this Proposal. The shares will be made
available either from the Company's authorized but unissued Common Stock or from
Common Stock reacquired by the Company.
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In no event may one individual participating in the 1999 Plan be granted
stock options for more than 3,000,000 shares of Common Stock in the aggregate
per calendar year. Shareholder approval of this Proposal will also constitute
reapproval of such limitation.
In the event any change is made to the Common Stock issuable under the
1999 Plan by reason of any stock split, stock dividend, combination of shares,
merger, reorganization, consolidation, recapitalization, exchange of shares, or
other change in capitalization of the Company affecting the Common Stock as a
class without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and/or class of securities issuable under
the 1999 Plan, (ii) the maximum number and/or class of securities for which any
one individual may be granted stock options under the 1999 Plan per calendar
year, (iii) the class and/or number of securities and option price per share in
effect under each outstanding option and (iv) the class and/or number of
securities for which automatic option grants are to be subsequently made to both
new and continuing non-employee Board members under the Automatic Option Grant
Program. The adjustments to the outstanding options will prevent the dilution or
enlargement of benefits thereunder.
The grant of stock options or stock appreciation rights under the 1999
Plan will not affect the right of the Company to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate, sell, or transfer all or any part of its business or
assets.
Eligibility
Employees (including officers) and consultants and other independent
advisors in the service of the Company (or its parent or subsidiary companies)
who contribute to the management, growth and financial success of the Company
(or its parent or subsidiary companies) will be eligible to participate in the
Discretionary Option Grant Program of the 1999 Plan. The non-employee Board
members are eligible to participate in the Automatic Grant Program.
As of May 31, 2000, 1,583 employees (including 5 executive officers) were
eligible to participate in the Discretionary Option Grant Program, and the 7
non-employee Board members were eligible to receive grants under the Automatic
Option Grant Program.
Valuation
The fair market value per share of Common Stock under the 1999 Plan on any
relevant date will be the closing selling price on the date in question, as
reported on the Nasdaq National Market. On May 31, 2000, the fair market value
per share of the Common Stock determined on such basis was $64.56 per share.
Shareholder Rights and Option Transferability
No optionee will have any shareholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise price
for the purchased shares. Options are generally not assignable or transferable
other than by will or the laws of inheritance and, during the optionee's
lifetime, the option may be exercised only by such optionee. However, the Plan
Administrator may allow non-statutory options to be transferred or assigned
during the optionee's lifetime to one or more members of the optionee's
immediate family or to a trust established exclusively for one or more such
family members, to the extent such transfer or assignment is in furtherance of
the optionee's estate plan.
Discretionary Option Grant Program
Options granted under the Discretionary Option Grant Program may be either
incentive stock options under the federal tax laws or non-statutory options
which are not intended to meet such requirements. The principal features of the
grants made under the Discretionary Option Grant Program may be summarized as
follows:
Price and Exercisability
The exercise price per share must not be less than 100% of the fair market
value per share of the Common
7
Stock on the grant date. No option may be outstanding for more than a 10-year
term. The options will generally become exercisable in a series of installments
over the optionee's period of service with the Company.
The exercise price is payable in cash or with shares of the Company's
common stock. The exercise price may also be paid through a same-day sale
program, pursuant to which a designated brokerage firm is to effect the
immediate sale of the shares purchased under the option and pay over to the
Company, out of the sale proceeds available on the settlement date, sufficient
funds to cover the exercise price for the purchased shares plus all applicable
withholding taxes.
Termination of Service
The Plan Administrator has complete discretion to establish the period of
time for which any option is to remain exercisable following the optionee's
cessation of service with the Company. Under no circumstances may an option be
exercised after the specified expiration date of the option term. Each option
under the Discretionary Option Grant Program will be exercisable only to the
extent of the number of shares for which such option is exercisable at the time
of the optionee's cessation of employment or service. However, the Plan
Administrator has the discretion, exercisable at any time while the option
remains outstanding, to accelerate the exercisability and/or vesting of such
option in whole or in part.
The shares of Common Stock acquired upon the exercise of one or more
options may be unvested and subject to repurchase by the Company, at the
original exercise price paid per share, upon the optionee's cessation of service
prior to vesting in such shares. The Plan Administrator will have complete
discretion in establishing the vesting schedule for any such unvested shares and
will have full authority to cancel the Company's outstanding repurchase rights
with respect to one or more unvested shares held by the optionee and may
exercise this discretion at any time, whether before or after the optionee's
service actually ceases.
Cancellation and Regrant of Options
The Plan Administrator has the authority to effect the cancellation of any
or all options outstanding under the Discretionary Option Grant Program and to
grant in substitution therefor new options covering the same or different
numbers of shares of common stock but with an exercise price per share not less
than 100% of the fair market value of the common stock on the new grant date.
However, such option cancellation/regrant program will be subject to the
following two limitations: (i) only options held by employees who are neither
executive officers of the Company nor members of the Board may be so cancelled
and regranted and (ii) the total number of shares subject to options which are
so cancelled and regranted from time to time will not in the aggregate exceed
ten percent (10%) of the total number of shares of Common Stock authorized for
issuance under the 1999 Plan.
Corporate Transaction
In the event of a Corporate Transaction (defined below), each outstanding
option under the Discretionary Option Grant Program will vest and become
exercisable for all the option shares as fully vested shares, unless that option
is to be assumed by the successor corporation or to be replaced with a cash
incentive program which preserves the existing option spread on the unvested
option shares and provides for subsequent payout of that spread in accordance
with the same vesting schedule for the shares. The Plan Administrator will have
the discretion to structure one or more option grants under the Discretionary
Option Grant Program so that those options will automatically vest in the event
the individual's service is subsequently terminated within a specified period
(not to exceed twelve (12) months) following a Corporate Transaction in which
those options and shares do not otherwise vest on an accelerated basis. The Plan
Administrator may also structure one or more option grants under the
Discretionary Option Grant Program so that those options will automatically vest
in full upon a Corporate Transaction.
A Corporate Transaction includes any of the following shareholder-approved
transactions: (i) a merger or acquisition in which the Company is not the
surviving entity (other than a transaction the principal purpose of which is to
change the state of the Company's incorporation), (ii) the sale, transfer or
other disposition of all or substantially all of the Company's assets in
complete liquidation or dissolution of the Company or (iii) any reverse merger
in which the Company is the surviving entity but in which more than 50% of the
Company's outstanding voting stock is transferred to the acquiring entity or its
wholly owned subsidiary.
8
Change in Control
The Plan Administrator will have the discretionary authority to provide
for accelerated vesting of one or more outstanding options under the
Discretionary Option Grant Program in connection with a Change in Control, with
such accelerated vesting to occur either at the time of the Change in Control or
upon the subsequent termination of the optionee's service.
A Change in Control will be deemed to occur under the 1999 Plan upon: (i)
the acquisition of more than 50% of the Company's outstanding voting stock
pursuant to a tender or exchange offer made directly to the Company's
shareholders or (ii) a change in the composition of the Board of Directors over
a period of 36 months or less such that a majority of the Board members ceases,
by reason of one or more proxy contests for the election of Board members, to be
comprised of individuals who either (a) have been members of the Board
continuously since the beginning of such period or (b) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (a) who were still in office
at the time such election or nomination was approved by the Board.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Special Tax Election
The Plan Administrator may provide one or more holders of non-statutory
options under the Discretionary Option Grant Program with the right to have the
Company withhold a portion of the shares of Common Stock otherwise issuable to
such individuals upon the exercise of those options or vesting of those shares
in order to satisfy the Federal and state income and employment withholding
taxes to which such individuals may become subject in connection with such
exercise or vesting. Alternatively, the Plan Administrator may allow such
individuals to deliver already existing shares of the Company's Common Stock in
payment of such tax liability.
Automatic Option Grant Program
Under the Automatic Option Grant Program, non-employee Board members will
receive option grants at specified intervals over their period of Board service.
All grants under such program will be made in strict compliance with the express
provisions of the program, and shareholder approval of this Proposal will also
constitute pre-approval of each option granted on or after the date of the
Annual Meeting pursuant to the amended provisions of the Automatic Option Grant
Program summarized below and the subsequent exercise of that option in
accordance with such provisions.
On August 17, 2000, the Board amended the provisions of the Automatic
Option Grant Program to decrease the number of shares of Common Stock for which
option grants are to be made to new and continuing non-employee Board members
under the Automatic Option Grant Program from 160,000 shares to 40,000 shares
for the initial option grant made to each new non-employee Board member and from
40,000 shares to 15,000 shares for the annual option grant made to each
continuing non-employee Board member. The proposed changes to the size of the
option grants to be made to the non-employee Board members under the Automatic
Option Grant Program are designed to maintain the competitiveness of the equity
compensation package provided such individuals so that the Company will continue
to have the ability to retain the services of highly-qualified and experienced
non-employee Board members, while at the same time ensuring the size of those
option grants do not, in light of the recent stock splits of the Company's
Common Stock, substantially exceed the level of option grants made to
non-employee board members at other companies in the industry. The Compensation
Committee of the Board of Directors reviewed several surveys of non-employee
director compensation, including the equity incentives provided those
individuals. On the basis of that review, the Compensation Committee concluded
that the decrease to the number of shares for which stock option grants are to
be made to new and continuing non-employee Board members was reasonable and that
the reduced size of the stock option grants would still remain at sufficiently
large level to attract and retain skilled and talented non-employee Board
members the Company seeks.
9
Under the amended Automatic Option Grant Program, each continuing
non-employee Board member will on the date of each Annual Shareholders Meeting,
beginning with the 2000 Annual Meeting, be granted an option to purchase 15,000
shares of Common Stock, provided such individual has served as a non-employee
Board member for at least six months. Each individual who is first elected or
appointed as a non-employee Board member at any time after the 2000 Annual
Meeting will automatically be granted, at the time of such initial election or
appointment, a non-statutory option to purchase 40,000 shares of Common Stock,
provided such individual has not previously been in the employ of the Company.
Each option grant under the Automatic Option Grant Program will have an
exercise price per share equal to 100% of the fair market value per share of
Common Stock on the grant date and a maximum term of 10 years measured from such
date, subject to earlier termination upon the optionee's cessation of Board
service. Each option will be immediately exercisable for the option shares.
However, any shares purchased under the option will be subject to repurchase by
the Company at the option exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. The shares subject
to each initial 40,000-share automatic grant will vest in four (4) successive
equal annual installments upon the optionee's completion of each year of Board
service over the four (4)-year period measured from the grant date. The shares
subject to each annual 15,000-share grant will vest upon the optionee's
continuation in Board service through the day immediately preceding the next
Annual Shareholders Meeting following the grant date of that option.
The shares subject to each automatic option grant will immediately vest in
full upon (i) the optionee's death or permanent disability while a Board member
or (ii) the occurrence of a Corporate Transaction or Change in Control.
Options Granted
The table below shows, as to each of the Named Executive Officers and the
various indicated groups, the following information with respect to stock option
transactions effected during the period from January 1, 1999 to May 31, 2000:
(i) the number of shares of Common Stock subject to options granted under the
1999 Plan during that period and (ii) the weighted average exercise price
payable per share under such options.
Options Granted Weighted Average
Name and Position (Number of Shares) Exercise Price
----------------- ------------------ ----------------
Daniel J. Warmenhoven, Chief Executive Officer ............................. 500,000 $ 53.91
Jeffry R. Allen, Executive Vice President Finance and Operations
and Chief Financial Officer ............................................. 300,000 $ 53.91
David Hitz, Executive Vice President Engineering ........................... 300,000 $ 53.91
Thomas F. Mendoza, President ............................................... 375,000 $ 54.73
Charles E. Simmons, Vice President Corporate Development ................... 100,000 $ 53.91
All executive officers as a group (Five persons) ........................... 1,575,000 $ 54.10
Donald T. Valentine, Chairman of the Board and Director .................... 40,000 $ 16.66
Sanjiv Ahuja, Director ..................................................... 40,000 $ 16.66
Carol A. Bartz, Director ................................................... 40,000 $ 16.66
Larry R. Carter, Director .................................................. 40,000 $ 16.66
Michael R. Hallman, Director ............................................... 40,000 $ 16.66
Sachio Semmoto, Director ................................................... 160,000 $ 31.25
Robert T. Wall, Director ................................................... 40,000 $ 16.66
All directors who are not officers (Seven persons) ......................... 400,000 $ 22.49
All employees, including current officers who are not executive
officers, as a group .................................................... 1,460,000 $ 54.35
10
Amendment and Termination of the 1999 Plan
The Board may amend or modify the 1999 Plan in any or all respects
whatsoever subject to any shareholder approval required under applicable law or
regulation. The Board may terminate the 1999 Plan at any time, but in no event
will the 1999 Plan continue beyond August 16, 2009.
Federal Tax Consequences
Option Grants
Options granted under the 1999 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to satisfy such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options
No taxable income is recognized by the optionee at the time of the option
grant, and no taxable income is generally recognized at the time the option is
exercised. The optionee will, however, recognize taxable income in the year in
which the purchased shares are sold or otherwise made the subject of
disposition.
For Federal income tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. A qualifying disposition of
the purchased shares will occur if the sale or disposition is made more than two
years after the date the option for the shares was granted and more than one
year after the date that the option was exercised for the particular shares
involved in the sale or disposition. Unless both of those requirements are
satisfied, a disqualifying disposition of the purchased shares will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for such shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares. The Company anticipates that any compensation deemed paid by the Company
upon one or more disqualifying dispositions of incentive stock option shares
will not have to be taken into account for purposes of the $1 million limitation
per covered individual on the deductibility of the compensation paid to certain
executive officers of the Company.
Non-Statutory Options
No taxable income is recognized by an optionee upon the grant of a
non-statutory option. The optionee will in general recognize ordinary income in
the year in which the option is exercised equal to the excess of the fair market
value of the purchased shares on the exercise date over the exercise price, and
the optionee will be required to satisfy the tax withholding requirements
applicable to such income.
If the shares acquired upon exercise of a non-statutory option are subject
to a substantial risk of forfeiture (such as the Company's right to repurchase
unvested shares at the original exercise price paid per share, upon the
optionee's cessation of service prior to vesting in those shares), then the
optionee will not recognize any taxable income at the time the option is
exercised for such unvested shares but will have to report as ordinary income,
as the shares vest, an amount equal to the excess of (a) the fair market value
of the shares on the vesting date over (b) the exercise price paid for the
shares. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise an amount
equal to the amount by which the fair market value of the purchased shares on
the date of exercise (determined as if the unvested shares were not subject to
the Company's repurchase right) exceeds the exercise price paid for those
shares. If the Section 83(b) election is made, the optionee will not recognize
any additional income as and when the shares vest.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee in connection with the
exercise of the non-statutory option. The deduction will in general be allowed
for the taxable year of the Company in which such ordinary income is recognized
by the optionee. The Company anticipates that the compensation deemed paid by
the Company upon the exercise of non-statutory options will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company.
11
Accounting Treatment
Under current accounting rules, option grants to employees with an
exercise price equal to the fair market value of the shares on the grant date
will not result in a direct compensation expense to the Company's earnings.
However, the fair value of those options and the related pro-forma net income or
loss are required to be disclosed in the notes to the Company's consolidated
financial statements. In addition, the number of outstanding options may be a
factor in determining the Company's earnings per share on a diluted basis.
Option grants made to independent consultants (but not non-employee Board
members) will result in a direct charge to the Company's reported earnings based
upon the fair value of the option measured initially as of the grant date of
that option and then subsequently on the vesting date of each installment of the
underlying option shares. Such charge will accordingly include the appreciation
in the value of the option shares over the period between the grant date of the
option and the vesting date of each installment of the option shares.
Under Financial Accounting Standards Board Interpretation No. 44, any
options which are repriced after December 15, 1998 will also trigger a direct
charge to the Company's reported earnings measured by the appreciation in value
of the underlying shares between the grant date of the option (or, if later, the
July 1, 2000 effective date of the Interpretation) and the date the option is
exercised for those shares.
New Plan Benefits
As of May 31, 2000, no options have been granted on the basis of the
15,000,000-share increase that is the subject of this Proposal. If the Proposal
is approved by the shareholders at the Annual Meeting, then each individual who
will continue to serve as a non-employee Board member will, on the date of the
Annual Meeting, receive an option grant under the Automatic Option Grant Program
to purchase 15,000 shares of Common Stock with an exercise price per share equal
to the closing selling price per share of Common Stock on that date.
Shareholder Approval
The affirmative vote of a majority of the shares represented and voting at
the Annual Meeting, together with the affirmative vote of the majority of the
required quorum, is required for approval of the proposed 15,000,000-share
increase to the 1999 Plan. If shareholder approval is not obtained, then any
options granted on the basis of the 15,000,000-share increase will terminate
without becoming exercisable for any of the shares of Common Stock subject to
those options, and no further options will be granted on the basis of such share
increase. However, the 1999 Plan will continue to remain in effect, and option
grants may continue to be made pursuant to the provisions of the 1999 Plan as in
effect prior to the proposed 15,000,000-share increase, until the available
reserve of Common Stock as last approved by the shareholders has been issued
pursuant to option grants made under the 1999 Plan.
Recommendation of the Board of Directors
The Board of Directors believes that the proposed share increase to the
1999 Plan is necessary in order to continue to provide equity incentives to
attract and retain the services of key employees, consultants and non-employee
Board members.
For this reason, the Board of Directors recommends that the shareholders
vote FOR the proposal to approve the additional 15,000,000-share increase to the
1999 Plan.
PROPOSAL NO. 3:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company is asking the shareholders to ratify the selection of Deloitte
and Touche LLP as the Company's independent public accountants for the fiscal
year ending April 27, 2001. The affirmative vote of a majority of the
outstanding voting shares of the Company present or represented and voting at
the Annual Meeting, together with the affirmative vote of the majority of the
required quorum, will be required to ratify the selection of Deloitte and Touche
LLP.
12
In the event the shareholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such a
change would be in the best interest of the Company and its shareholders.
A representative of Deloitte and Touche LLP is expected to be present at
the Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
The Board of Directors recommends that shareholders vote FOR the proposal
to ratify the selection of Deloitte and Touche LLP as the Company's independent
public accountants for the fiscal year ending April 27, 2001.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 31, 2000 by (i) each person
who is known by the Company to own beneficially more than five percent of the
Company's Common Stock, (ii) each of the Company's directors and executive
officers named in the Summary Compensation Table of the Executive Compensation
and Related Information section of this Proxy Statement and (iii) all current
executive officers and directors as a group.
Shares
Beneficially Owned(1)
5% Shareholders, Named Officers, Directors and ---------------------------
Executive Officers and Directors as a Group Number Percent
- ---------------------------------------------- ---------- --------
Fidelity Management & Research
One Federal Street
Boston, Massachusetts 02109 .............................................. 30,282,556 9.7%
Daniel J. Warmenhoven(2) ................................................... 7,854,402 2.5%
Jeffry R. Allen(3) ......................................................... 2,634,757 *
David Hitz(4) .............................................................. 10,098,390 3.2%
Thomas F. Mendoza(5) ....................................................... 4,063,226 1.3%
Charles E. Simmons(6) ...................................................... 809,971 *
Donald T. Valentine(7) ..................................................... 811,836 *
Sanjiv Ahuja(8) ............................................................ 428,000 *
Carol A. Bartz(9) .......................................................... 688,000 *
Larry R. Carter(10) ........................................................ 520,000 *
Michael R. Hallman(11) ..................................................... 1,553,648 *
Sachio Semmoto(12) ......................................................... 160,000 *
Robert T. Wall(13) ......................................................... 1,976,112 *
All current directors and executive officers as a group (12 persons) ....... 37,503,058 12.0%
- ----------
* Less than 1%
(1) Percentage of ownership is based on 312,660,752 shares of Common Stock
outstanding on May 31, 2000. Shares of Common Stock subject to stock
options which are currently exercisable or will become exercisable within
60 days after May 31, 2000 are deemed outstanding for computing the
percentage of the person or group holding such options, but are not deemed
outstanding for computing the percentage of any other person or group.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Includes 5,082,478 shares held by Daniel J. Warmenhoven & Charmaine A.
Warmenhoven, trustees to The Warmenhoven 1987 Revocable Trust UTA dated
12/16/87, as amended, of which Mr. Warmenhoven is a trustee and shares
voting and investment powers. Also includes 970,000 shares held by
Warmenhoven Ventures LP, and 110,000 shares held by
13
Warmenhoven Enterprises, limited partnerships of which the Warmenhoven
Management Trust is the general partner, of which Mr. Warmenhoven is a
trustee. Excludes 18,670 shares held by Charmaine A. Warmenhoven, Mr.
Warmenhoven's spouse, as separate property. Also excludes 1,972,000 shares
held by Richard A. Andre, trustee to The Warmenhoven 1995 Children's
Trust, under trust agreement dated 5/1/95, 112,800 shares held by Richard
A. Andre, trustee to the Daniel J. Warmenhoven 1991 Children's Trust, and
24,590 shares held by Curtis Barr and Richard A. Andre, trustees of the
Warmenhoven Family Irrevocable Trust, under trust agreement dated 4/10/00,
as Mr. Warmenhoven disclaims beneficial ownership over the shares held by
such trusts. Includes 362,690 shares of Common Stock issuable upon
exercise of currently exercisable options granted under the 1993 Plan and
1,257,251 shares of Common Stock issuable upon exercise of stock options
granted under the 1995 Plan which are currently exercisable or which will
become exercisable within 60 days after May 31, 2000.
(3) Includes 2,503,199 shares of Common Stock issuable upon exercise of
options granted under the 1995 Plan which are currently exercisable or
which will become exercisable within 60 days after May 31, 2000.
(4) Includes 800,000 shares of Common Stock issuable upon exercise of stock
options granted under the 1993 Plan and 442,990 shares of Common Stock
issuable upon exercise of stock options granted under the 1995 Plan, which
are currently exercisable or which will become exercisable within 60 days
after May 31, 2000.
(5) Does not include 177,177 shares held by Mr. Mendoza's spouse. Includes
354,655 shares of Common Stock issuable upon exercise of options granted
under the 1995 Plan which are currently exercisable or which will become
exercisable within 60 days after May 31, 2000.
(6) Includes 534,128 shares of Common Stock issuable upon exercise of options
granted under the 1995 Plan which are currently exercisable or which will
become exercisable within 60 days after May 31, 2000.
(7) Includes 35,232 shares held by Sequoia XXIV and 448,604 shares held in
trust by Donald T. Valentine, trustee to the Donald T. Valentine Family
Trust dated 4/29/67. Mr. Valentine, who is the Chairman of the Company's
Board of Directors, disclaims beneficial ownership of the shares held by
Sequoia XXIV. Mr. Valentine is an affiliate of the Sequoia entities and
may be deemed to share voting and investment power with respect to such
shares. Includes 288,000 shares of Common Stock issuable upon exercise of
currently exercisable stock options granted under the 1995 Plan and 40,000
shares of Common Stock issuable upon exercise of currently exercisable
stock options granted under the 1999 Plan.
(8) Includes 384,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted under the 1995 Plan and 40,000
shares of Common Stock issuable upon exercise of currently exercisable
options granted under the 1999 Plan.
(9) Includes 360,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted under the 1993 Plan, 288,000 shares
of Common Stock issuable upon exercise of currently exercisable options
granted under the 1995 Plan and 40,000 shares of Common Stock issuable
upon exercise of currently exercisable options under the 1999 Plan. Does
not include 242,792 shares held by Ms. Bartz' spouse.
(10) Includes 480,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted under the 1995 Plan and 40,000
shares of Common Stock issuable upon exercise of currently exercisable
options granted under the 1999 Plan.
(11) Includes 130,000 shares held by the Hallman Charitable Remainder Unitrust
dated 12/27/99 of which Mr. Hallman and his wife are co-trustees. Mr.
Hallman disclaims beneficial ownership over these shares except to the
extent of his and his wife's pecuniary interest. Includes 640,000 shares
of Common Stock issuable upon exercise of currently exercisable options
granted under the 1993 Plan, 288,000 shares of Common Stock issuable upon
exercise of currently exercisable options granted under the 1995 Plan and
40,000 shares of Common Stock issuable upon exercise of currently
exercisable options granted under the 1999 Plan.
(12) Includes 160,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted under the 1999 Plan.
(13) Includes 8,000 shares held as custodian for Jennifer C. Wall, 8,000 shares
held as custodian for Kristen E. Wall and 16,000 shares held by the Robert
T. Wall trust under the will of Katherine F. Wall for the benefit of
Jennifer C. Wall and Kristen E. Wall. Includes 480,000 shares of Common
Stock issuable upon exercise of currently exercisable options granted
under the 1993 Plan, 288,000 shares of Common Stock issuable upon exercise
of currently exercisable options granted under the 1995 Plan and 40,000
shares of Common Stock issuable upon exercise of currently exercisable
options granted under the 1999 Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission (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 ten percent
(10%) shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
14
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the fiscal year ended April 28, 2000, its officers,
directors and holders of more than 10% of the Company's Common Stock complied
with all Section 16(a) filing requirements, except that a Form 3 filing by Dr.
Semmoto was filed late.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary of Cash and Certain Other Compensation
The following Summary Compensation Table sets forth the compensation
earned by the Company's Chief Executive Officer and the four other most highly
compensated executive officers for services rendered in all capacities to the
Company and its subsidiaries for the 2000, 1999 and 1998 fiscal years. The
listed individuals will be hereinafter referred to as the "Named Officers."
No other executive officer who would have otherwise been includible in
such table on the basis of salary and bonus earned for the 2000 fiscal year has
resigned or terminated employment during that fiscal year.
Summary Compensation Table
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
------------------------------- Underlying All Other
Name and Principal Position Years Salary($) Bonus($) Options() Compensation($)(1)
- --------------------------- ----- --------- -------- ------------ ------------------
Daniel J. Warmenhoven ....................... 2000 $347,115 $397,961 1,602,648(2) $ 941
Chief Executive Officer 1999 323,077 250,000 2,006,668(3) 1,392
1998 292,789 102,000 1,297,776(4) 1,392
Jeffry R. Allen ............................. 2000 247,115 142,129 900,000(2) 823
Executive Vice President Finance and 1999 222,692 110,000 323,600(3) 1,376
Operations and Chief Financial Officer 1998 193,077 53,000 9,600(4) 1,156
and Secretary
David Hitz .................................. 2000 185,385 117,123 702,648(2) 357
Executive Vice President Engineering 1999 148,078 65,000 600,000 325
1998 120,860 19,600 -- 231
Thomas F. Mendoza ........................... 2000 227,692 163,448 1,102,648(2) 929
President 1999 205,385 125,000 410,000(3) 1,255
1998 150,000 278,228 586,664(4) 94,830(5)
Charles E. Simmons .......................... 2000 180,000 89,541 100,000 999
Vice President Corporate Development 1999 179,077 80,000 360,000 1,255
1998 167,385 45,700 -- 1,217
- ----------
(1) Except as noted in item (5), represents the cost of term life insurance.
(2) Includes options for the following numbers of shares granted on January 3,
2000 pursuant to the Salary Investment Option Grant Program of the 1995
Plan: 2,648 to Mr. Warmenhoven; 2,648 to Mr. Hitz and 2,648 to Mr.
Mendoza.
(3) Includes options for the following numbers of shares granted on January 4,
1999 pursuant to the Salary Investment Option Grant Program of the 1995
Plan: 6,668 to Mr. Warmenhoven; 3,600 to Mr. Allen and 10,000 to Mr.
Mendoza.
(4) Includes options for the following numbers of shares granted on January 5,
1998 pursuant to the Salary Investment Option Grant Program of the 1995
Plan: 17,776 to Mr. Warmenhoven; 9,600 to Mr. Allen; and 26,664 to Mr.
Mendoza.
(5) Includes $94,000 relocation allowance.
15
Stock Options
The following table contains information concerning the stock option
grants made to each of the Named Officers for the 2000 fiscal year. No stock
appreciation rights were granted to those individuals during such year.
Individual Grant Potential Realizable
------------------------------------- Value of Assumed Annual
Number of Percent of Rates of Stock
Securities Total Options Market Price Appreciation for
Underlying Granted to Exercise Price on Option Term($)(2)
Options Employees in Price Date of Expiration ------------------------------------
Name Granted Fiscal Year ($/Share)(1) Grant Date 0% 5% 10%
- ---- ----------- ------------- ------------ ------- ---------- ------- ----------- -----------
Daniel J. Warmenhoven ...... 1,100,000(3) 4.36% $ 11.25 $ 11.25 5/23/09 $ -- $ 7,782,571 $19,722,563
500,000(4) 1.98% 53.91 53.91 1/31/10 -- 16,945,043 42,938,684
2,648(5) 0.01% 14.17 42.50 1/2/10 75,026 145,777 254,309
Jeffry R. Allen ............ 600,000(3) 2.38% 11.25 11.25 5/23/09 -- 4,245,039 10,757,762
300,000(4) 1.19% 53.91 53.91 1/31/10 -- 10,167,026 25,763,211
David Hitz ................. 400,000(3) 1.59% 11.25 11.25 5/23/09 -- 2,830,026 7,171,841
300,000(4) 1.19% 53.91 53.91 1/31/10 -- 10,167,026 25,763,211
2,648(5) 0.01% 14.17 42.50 1/2/10 75,026 145,777 254,309
Thomas F. Mendoza .......... 800,000(3) 3.17% 11.25 11.25 5/23/09 -- 5,660,052 14,343,682
300,000(4) 1.19% 53.91 53.91 1/31/10 -- 10,167,026 25,763,211
2,648(5) 0.01% 14.17 42.50 1/2/10 75,026 145,777 254,309
Charles E. Simmons ......... 100,000(4) 0.40% 53.91 53.91 1/31/10 -- 3,389,009 8,587,737
- ----------
(1) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares.
(2) There is no assurance provided to the option holder or any other holder of
the Company's securities that the actual stock price appreciation over the
10-year option term will be at the 0%, 5% and 10% assumed annual rates of
compounded stock price appreciation.
(3) The options were granted under the Discretionary Option Grant Program of
the 1995 Plan on May 24, 1999. Each option has a maximum term of 10 years
measured from the grant date, subject to earlier termination upon the
optionee's cessation of service with the Company. The options granted to
Messrs. Warmenhoven, Hitz and Mendoza will vest as to twenty-five percent
(25%) of the shares upon the optionee's completion of one year of service
measured from the grant date and with respect to the balance of the shares
in a series of equal monthly installments over the next thirty-six (36)
months of service thereafter. The option granted to Mr. Allen will vest as
to ten percent (10%) of the shares upon his completion of one year of
service as measured from the grant date; twenty percent (20%) of the
shares in equal monthly installments over the second twelve (12) months of
service as measured from the grant date; thirty percent (30%) of the
shares in equal monthly installments over the third twelve (12) months of
service as measured from the grant date; and forty percent (40%) of the
shares in equal monthly installments over the fourth twelve (12) months of
service as measured from the grant date.
(4) The options were granted under the Discretionary Option Grant Program of
the 1999 Plan on February 1, 2000. Each option has a maximum term of 10
years measured from the grant date, subject to earlier termination upon
the optionee's cessation of service with the Company. The options granted
to Messrs. Warmenhoven, Allen, Hitz and Mendoza will vest as to ten
percent (10%) of the shares upon the optionee's completion of one year of
service measured from the grant date; twenty percent (20%) of the shares
in equal monthly installments over the second twelve (12) months of
service as measured from the grant date; thirty percent (30%) of the
shares in equal monthly installments over the third twelve (12) months of
service as measured from the grant date; and forty percent (40%) of the
shares in equal monthly installments over the fourth twelve (12) months of
service as measured from the grant date. The option granted to Mr. Simmons
will vest as to twenty percent (20%) of the shares upon the optionee's
completion of one year of service measured from the grant date; twenty
percent (20%) of the shares in equal monthly installments over the second
twelve (12) months of service as measured from the grant date and the
balance of the shares in equal monthly installments over the twenty-four
(24) months of service thereafter.
(5) Pursuant to the Salary Investment Option Grant Program of the 1995 Plan,
Messrs. Warmenhoven, Hitz and Mendoza elected to reduce their base
salaries for the 2000 calendar year by $75,000 each, and to apply such
salary reduction amount to pre-payment of two-thirds (2/3) of the exercise
price of special options granted under the Salary Investment Option Grant
Program. The options were granted on January 3, 2000 at an exercise price
of $14.17 per share, which amount is equal to one-third (1/3) of the fair
market value of the underlying shares of Common Stock on the date of
grant. The portion of base salary which each individual elected to apply
to the Salary Investment Option Grant Program is equal to the remaining
two-thirds (2/3) of the fair market value of such shares on the date of
grant ($28.33 per share). The options vest in twelve (12) equal
installments upon the optionee's completion of each month of service
during the 2000 calendar year. Each option has a maximum term of 10 years
measured from the grant date.
16
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information concerning option exercises and
option holdings for the 2000 fiscal year by each of the Named Officers. No stock
appreciation rights were exercised during such year or were outstanding at the
end of the year.
Number of Securities Value of Unexercised
Number of Underlying Unexercised in-the-Money Options
Shares Options at FY-End at FY-End(2)
Acquired on Value ----------------------------- -------------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ------------ -------------
Daniel J. Warmenhoven ....... 311,788 $ 7,840,849 1,267,998(3) 4,108,658 $ 92,118,939 $254,491,177
Jeffry R. Allen ............. 430,000 10,678,180 2,203,199 1,600,001 157,456,830 93,390,104
David Hitz .................. 0 0 1,088,162 1,014,486 78,600,693 52,900,080
Thomas F. Mendoza ........... 779,985 27,009,971 38,161 1,575,334 2,694,892 89,748,157
Charles E. Simmons .......... 459,481 11,957,345 698,005 362,514 50,025,472 20,359,216
- ----------
(1) Based on the fair market value of the purchased option shares at the time
of exercise less the option exercise price paid for those shares.
(2) Based on the fair market value of the shares at the end of the 2000 fiscal
year ($73.94 per share) less the option exercise price payable for those
shares.
(3) A portion of these options were fully exercisable as of the fiscal
year-end, but any shares purchased thereunder are subject to repurchase by
the Company, at the original option exercise price paid per share, should
the optionee leave the Company prior to vesting in the shares. As of April
28, 2000, Mr. Warmenhoven had vested in 986,840 shares.
17
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
currently comprised of two non-employee directors, Carol A. Bartz and Robert T.
Wall, and was formed in November of 1995, in anticipation of the initial public
offering of the Company's Common Stock.
For the 2000 fiscal year, all compensation decisions with respect to base
salaries and bonuses for the Company's executive officers were made by the
Compensation Committee. The Committee made its decisions primarily on the basis
of the Committee's understanding of the compensation practices of
similarly-sized companies in the industry and fixed the compensation package of
each executive officer at a level which was competitive with those practices.
The Committee administers the Company's compensation policies and programs
and has primary responsibility for executive compensation matters, including the
establishment of the base salaries of the Company's executive officers, the
approval of individual bonuses and bonus programs for executive officers and the
administration of certain employee benefit programs. In addition, the Committee
has exclusive responsibility for administering the Company's 1999 Plan, under
which stock option grants and direct stock issuances may be made to executive
officers and other employees. The following is a summary of policies which the
Committee applies in setting the compensation levels for the Company's executive
officers.
General Compensation Policy. The overall policy of the Committee is to
offer the Company's executive officers competitive compensation opportunities
based upon their personal performance, the financial performance of the Company
and their contribution to that performance. One of the primary objectives is to
have a substantial portion of each executive officer's compensation contingent
upon the Company's financial success as well as upon such executive officer's
own level of performance. Each executive officer's compensation package is
comprised of three elements: (i) base salary, which is determined on the basis
of the individual's position and responsibilities with the Company, the level of
his or her performance and competitive salary levels, (ii) incentive performance
awards payable in cash and based upon a formula which takes into account Company
and individual performance and (iii) long-term stock-based incentive awards
designed to strengthen the mutuality of interests between the executive officers
and the Company's shareholders. Generally, as an executive officer's level of
responsibility increases, a greater portion of that individual's total
compensation becomes dependent upon the Company's performance and stock price
appreciation rather than base salary.
Factors. The primary factors taken into consideration in establishing the
components of each executive officer's compensation package for the 2000 fiscal
year are summarized below. However, the Committee may, in its discretion, apply
entirely different factors, such as different measures of financial performance,
for future fiscal years.
Base Salary. In setting the base salary for each executive officer, the
Committee reviews published compensation survey data for its industry. The base
salary for each officer is designed to be competitive with the salary levels for
comparable positions in the published surveys as well as to reflect the
individual's personal performance and internal alignment considerations. The
relative weight given to each factor varies with each individual in the sole
discretion of the Committee. For the 2000 fiscal year, the base salary of the
Company's executive officers ranged from the fiftieth percentile to the
sixty-fifth percentile of the base salary levels in effect for comparable
positions in the surveyed compensation data.
Incentive Compensation. For the 2000 fiscal year, an incentive
compensation program was established pursuant to which each executive officer
earned a bonus on the basis of the Company's achievement of certain operating
income objectives and his or her individual performance. The bonus amount was
tied to a percentage of each executive officer's base salary and was earned on
the basis of the Company's actual financial performance in comparison to the
Company's business plan as measured in terms of operating income, with
additional consideration given to the attainment of individual goals. However,
no bonus would have been earned if the Company's actual operating income had
been less than 50% of the plan. The Company's financial performance exceeded the
plan and, accordingly, the executive officers were awarded the bonuses indicated
for them in the Summary Compensation Table which appears earlier in this Proxy
Statement.
18
Long-Term Stock-Based Incentive Compensation. From time to time, the
Committee makes option grants to the Company's executive officers under the 1999
Plan. The grants are designed to align the interests of each executive officer
with those of the shareholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an equity
stake in the business. Each grant allows the officer to acquire shares of the
Company's Common Stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to ten (10) years), thus providing a
return to the executive officer only if the market price of the shares
appreciates over the option term and the officer continues in the Company's
employ. The size of the option grant to each executive officer is designed to
create a meaningful opportunity for stock ownership and is based upon the
executive officer's current position with the Company, internal comparability
with option grants made to other Company executives, the executive officer's
current level of performance and the executive officer's potential for future
responsibility and promotion over the option term. The Committee also takes into
account the number of vested and unvested options held by the executive officer
in order to maintain an appropriate level of equity incentive for that
individual. However, the Committee does not intend to adhere to any specific
guidelines as to the relative option holdings of the Company's executive
officers.
CEO Compensation. The compensation payable to Mr. Warmenhoven, the
Company's Chief Executive Officer during fiscal year 2000, was determined by the
Compensation Committee. His base salary was set at a level which the Committee
felt would be competitive with the base salary levels in effect for chief
executive officers at similarly-sized companies within the industry and was at
approximately the fiftieth percentile of the published surveys. Based upon the
Committee's evaluation of the Company's achievement of certain performance goals
tied to operating income and Mr. Warmenhoven's individual performance, the
Committee awarded Mr. Warmenhoven a bonus of $397,961 for the 2000 fiscal year.
The options granted to Mr. Warmenhoven during the 2000 fiscal year were in
recognition of his personal performance and leadership role with the Company and
were intended to place a significant portion of his total compensation at risk
because the value of those grants will depend upon the future appreciation of
the Company's Common Stock.
Compliance With Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction
to publicly-held companies for compensation paid to certain executive officers,
to the extent that compensation exceeds $1 million per officer in any year. The
compensation paid to the Company's executive officers for the 2000 fiscal year
did not exceed the $1 million limit per officer, and it is not expected the
compensation to be paid to the Company's executive officers for the 2001 fiscal
year will exceed that limit. In addition, the 1995 Plan and 1999 Plan are
structured so that any compensation deemed paid to an executive officer in
connection with the exercise of his or her outstanding options under each such
plan will qualify as performance-based compensation which will not be subject to
the $1 million limitation. Because it is very unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, the Committee has decided
at this time not to take any other action to limit or restructure the elements
of cash compensation payable to the Company's executive officers. The Committee
will reconsider this decision should the individual compensation of any
executive officer ever approach the $1 million level.
Submitted by the Compensation Committee of
the Board of Directors:
CAROL A. BARTZ
ROBERT T. WALL
19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors is
comprised of Ms. Bartz and Mr. Wall. Neither of these individuals was at any
time during the 2000 fiscal year, or at any other time, an officer or employee
of the Company. No executive officer of the Company serves as a member of the
board of directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL AGREEMENTS
The Company does not presently have any employment contracts in effect
with the Chief Executive Officer or any of the other executive officers named in
the Summary Compensation Table.
The options granted to Daniel J. Warmenhoven, Chief Executive Officer,
under the Company's 1993 Stock Option/Stock Issuance Plan, the 1995 Stock
Incentive Plan and the 1999 Stock Option Plan, to Jeffry R. Allen, Chief
Financial Officer and Executive Vice President and to Thomas F. Mendoza,
President, under the 1995 Stock Incentive Plan and the 1999 Stock Option Plan,
will immediately vest in full in the event of their termination of employment in
connection with an acquisition of the Company by merger or asset sale. The
options granted to Messrs. Warmenhoven, Allen and Mendoza on January 4, 1999 and
January 3, 2000 under the Salary Investment Option Grant Program of the 1995
Plan will immediately accelerate in full upon an acquisition of the Company by
merger or asset sale or other change in control of the Company.
In addition, each outstanding option held by the Chief Executive Officer,
the other executive officers and the employees of the Company under the
Discretionary Option Grant Program of the 1995 Plan or the 1999 Plan will
automatically accelerate in full, and all unvested shares of Common Stock held
by such individuals under the 1995 Plan or the 1999 Plan will immediately vest
in full, upon an acquisition of the Company by merger or asset sale, except to
the extent such options are to be assumed by, and the Company's repurchase
rights with respect to those shares are to be assigned to, the successor
corporation. In addition, the Compensation Committee as Plan Administrator of
the 1995 Plan and the 1999 Plan will have the authority to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding options
held by the Chief Executive Officer or any other executive officer, and the
shares of Common Stock subject to direct issuances held by such individual, in
connection with the termination of the officer's employment following (i) a
merger or asset sale in which those options are assumed and the Company's
repurchase rights with respect to unvested shares are assigned, or (ii) certain
other changes in control or ownership of the Company.
CERTAIN TRANSACTIONS
Larry R. Carter, a director of the Company, is the Senior Vice President
Finance and Administration, Chief Financial Officer and a member of the Board of
Directors of Cisco Systems, Inc. During the 2000 fiscal year, the Company sold
materials to Cisco Systems, Inc. having an aggregate value of $9,053,121.
Sanjiv Ahuja, a director of the Company, was until March, 2000, the
President and Chief Operating Officer of Telcordia Technologies, Inc. During the
2000 fiscal year, the Company sold materials to Telcordia Technologies having an
aggregate value of $1,026,399.
Daniel J. Warmenhoven, Chief Executive Office and a director of the
Company, serves on the Board of Directors of Redback Networks, Inc. During the
2000 fiscal year, the Company sold materials to Redback Networks, Inc. having an
aggregate value of $283,304.
The foregoing transactions were negotiated by the Company on an
arms-length basis, and were made on terms no less favorable to the Company than
could be obtained from an unaffiliated third party.
20
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
the Common Stock of the Company with that of the Nasdaq Stock Market US Index, a
broad market index published by the National Association of Securities Dealers,
Inc., and the Chase H & Q Technology Index compiled by Chase H & Q. The
comparison for each of the periods assumes that $100 was invested on November
21, 1995 (the date of the Company's initial public offering) in the Company's
Common Stock, the stocks included in the Nasdaq Stock Market US Index and the
stocks included in the Chase H & Q Technology Index. These indices, which
reflect formulas for dividend reinvestment and weighing of individual stocks, do
not necessarily reflect returns that could be achieved by individual investors.
COMPARISON OF 53 MONTH CUMULATIVE TOTAL RETURN*
AMONG NETWORK APPLIANCE, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE CHASE H & Q TECHNOLOGY INDEX
[The following table was depicted as a line graph in the printed material.]
-------------------------------------------------------------------------
11/21/1995 1/96 4/96 7/96 10/96 1/97 4/97 7/97 10/97
NETWORK APPLIANCE, INC. 100.00 113.89 118.52 88.89 129.63 189.81 107.87 161.57 186.11
NASDAQ STOCK MARKET (U.S.) 100.00 103.44 116.67 106.15 119.35 135.63 123.50 156.65 157.06
CHASE H & Q TECHNOLOGY 100.00 100.15 114.50 96.68 112.75 135.80 121.25 163.37 152.33
-----------------------------------------------------------------------------
1/98 4/98 7/98 10/98 1/99 4/99 7/99 10/99 1/00 4/00
NETWORK APPLIANCE, INC. 223.15 267.13 309.26 405.56 785.19 745.37 807.41 1096.30 2974.07 4381.51
NASDAQ STOCK MARKET (U.S.) 160.08 184.66 184.40 175.76 250.53 253.10 263.51 296.90 391.32 385.24
CHASE H & Q TECHNOLOGY 153.03 180.90 176.02 171.83 254.29 241.17 284.58 337.26 477.95 502.70
* $100 INVESTED ON 11/21/95 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING APRIL 30.
- --------------------------------------------------------------------------------
Cumulative Total Return
---------------------------------------
11/21/95 4/96 4/97 4/98 4/99 4/00
-------- ---- ---- ---- ---- -----
NETWORK APPLIANCE, INC. .............. 100 118 108 267 745 4,381
NASDAQ STOCK MARKET (U.S.) ........... 100 117 123 185 253 385
CHASE h&q TECHNOLOGY ................. 100 114 121 181 241 503
- --------------------------------------------------------------------------------
21
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the preceding Compensation Committee Report on Executive
Compensation and the preceding performance graph shall not be incorporated by
reference into any such filings; nor shall such Report or graph be incorporated
by reference into any future filings.
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented
for consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission on or about July 12, 2000. Shareholders may obtain a copy of
this report, without charge, by writing to Jeffry R. Allen, Executive Vice
President Finance and Operations and Chief Financial Officer of the Company at
the Company's principal executive offices located at 495 East Java Drive,
Sunnyvale, California 94089.
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's Annual Meeting of Shareholders to be held in 2001 must be received by
April 27, 2001 in order to be included in the Proxy Statement and proxy relating
to that meeting.
In addition, the proxy solicited by the Board of Directors for the Annual
Shareholders Meeting in calendar year 2001 will confer discretionary authority
to vote on any shareholder proposal presented at that meeting if the Company is
provided with notice of such proposal no later than July 20, 2001.
BY ORDER OF THE BOARD OF DIRECTORS
DANIEL. J. WARMENHOVEN
Chief Executive Officer
August 28, 2000
22
NETWORK APPLIANCE, INC.
1999 STOCK OPTION PLAN
AS AMENDED AND RESTATED THROUGH AUGUST 17, 2000
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Option Plan is intended to promote the interests of
Network Appliance, Inc., a California corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
All share numbers in the document reflect (i) the 2-for-1 split of
the Common Stock effected on December 20, 1999 and (ii) the 2-for-1 split of the
Common Stock effected on March 22, 2000.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator,
be granted options to purchase shares of Common Stock, and
(ii) the Automatic Option Grant Program under which
non-employee Board members shall automatically receive option grants
at periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Four shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant Program with respect to Section 16
Insiders. Administration of the Discretionary Option Grant Program with respect
to all other eligible
persons may, at the Board's discretion, be vested in the Primary Committee or a
Secondary Committee, or the Board may retain the power to administer that
program with respect to all such persons.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant Program and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant Program under its
jurisdiction or any stock option thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants under the Plan.
E. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant Program are as follows:
(i) Employees, and
(ii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine which eligible persons are to receive
option grants under the Discretionary Option Grant Program, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding.
2
C. Only non-employee Board members shall be eligible to participate
in the Automatic Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 28,200,000
shares. Such authorized share reserve is comprised of (i) the 13,200,000 shares
of Common Stock initially authorized for issuance under the Plan plus (ii) an
additional increase of 15,000,000 shares authorized by the Board on August 17,
2000, subject to shareholder approval at the 2000 Annual Meeting. Such
authorized share reserve shall be in addition to the number of shares of Common
Stock reserved for issuance under the Corporation's 1995 Stock Incentive Plan
and the Corporation's Special Non-Officer Stock Option Plan, and share issuances
under this Plan shall not reduce or otherwise affect the number of shares of
Common Stock available for issuance under the 1995 Stock Incentive Plan or the
Special Non-Officer Stock Option Plan. In addition, share issuances under such
plans shall not reduce or otherwise affect the number of shares of Common Stock
available for issuance under this Plan.
B. No one person participating in the Plan may receive stock options
under the Plan for more than 3,000,000 shares of Common Stock in the aggregate
per calendar year. Before the split of the Common Stock which occurred in March
2000. such limit was 1,500,000 shares.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation/regrant provisions of Article
Two. In addition, any unvested shares issued under the Plan and subsequently
repurchased by the Corporation, at the option exercise price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants under the Plan. Should the exercise price of an option
under the Plan be paid with shares of Common Stock or should shares of Common
Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of exercised option shares under the Plan, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised or the
gross number of exercised option shares which vest, and not by the net number of
shares of Common Stock issued to the holder of such option or exercised option
shares.
3
D. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the maximum number and/or class of securities for which any
one person may be granted stock options per calendar year, (iii) the number
and/or class of securities for which automatic option grants are to be made
subsequently under the Automatic Option Grant Program and (iv) the number and/or
class of securities and the exercise price per share in effect under each
outstanding option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
4
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide
irrevocable instructions to (a) a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by
reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
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C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by
the Plan Administrator and set forth in the documents
evidencing the option, but no such option shall be exercisable
after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently by
the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of
descent and distribution.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of
Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to
the extent the option is not otherwise at that time
exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee
shall terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of
Service from the period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the
option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect
to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation
of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. Shareholder Rights. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
6
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of
inheritance following the Optionee's death. However, Non-Statutory Options may
be assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's family or to a trust established exclusively for one
or more such family members or the Optionee's former spouse, to the extent such
assignment is in connection with the Optionee's estate plan, or to the
Optionee's former spouse pursuant to a domestic relations order. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option immediately
prior to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Dollar Limitation. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% Shareholder. If any Employee to whom an Incentive Option is
granted is a 10% Shareholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
7
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Each option, to the extent outstanding under the Plan at the time
of a Corporate Transaction but not otherwise exercisable for all the option
shares, shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not become
exercisable on such an accelerated basis if and to the extent: (i) such option
is, in connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or replaced with a comparable option to purchase
shares of the capital stock of the successor corporation (or parent thereof),
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing on the unvested option
shares at the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule applicable to those option
shares or (iii) the acceleration of such option is subject to other limitations
imposed by the Plan Administrator at the time of the option grant. The
determination of option comparability under clause (i) above shall be made by
the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options under
the Plan per calendar year.
E. The Plan Administrator shall have full power and authority to
grant options under the Plan which will automatically accelerate in whole or in
part in the event the Optionee's Service subsequently terminates by reason of an
Involuntary Termination within a designated period (not to exceed twelve (12)
months) following the effective date of any Corporate Transaction in which those
options are assumed or replaced and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully-vested shares until the
8
earlier of (i) the expiration of the option term or (ii) the expiration of the
one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation's outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate in whole or in part, and the shares subject to those terminated rights
shall accordingly vest at that time.
F. The Plan Administrator shall have full power and authority to
grant options under the Plan which will automatically accelerate in whole or in
part in the event the Optionee's Service subsequently terminates by reason of an
Involuntary Termination within a designated period (not to exceed twelve (12)
months) following the effective date of any Change in Control. Each option so
accelerated shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one
(1)-year period measured from the effective date of the Involuntary Termination.
In addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately terminate
in whole or in part, and the shares subject to those terminated rights shall
accordingly vest at that time.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Qualified
Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution new options covering the same or different number of shares of
Common Stock but with an exercise price per share based on the Fair Market Value
per share of Common Stock on the new grant date. However, any such option
cancellation/regrant program shall be subject to the following two limitations:
(i) only options held by Employees who are neither executive
officers of the Corporation nor members of the Board may be so
cancelled and regranted; and
(ii) the total number of shares subject to options which are
so cancelled and regranted from time to time pursuant to this
Section IV shall not in the aggregate exceed ten percent (10%) of
the total number of shares of Common Stock authorized for issuance
under the Plan.
9
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
The following provisions reflect the changes to the Automatic Option
Grant Program approved by the Board on August 17, 2000 to be effective as of the
2000 Annual Shareholders Meeting. The Board reduced the number of shares of
Common Stock for which option grants are to be made to new and continuing
non-employee Board members under the Automatic Option Grant Program from 160,000
shares (as adjusted to reflect the two splits of the Common Stock which have
occurred since the implementation of the Plan) to 40,000 shares for each new
non-employee Board member and from 40,000 shares (as adjusted to reflect the two
splits of the Common Stock which have occurred since the implementation of the
Plan) to 15,000 shares for each continuing non-employee Board member.
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a
non-employee Board member on or after the date of the 2000 Annual Shareholders
Meeting shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 40,000 shares of Common Stock,
provided such individual has not previously been in the employ of the
Corporation (or any Parent or Subsidiary).
2. On the date of each Annual Shareholders Meeting, beginning
with the 2000 Annual Meeting, each individual who is to continue to serve as a
non-employee Board member shall automatically be granted a Non-Statutory Option
to purchase 15,000 shares of Common Stock, provided such individual has served
as a non-employee Board member for at least six (6) months. There shall be no
limit on the number of such 15,000-share option grants any one non-employee
Board member may receive over his or her period of Board service.
3. Shareholder approval of the 15,000,000-share increase to
the Plan at the 2000 Annual Shareholders Meeting shall constitute pre-approval
of each option grant made under this Automatic Option Grant Program on or after
the date of that Annual Meeting and the subsequent exercise of that option in
accordance with the terms and conditions of this Article Three and the stock
option agreement evidencing such grant.
4. The Automatic Option Grant Program under this Plan
supersedes and replaces the Automatic Option Grant Program previously in effect
for the non-employee Board members under the Corporation's 1995 Stock Incentive
Plan. That latter program terminated upon shareholder approval of the Plan at
the 1999 Annual Shareholders Meeting, and no further option grants shall be made
to the non-employee Board members under that program.
10
All options granted to the non-employee Board members on or after the date of
the 1999 Annual Shareholders Meeting, whether upon their initial election or
appointment to the Board or upon their re-election at one or more of the
Corporation's subsequent Annual Shareholder Meetings, shall be effected solely
and exclusively in accordance with the terms and provisions of this Article
Three, as in effect from time to time.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 40,000-share grant shall vest,
and the Corporation's repurchase right shall lapse, in a series of four (4)
successive equal annual installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date. Each annual 15,000-share grant shall vest, and the Corporation's
repurchase right shall lapse, upon the Optionee's continuation in Board service
through the day immediately preceding the next Annual Shareholders Meeting
following the option grant date.
E. Effect of Termination of Board Service. The following provisions
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of the Optionee's death,
the personal representative of the Optionee's estate or the person
or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the
date of such cessation of Board service in which to exercise each
such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable at
the time of the Optionee's cessation of Board service.
11
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option
may, during the twelve (12)-month exercise period following such
cessation of Board service, be exercised for all or any portion of
those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than
death or Permanent Disability, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable
for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. The shares of Common Stock subject to each outstanding option at
the time of a Corporate Transaction but not otherwise vested shall automatically
vest in full so that each such option shall, immediately prior to the effective
date of that Corporate Transaction, become fully exercisable for all of the
shares of Common Stock at the time subject to such option and may be exercised
for all or any portion of those shares as fully-vested shares of Common Stock.
Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
B. The shares of Common Stock subject to each outstanding option at
the time of a Change in Control but not otherwise vested shall automatically
vest in full so that each such option shall, immediately prior to the effective
date of that Change in Control, become fully exercisable for all of the shares
of Common Stock at the time subject to such option and may be exercised for all
or any portion of those shares as fully-vested shares of Common Stock. Each such
option shall remain exercisable for such fully-vested option shares until the
expiration or sooner termination of the option term.
C. All repurchase rights of the Corporation outstanding under the
Automatic Option Grant Program at the time of a Corporate Transaction or Change
in Control shall automatically terminate at that time, and the shares of Common
Stock subject to those terminated rights shall immediately vest.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
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E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE FOUR
MISCELLANEOUS
I. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of stock options or the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Withholding Taxes to which such holders
become subject in connection with the exercise of their options or the vesting
of their shares. Such right may be provided to any such holder in either or both
of the following formats:
(i) Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such
shares, a portion of those shares with an aggregate Fair Market
Value equal to the percentage of the Withholding Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
(ii) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or
the shares vest, one or more shares of Common Stock previously
acquired by such holder (other than in connection with the option
exercise or share vesting triggering the Withholding Taxes) with an
aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%))
designated by the holder.
II. EFFECTIVE DATE AND TERM OF THE PLAN
The Plan became effective on the Plan Effective Date and shall
remain in effect until the earliest of (i) August 16, 2009, (ii) the date on
which all shares available for issuance under the Plan shall have been issued as
fully-vested shares pursuant to option exercises under the Plan or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all outstanding stock options and
unvested stock issuances made pursuant to option exercises shall continue to
have force and effect in accordance with the provisions of the documents
evidencing such options or issuances.
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III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects, subject to any shareholder
approval which may be required pursuant to applicable laws or regulations,
provided, however, that the Board may not, without shareholder approval, (i)
increase the number of shares of Common Stock authorized for issuance under the
Plan, or (ii) materially increase the benefits offered to participants under the
1999 Plan. No amendment or modification shall adversely affect any rights and
obligations with respect to options or unvested shares of Common Stock at the
time outstanding under the Plan unless the Optionee or holder of such unvested
shares consents to such amendment or modification.
B. The Plan was amended on August 17, 2000 to increase the number of
shares of Common Stock authorized for issuance under the Plan by an additional
15,000,000 shares. The amendment is subject to shareholder approval at the 2000
Annual Shareholders Meeting, and no option grant shall be made on the basis of
the 15,000,000-share increase, unless and until such shareholder approval is
obtained.
C. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under such program are held in escrow until there is obtained shareholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock available for issuance under the Plan. If such shareholder approval is not
obtained within twelve (12) months after the date the first such excess grants
are made, then (i) any unexercised options granted on the basis of such excess
shares shall terminate and cease to be outstanding and (ii) the Corporation
shall promptly refund to the Optionees the exercise price paid for any excess
shares issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
IV. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan and the issuance of any shares of Common Stock upon the exercise of
such option shall be subject to the Corporation's procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the options granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
15
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
grant program in effect under Article Three of the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant to
a tender or exchange offer made directly to the Corporation's
shareholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning
of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time
the Board approved such election or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. Corporation shall mean Network Appliance, Inc., a California
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Network Appliance, Inc. which shall by appropriate
action adopt the Plan.
A-1
H. Discretionary Option Grant Program shall mean the discretionary
option grant program in effect under Article Two of the Plan.
I. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in
the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
L. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
M. Involuntary Termination shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his
or her level of compensation (including base salary, fringe benefits
and participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is
effected by the Corporation without the individual's consent.
A-2
N. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any Parent
or Subsidiary).
O. 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.
P. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
Q. Optionee shall mean any person to whom an option is granted under
the Plan.
R. Parent shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. Permanent Disability or Permanently Disabled shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for the purposes of the Automatic Option
Grant Program, Permanent Disability or Permanently Disabled shall mean the
inability of the non-employee Board member to perform his or her usual duties as
a Board member by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.
T. Plan shall mean the Corporation's 1999 Stock Option Plan, as set
forth in this document.
U. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under such program with respect to the persons under
its jurisdiction.
V. Plan Effective Date shall mean August 17, 1999, the date on which
the Board adopted the Plan.
W. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
A-3
X. Secondary Committee shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant Program with respect to eligible persons other than Section 16 Insiders.
Y. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
Z. Service shall mean the provision of services to the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
AA. Stock Exchange shall mean either the American Stock Exchange or
the New York Stock Exchange.
BB. Subsidiary shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
CC. 10% Shareholder shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
DD. Withholding Taxes shall mean the Federal, state and local income
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock becomes subject in connection with the exercise
of those options or the vesting of those shares.
A-4
PROXY PROXY
NETWORK APPLIANCE, INC.
This Proxy is Solicited on Behalf of the Board of Directors.
Daniel J. Warmenhoven and Jeffry R. Allen or either of them, are hereby
appointed as the lawful agents and proxies of the undersigned (with all powers
the undersigned would possess if personally present, including full power of
substitution) to represent and to vote all shares of capital stock of Network
Appliance, Inc. (the "Company") which the undersigned is entitled to vote at the
Company's Annual Meeting of Shareholders on October 11, 2000, and at any
adjournments or postponements thereof as follows:
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
NETWORK APPLIANCE, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
1.ELECTION OF DIRECTORS: Nominees: For Withhold For All
All All Except
01 Daniel J. Warmenhoven 02 Donald T. Valentine |_| |_| |_|
03 Sanjiv Ahuja 04 Carol A. Bartz
05 Larry R. Carter 06 Michael R. Hallman
07 Sachio Sammoto 08 Robert T. Wall
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
such name or names in the space provided below.)
_______________________________________________
2.Approve a 15,000,000 share increase in the maximum For Against Abstain
number of shares of common stock authorized for |_| |_| |_|
issuance under the Company's 1999 Stock Option Plan.
3. Ratify the appointment of Deloutte and Touche LLP For Against Abstain
as independent accountants of the Company for the |_| |_| |_|
fiscal year ending April 27, 2001.
4. Transact any other business which may properly come before the meeting and
any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR each of the above proposals. This
proxy will be voted as directed, or, if no direction is indicated, will be voted
FOR each of the above proposals and at the discretion of the persons named as
proxies, upon such other matters as may properly come before the meeting. This
proxy may be revoked at any time before it is voted.
Dated: _______________,2000
Signature ____________________________
______________________________________
Signature if held jointly
(Please sign exactly as shown on your stock certificate and on this proxy form.
When signing as a partner, corporate officer, attorney, executor, administrator,
trustee, guardian or in any other representative capacity, give full title as
such and sign your own name as well. If stock is held jointly, each joint owner
should sign.)
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^ FOLD AND DETACH HERE ^
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.