SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |_|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to 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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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by Registration Statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ____________________________________________
2) Form, Schedule or Registration Statement No.: ______________________
3) Filing Party: ______________________________________________________
4) Date Filed: ________________________________________________________
NETWORK APPLIANCE, INC.
495 East Java Drive
Sunnyvale, CA 94089
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 26, 1999, 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 seven directors of the Company, (ii) to
approve the Company's new 1999 Stock Option Plan pursuant to which 3,300,000
shares of Common Stock will be reserved for issuance, (iii) to approve a
250,000-share increase in the maximum number of shares of Common Stock
authorized for issuance under the Employee Stock Purchase Plan and (iv) to
ratify the appointment of Deloitte and Touche LLP as independent accountants of
the Company for the fiscal year ending April 28, 2000.
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 1999 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
President and Chief Executive Officer
Sunnyvale, California
August 27, 1999
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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 26, 1999
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 26, 1999 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 and
Robert T. Wall.
2. To approve the Company's new 1999 Stock Option Plan (the "1999
Plan") pursuant to which 3,300,000 shares of Common Stock will be
reserved for issuance.
3. To approve an amendment to the Company's Employee Stock Purchase
Plan (the "Purchase Plan") to increase the number of shares of
Common Stock authorized for issuance over the term of the Purchase
Plan by an additional 250,000 shares.
4. To ratify the appointment of Deloitte and Touche LLP as independent
accountants of the Company for the fiscal year ending April 28,
2000.
5. 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 27, 1999 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 assure 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 assure 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
President and Chief Executive Officer
Sunnyvale, California
August 27, 1999
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.
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PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
NETWORK APPLIANCE, INC.
To be held October 26, 1999
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 26, 1999, 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 27, 1999 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 first mailed to shareholders on or about September 3, 1999.
Voting Rights
The close of business on August 27, 1999 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
73,846,096 shares of its Common Stock, no par value, outstanding and entitled to
vote at the Annual Meeting, held by approximately 322 registered shareholders.
No shares of the Company's Preferred Stock, no par value, were outstanding.
Holders of Common Stock are entitled to one vote for each share of Common Stock
held by such shareholder on August 27, 1999. 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, 3
and 4 and will be voted in the proxy holders' discretion as to other matters
that may properly come before the Annual Meeting.
The seven 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, 3 and 4 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, telegram or other means by directors,
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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 30, 1999
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, seven 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 seven nominees named below for election to the Company's Board of
Directors unless authority to vote for any such nominee is withheld. There are
seven nominees, each of whom is currently a director of the Company. 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 seven candidates receiving the highest number of the 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 seven nominees.
Nominees
The directors of the Company, and their ages as of May 28, 1999, are as
follows:
Name Age Position
- ---- --- --------
Daniel J. Warmenhoven..... 48 President, Chief Executive Officer and Director
Donald T. Valentine....... 66 Chairman of the Board, Director
Sanjiv Ahuja.............. 42 Director
Carol A. Bartz(1)......... 50 Director
Larry R. Carter(2)........ 56 Director
Michael R. Hallman(2)..... 54 Director
Robert. T. Wall(1)........ 53 Director
- ----------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
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. 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., a semiconductor video
compression company, and Vice Chairman of Cisco Systems, Inc.
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SANJIV AHUJA has been a member of the Board of Directors since August
1998. Since January 1997, Mr. Ahuja has been the 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 Board of Directors of Telcordia. 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 from September 1983 to April
1992, most recently as Vice President of Worldwide Field Operations. In
addition, Ms. Bartz currently serves on the Board of Directors of Airtouch
Communications, Cadence Design Systems, Inc., Cisco 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. Since January 1995, Mr. Carter has been Senior Vice President, Chief
Financial Officer (Principal Financial and Accounting Officer) and Secretary of
Cisco Systems, Inc. From July 1992 to January 1995, he was Vice President and
Corporate Controller for Advanced Micro Devices. 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 Board of
Directors of Ultratech Stepper, Inc. and QLogic Corporation. 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 the 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
Board of Directors of InFocus Systems Inc., a computer peripherals company,
Intuit Inc., a microcomputer software company, and Keytronics Corporation, an
input device company. Mr. Hallman holds B.B.A. and M.B.A. degrees from the
University of Michigan.
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 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 datacommunications 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 Board of Directors of Egghead.com, Inc., an on-line
reseller of personal computer products. 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 six (6) meetings during fiscal 1999. Each
member of the Board of Directors during fiscal 1999 attended more than
seventy-five percent (75%) 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 of the Board of Directors held five (5) meetings
during fiscal 1999. The Audit Committee is comprised of Directors 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 Compensation Committee of the Board of Directors held two (2) meetings
during fiscal 1999. 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.
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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 1995 Stock Incentive Plan (the "1995
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.
Under the Automatic Option Grant Program currently in effect under the
1995 Plan, each individual who first becomes a non-employee Board member
receives an option grant for 96,000 shares of Common Stock on the date he or she
joins the Board, provided such individual has not otherwise been in the prior
employ of the Company. In addition, at each Annual Shareholders Meeting, each
individual who is to continue to serve as a non-employee Board member receives
an option grant for 24,000 shares of Common Stock, provided such individual has
served on the Board for at least six (6) months.
Accordingly, at the 1998 Annual Shareholders Meeting held on October 8,
1998, each of the following individuals re-elected as a non-employee Board
member at that meeting received an option grant for 24,000 shares of Common
Stock under the Automatic Option Grant Program of the 1995 Plan with an exercise
price of $17.375 per share, the fair market value per share of Common Stock on
the grant date: Messrs. Valentine, Carter, Hallman, and Wall and Ms. Bartz. Mr.
Ahuja received an option grant for 96,000 shares under the Automatic Option
Grant Program of the 1995 Plan with an exercise price of $21.875 per share upon
his appointment to the Board on August 11, 1998.
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 per share, should the optionee cease service on the
Board prior to vesting in those shares. The initial 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 subsequent annual
option grant 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.
If the shareholders approve the implementation of the 1999 Plan pursuant
to Proposal No. 2, the Automatic Option Grant Program under the 1995 Plan will
terminate. All automatic option grants made to non-employee directors thereafter
will be made solely and exclusively under the Automatic Option Grant Program of
the 1999 Plan. Option grants will be made under such program on the same terms
and conditions described above for the Automatic Option Grant Program of the
1995 Plan provided, however, that the number of shares of Common Stock subject
to the option grant made to each new non-employee Board member shall be reduced
from 96,000 to 40,000 shares and the number of shares of Common Stock subject to
each annual option grant made to continuing non-employee Board members shall be
reduced from 24,000 to 10,000 shares.
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 THE 1999 STOCK OPTION PLAN
The shareholders are being asked to approve the 1999 Plan pursuant to
which 3,300,000 shares of Common Stock will be reserved for issuance. In
addition to the 3,300,000 shares of Common Stock to be reserved for issuance
under the 1999 Plan, the Company has previously reserved 25,425,048 shares of
Common Stock for issuance under the 1995 Plan and 1,600,000 shares of Common
Stock for issuance under the Company's Special Non-Officer Stock Option Plan
(the "Non-Officer Plan"). Following implementation of the 1999 Plan, the Company
will continue to grant options and issue shares of Common Stock under the 1995
Plan and the Non-Officer Plan, to the extent shares of Common Stock remain
available for issuance under each such plan.
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The implementation of the 1999 Plan will assure that the Company has a
sufficient reserve of Common Stock available under its stock plans to allow it
to continue to offer equity incentives to attract and retain the services of key
individuals essential to the Company's long-term growth and success. The Company
believes that such equity incentives are necessary for the Company to remain
competitive in the marketplace for executive talent and other key employees.
Option grants will be made under the 1999 Plan to newly-hired and continuing
employees on the basis of competitive market factors and individual performance
levels.
All share numbers which appear in this Proposal reflect the 2-for-1 split
of the Common Stock effected on December 21, 1998 through a distribution of one
share of Common Stock for each outstanding share of Common Stock.
The 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 divided
into four separate components: (i) the Discretionary Option Grant Program under
which 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 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 Plan Administrator, 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, (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, and (iv) the Automatic Option Grant Program 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.
The shareholders have previously approved a reserve of 25,425,048 shares
of Common Stock under the 1995 Plan. As of May 28, 1999, options covering
17,069,812 shares of Common Stock were outstanding under the 1995 Plan,
4,300,024 shares remained available for future option grants and direct stock
issuances, and 4,055,212 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.
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.
1,600,000 shares of Common Stock were authorized by the Board for issuance
under the Non-Officer Plan. As of May 28, 1999, options covering 1,378,219
shares of Common Stock were outstanding under the Non-Officer Plan, 53,661
shares remained available for future option grants, and 168,120 shares had been
issued.
The 1999 Plan
The following is a summary of the principal features of the 1999 Plan.
This summary does not, however, purport to be a complete description of all the
provisions of the 1999 Plan. Any shareholder of the Company who wishes to obtain
a copy of the actual plan document may do so upon written request to the
Corporate Secretary at the Company's principal offices in Sunnyvale, California.
General Provisions
Structure
The 1999 Plan is divided into two separate components: (i) the
Discretionary Option Grant Program under which 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 per share not less than the
fair market value on the grant date, and (ii) the Automatic Option Grant Program
under which option grants will automatically be 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.
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Options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code or non-statutory options not intended to satisfy such
requirements. All grants under the Automatic Option Grant Program will be
non-statutory options.
Administration
The Discretionary Option Grant Program of the 1999 Plan will be
administered by the Compensation Committee of the Board. The Compensation
Committee acting in such administrative capacity (the "Plan Administrator") will
have complete discretion (subject to the provisions of the 1999 Plan) to
authorize option grants under the Discretionary Option Grant Program. However,
the Board may appoint a secondary committee of two or more Board members,
including employee directors, to authorize option grants to eligible persons
other than executive officers and Board members subject to the short-swing
liability provisions of the federal securities laws. All grants under the
Automatic Option Grant Program are to be made in strict compliance with the
provisions of that program, and no administrative discretion will be exercised
by the Plan Administrator with respect to the grants made under such program.
Share Limits
A total of 3,300,000 shares of Common Stock will be authorized for
issuance under the 1999 Plan, assuming shareholder approval of this Proposal. In
no event may any person be granted stock options under the 1999 Plan for more
than 750,000 shares in the aggregate per calendar year.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and class of securities issuable under the 1999
Plan, (ii) the maximum number and class of securities for which any one
participant may be granted stock options per calendar year, (iii) the number and
class of securities for which option grants will subsequently be made under the
Automatic Option Grant Program to each newly-elected or continuing non-employee
Board member, and (iv) the number and class of securities and the exercise price
per share in effect under each outstanding option in order to prevent dilution
or enlargement of benefits thereunder.
Should an outstanding option expire or terminate for any reason prior to
exercise in full or be canceled in accordance with the provisions of the 1999
Plan, the shares subject to the portion of the option not so exercised or
canceled will be available for subsequent issuance under the 1999 Plan. Unvested
shares issued under the 1999 Plan and subsequently repurchased by the Company at
the original option exercise price paid per share will also be added back to the
share reserve and, accordingly, will be available for subsequent issuance under
the 1999 Plan. However, should the exercise price of an option under the 1999
Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the 1999 Plan be withheld by the Company in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option, then the number of shares of Common Stock available for issuance
under the 1999 Plan will be reduced by the gross number of shares for which the
option is exercised and not by the net number of shares issued to the holder of
the option.
Eligibility
Employees (including officers) of the Company or any parent or subsidiary
corporation, and consultants and other independent advisors in the service of
the Company or its parent or subsidiary corporations will be eligible to
participate in the Discretionary Option Grant Program of the 1999 Plan. Only
non-employee Board members will be eligible to participate in the Automatic
Option Grant Program.
As of May 28, 1999, five (5) executive officers and approximately eight
hundred and twenty-six (826) other employees were eligible to participate in the
Discretionary Option Grant Program of the 1999 Plan and six (6) non-employee
Board members were eligible to participate in the Automatic Option Grant
Program.
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Valuation
The fair market value per share of Common Stock on any relevant date under
the 1999 Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On May 28, 1999 (the last trading day in May), the
closing selling price per share was $47.125.
Option Transferability
Options are generally not assignable or transferable other than by will or
the laws of inheritance and may only be exercised by the optionee during his or
her lifetime. 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 family or to a trust established exclusively for family
members, to the extent such transfer or assignment is in furtherance of the
optionee's estate plan, or to the optionee's former spouse pursuant to a
domestic relations order
Discretionary Option Grant Program
Terms and Conditions of Option Grants
Options granted under the Discretionary Option Grant Program will have an
exercise price per share not less than the fair market value per share of Common
Stock on the option grant date. No granted option will have a term in excess of
ten (10) years. The options will generally become exercisable in a series of
installments over the optionee's period of service with the Company.
The exercise price may be paid in cash or in shares of the Common Stock.
Vested options may also be exercised through a same-day sale program pursuant to
which a designated brokerage firm will effect an 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.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise his or her outstanding options for any shares in which the
optionee is vested at that time. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
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, if the optionee ceases service with the
Company prior to vesting in those shares. The Plan Administrator will have
complete discretion to establish the vesting schedule to be in effect for any
such unvested shares.
Repricing
The Plan Administrator will have the authority to effect the cancellation
of outstanding options under the Discretionary Option Grant Program and to issue
replacement options for the same or a different number of shares with an
exercise price equal to the market price of the Common Stock at the time of the
new grant. However, any 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.
Acquisition of the Company/Change in Control
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate in full,
and all unvested shares will immediately vest, except to the extent the
Company's repurchase rights with respect to those shares are to be assigned to
the successor corporation. Any options assumed in connection with such
acquisition may, in the Plan Administrator's discretion, be subject to immediate
acceleration, and any unvested shares which do not vest at the time of such
acquisition may be subject to full and immediate vesting, in the event the
individual's service with the successor entity is subsequently terminated within
a specified
9
period (not to exceed twelve (12) months) following the acquisition. In
connection with a change in control of the Company (whether by successful tender
offer for more than fifty percent (50%) of the outstanding voting stock or a
change in the majority of the Board by one or more contested elections for Board
membership), the Plan Administrator will have the discretionary authority to
provide for the automatic acceleration of outstanding options and the automatic
vesting of all unvested shares outstanding under the Discretionary Option Grant
Program, with such acceleration or vesting to occur upon the termination of the
individual's service within a designated period (not to exceed twelve (12)
months) after the change in control.
The acceleration of vesting upon 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 options or
unvested shares under the Discretionary Option Grant Program with the right to
have the Company withhold a portion of the shares otherwise issuable to such
individuals in satisfaction of the withholding tax liability incurred in
connection with the exercise of those options or the vesting of those shares.
Alternatively, the Plan Administrator may allow such individuals to deliver
previously acquired shares of Common Stock in payment of such withholding tax
liability.
Automatic Option Grant Program
Under the Automatic Option Grant Program, each individual who first
becomes a non-employee Board member on or after the date of the 1999 Annual
Meeting, whether through election by the shareholders or appointment by the
Board, will receive, 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 (or any parent
or subsidiary). In addition, on the date of each Annual Shareholders Meeting,
beginning with the 1999 Annual Meeting, each individual who is to continue to
serve as a non-employee Board member will automatically be granted a
non-statutory option to purchase 10,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There will be no limit on the number of such 10,000-share option grants
any one non-employee Board member may receive over his or her period of Board
service, and non-employee Board members who have previously been in the
Company's employ will be eligible to receive those annual grants.
Each option will have an exercise price per share equal to one hundred
percent (100%) of the fair market value per share of Common Stock on the option
grant date and a maximum term of ten (10) years measured from such grant date,
subject to earlier termination at the end of the twelve (12)-month period
measured from the date of the optionee's cessation of Board service. Each such
option will be immediately exercisable for all 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 option grant will vest in a series of 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 10,000-share grant will vest upon the optionee's
continuation in Board service through the day immediately preceding the next
Annual Shareholders Meeting following the option grant date.
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,
(ii) an acquisition of the Company by merger or asset sale, (iii) the successful
completion of a tender offer for more than fifty percent (50%) of the Company's
outstanding voting stock or (iv) a change in the majority of the Board effected
through one or more proxy contested elections for Board membership.
The Automatic Option Grant Program under the 1999 Plan will be
substantially the same as the Automatic Option Grant Program currently in effect
for our non-employee Board members under the 1995 Plan and is intended to
supersede and replace that program. Accordingly, upon shareholder approval of
this Proposal, the Automatic Option Grant Program under the 1995 Plan will
immediately terminate and no further option grants will be made to the
non-employee Board members under that program. All options granted to the
non-employee Board members at or after the 1999 Annual Meeting will be made
solely and exclusively in accordance with the terms and provisions of the
Automatic Option Grant Program of the 1999 Plan.
10
Shareholder approval of this Proposal will also constitute pre-approval of
each option that is granted on or after the date of the 1999 Annual Meeting
pursuant to the provisions of the Automatic Option Grant Program and the
subsequent exercise of each such option in accordance with those provisions.
Stock Awards
No options have been granted to the Company's executive officers under the
1999 Plan. The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
under the 1995 Plan and the Non-Officer Plan between November 20, 1995, the
effective date of the Company's initial public offering, and May 28, 1999,
together with the weighted average exercise price payable per share. The Company
has not made any direct stock issuances to date under the 1995 Plan or the
Non-Officer Plan.
Options Granted Weighted Average
Name (Number of Shares) Exercise Price
- ---- ------------------------------------
Daniel J. Warmenhoven.............................. 1,101,111 $ 21.59
Jeffry R. Allen.................................... 1,033,300 $ 15.14
M. Helen Bradley................................... 406,666 $ 19.49
Thomas F. Mendoza.................................. 539,166 $ 23.93
Charles E. Simmons................................. 490,000 $ 8.15
All executive officers as a group (Five
persons)......................................... 3,570,243 $ 17.99
Donald T. Valentine................................ 72,000 $ 12.77
Sanjiv Ahuja....................................... 96,000 $ 21.87
Carol A. Bartz..................................... 72,000 $ 12.77
Larry R. Carter.................................... 120,000 $ 9.30
Michael R. Hallman................................. 72,000 $ 12.77
Robert T. Wall..................................... 72,000 $ 12.77
All directors who are not officers (Six
persons)......................................... 504,000 $ 13.68
All employees, including current officers who
are not executive officers, as a group .......... 16,541,723 $ 16.51
Amendment and Termination
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, provided, however, that the Board may not, without shareholder
approval, (i) increase the number of shares of Common Stock authorized for
issuance under the 1999 Plan, except in connection with certain changes in the
Company's capital structure, or (ii) materially increase the benefits offered to
participants under the 1999 Plan. The Board may terminate the 1999 Plan at any
time, and the 1999 Plan will in all events terminate on August 16, 2009.
Federal Income 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 meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive 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 a taxable disposition. For Federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two (2) years after the option grant date and
more than one (1) year after the exercise date. If either of these two (2)
holding periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
11
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 option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
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 paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) 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 of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised 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.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Internal Revenue Code Section 162(m) and 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. Accordingly, all compensation deemed paid
with respect to those options will remain deductible by the Company without
limitation under Internal Revenue Code Section 162(m).
Accounting Treatment
Option grants with exercise prices equal to the fair market value of the
shares at the time of grant will not result in any charge to the Company's
earnings, but the Company must disclose in the notes to the Company's financial
statements the fair value of options granted under the 1999 Plan and the pro
forma impact on the Company's annual net income and earnings per share as though
the computed fair value of such options had been treated as compensation
expense. In addition, the number of outstanding options may be a factor in
determining the Company's earnings per share on a fully-diluted basis.
On March 31, 1999, the Financial Accounting Standards Board issued an
Exposure Draft of a proposed interpretation of APB Opinion 25, "Accounting for
Stock Issued to Employees." Under the proposed interpretation, as modified on
August 11, 1999, option grants made to non-employee consultants using the new
definition of an employee under the proposed interpretation (but not
non-employee Board members) after December 15, 1998 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 (or, if
later, the effective date of the final amendment) and the vesting date of each
installment of the option shares. In addition, if the proposed amendment is
adopted, any options which are repriced after December 15, 1998 will 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 effective date of the final amendment) and the date the option is
exercised for those shares.
New Plan Benefits
No options will be granted under the 1999 Plan unless and until
shareholder approval of the 1999 Plan is obtained pursuant to this Proposal
No.2.
12
Shareholder Approval
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, is required for
approval of the 1999 Plan. Should such shareholder approval not be obtained,
then the 1999 Plan will not be implemented. The 1995 and Non-Executive Plans
will remain in effect provided, however that the number of shares of Common
Stock subject to the option grant made to each new non-employee Board member
under the Automatic Option Grant Program of the 1995 Plan shall be reduced from
96,000 to 40,000 shares and the number of shares of Common Stock subject to each
annual option grant made to continuing non-employee Board members under such
program shall be reduced from 24,000 to 10,000 shares. Option grants and direct
stock issuances may continue to be made pursuant to the provisions of the 1995
and Non-Executive Plans until the available reserve of Common Stock under each
such plan has been issued.
The Board of Directors recommends that the shareholders vote FOR approval
of the 1999 Plan.
PROPOSAL NO. 3:
AMENDMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
The shareholders are being asked to approve an amendment to the Purchase
Plan which will increase the maximum number of shares of Common Stock authorized
for issuance over the term of the Purchase Plan by an additional 250,000 shares,
from 1,800,000 shares to 2,050,000 shares of Common Stock.
The purpose of the share increase is to ensure that the Company will
continue to have a sufficient reserve of Common Stock available under the
Purchase Plan to provide eligible employees of the Company and its participating
affiliates with the opportunity to acquire a proprietary interest in the Company
through participation in a payroll-deduction based employee stock purchase plan
under Section 423 of the Internal Revenue Code.
The Purchase Plan was adopted by the Board of Directors in September 1995
and was approved by the Company's shareholders in October 1995. The Purchase
Plan became effective on November 20, 1995 in connection with the initial public
offering of the Company's Common Stock. In August 1998, the Board of Directors
adopted an amendment to the Purchase Plan to increase the share reserve by
400,000 shares. The increase was approved by the shareholders at the 1998 Annual
Meeting. On August 17, 1999, the Board of Directors adopted an amendment to the
Purchase Plan to increase the share reserve by an additional 250,000 shares, and
that share increase is the subject of this Proposal.
The following is a summary of the principal features of the Purchase Plan,
as most recently amended. This summary does not, however, purport to be a
complete description of all the provisions of the Purchase Plan. Any shareholder
who wishes to obtain a copy of the actual plan document may do so by written
request to the Corporate Secretary at the Company's principal offices in
Sunnyvale, California.
All share numbers which appear in this Proposal reflect the 2-for-1 split
of the Common Stock effected on December 21, 1998 through a distribution of one
share of Common Stock for each outstanding share of Common Stock.
Administration
The Purchase Plan is administered by the Compensation Committee of the
Board. Such committee, as Plan Administrator, has full authority to adopt
administrative rules and procedures and to interpret the provisions of the
Purchase Plan. All costs and expenses incurred in plan administration are paid
by the Company without charge to participants.
Share Reserve
2,050,000 shares of Common Stock have been reserved for issuance over the
term of the Purchase Plan, including the 250,000-share increase for which
shareholder approval is sought under this Proposal. The shares may be made
available from authorized but unissued shares of the Company's Common Stock or
from shares of Common Stock repurchased by the Company, including shares
repurchased on the open market.
In the event that any change is made to the Company's outstanding Common
Stock (whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change in corporate structure
effected without the Company's receipt of consideration), appropriate
adjustments will be made to (i) the class and maximum number of securities
issuable over the term of the Purchase Plan, (ii) the class and maximum number
of securities purchasable per participant on any one semi-annual purchase date,
(iii) the class and maximum number of securities purchasable in total by all
participants on any one purchase date and (iv) the class and number of
securities and the price per share in effect under each outstanding purchase
right.
13
Offering Periods and Purchase Rights
Shares of Common Stock are offered under the Purchase Plan through a
series of successive offering periods, each with a maximum duration of
twenty-four (24) months. The first offering period began on November 20, 1995 in
connection with the initial public offering of the Common Stock and ended on the
last business day in November 1997. The next offering period started on the
first business day in December 1997 and will end on the last business day in
November 1999. A new offering period will begin the first business day in
December 1999, and subsequent offering periods will begin as designated by the
Plan Administrator.
At the time a participant joins the offering period, he or she is granted
a purchase right to acquire shares of Common Stock at semi-annual intervals over
the remainder of that offering period. The purchase dates occur on the last
business day in May and November each year, and all payroll deductions collected
from the participant for the period ending with each such semi-annual purchase
date are automatically applied to the purchase of shares of Common Stock.
Eligibility and Participation
Any individual who is employed on a basis under which he or she is
expected to work for more than 20 hours per week for more than five (5) months
per calendar year in the employ of the Company or any participating parent or
subsidiary corporation (including any corporation which subsequently becomes
such at any time during the term of the Purchase Plan) is eligible to
participate in the Purchase Plan.
An individual who is an eligible employee may enter an offering period on
the start date of any purchase interval within that offering period (the first
business day in June or December each year), provided he or she remains an
eligible employee on that date.
As of May 28, 1999, 1,186,916 shares of Common Stock had been issued under
the Purchase Plan and 863,084 shares were available for future issuance,
assuming approval of this Proposal. As of May 28, 1999, approximately 831
employees, including five (5) executive officers, were eligible to participate
in the Purchase Plan.
Purchase Price
The purchase price of the Common Stock acquired on each semi-annual
purchase date will be equal to 85% of the lower of (i) the fair market value per
share of Common Stock on the participant's entry date into the offering period
or (ii) the fair market value on the semi-annual purchase date. However, the
clause (i) amount for any participant whose entry date is other than the start
date of the offering period will not be less than the fair market value per
share of Common Stock on that start date.
The fair market value of the Common Stock on any relevant date under the
Purchase Plan will be deemed to be equal to the closing selling price per share
on such date on the Nasdaq National Market. On May 28, 1999 (the last trading
day in May), the fair market value per share of Common Stock determined on such
basis was $47.125 per share.
Payroll Deductions and Stock Purchases
Each participant may authorize periodic payroll deductions in any multiple
of 1% (up to a maximum of 10%) of his or her eligible earnings each offering
period to be applied to the acquisition of Common Stock on each semi-annual
purchase date. For the current offering period, eligible earnings include only a
participant's base salary. For the new offering period scheduled to begin on
December 1, 1999, eligible earnings will include a participant's base salary
plus all commissions, overtime, bonus and other incentive payments. The payroll
deductions of each participant will automatically be applied on each semi-annual
purchase date (the last business day in May and November of each year) to the
purchase of whole shares of Common Stock at the purchase price in effect for the
participant for that purchase date.
Special Limitations
The Purchase Plan imposes certain limitations upon a participant's right
to acquire Common Stock, including the following:
o Purchase rights may not be granted to any individual who owns
stock (including stock purchasable under any outstanding
purchase rights) possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company
or any of its affiliates.
14
o Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 worth of Common Stock
(valued at the time each purchase right is granted) for each
calendar year those purchase rights are outstanding at any
time.
o No participant may purchase more than 1,500 shares of Common
Stock on any semi-annual purchase date.
o The maximum number of shares that may be purchased in total by
all participants on any one purchase date may not exceed
400,000 shares.
The Plan Administrator may increase or decrease such per-participant and
total-participant purchase limitations as of the start of any new offering
period under the Purchase Plan.
Termination of Purchase Rights
The participant may withdraw from the Purchase Plan at any time, and his
or her accumulated payroll deductions will, at the participant's election,
either be refunded or applied to the purchase of Common Stock on the next
semi-annual purchase date.
The participant's purchase right will immediately terminate upon his or
her cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the semi-annual period in
which such cessation of employment or loss of eligibility occurs will be
refunded and will not be applied to the purchase of Common Stock.
Shareholder Rights
No participant will have any shareholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased on
the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
Assignability
Purchase rights will not be assignable or transferable by the participant,
and the purchase rights will be exercisable only by the participant.
Change in Control
In the event the Company is acquired by merger, sale of substantially all
of the assets or sale of securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of (i) the fair market value per share of Common Stock on the
participant's entry date into the offering period in which such acquisition
occurs or (ii) the fair market value per share of Common Stock immediately prior
to the effective date of such acquisition, but in no event will the clause (i)
fair market value be less than the fair market value per share of Common Stock
on the start date of the offering period in which such acquisition occurs. The
limitation on the maximum number of shares purchasable in total by all
participants on any one purchase date will not be applicable to any purchase
date attributable to such an acquisition.
Share Pro-Ration
Should the total number of shares of Common Stock to be purchased pursuant
to outstanding purchase rights on any particular date exceed the number of
shares at the time available for issuance under the Purchase Plan, then the Plan
Administrator will make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis, and the payroll deductions of each
participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock allocated to such individual, will be refunded.
Amendment and Termination
The Purchase Plan will terminate upon the earliest of (i) the last
business day in November 2005, (ii) the date on which all shares available for
issuance thereunder are sold pursuant to exercised purchase rights or (iii) the
date on which all purchase rights are exercised in connection with an
acquisition of the Company.
15
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without shareholder approval, (i) increase the
number of shares issuable under the Purchase Plan, except in connection with
certain changes in the Company's capital structure, (ii) alter the purchase
price formula so as to reduce the purchase price or (iii) modify the
requirements for eligibility to participate in the Purchase Plan.
Federal Tax Consequences
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the offering period in
which such shares were acquired or within one (1) year after the semi-annual
purchase date on which those shares were actually acquired, then the participant
will recognize ordinary income in the year of sale or disposition equal to the
amount by which the fair market value of the shares on the purchase date
exceeded the purchase price paid for those shares, and the Company will be
entitled to an income tax deduction, for the taxable year in which such sale or
disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two
(2) years after his or her entry date into the offering period in which the
shares were acquired and more than one (1) year after the semi-annual purchase
date of those shares, then the participant will recognize ordinary income in the
year of sale or disposition equal to the lower of (i) the amount by which the
fair market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) fifteen percent (15%) of the fair
market value of the shares on the participant's entry date into that offering
period. Any additional gain upon the disposition will be taxed as a long-term
capital gain. The Company will not be entitled to an income tax deduction with
respect to such sale or disposition.
If the participant still owns the purchased shares at the time of death,
his or her estate will recognize ordinary income in the year of death equal to
the lower of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on his or her entry date into the offering
period in which those shares were acquired.
Accounting Treatment
The issuance of Common Stock under the Purchase Plan will not result in a
direct compensation expense chargeable against the Company's reported earnings.
However, the Company must disclose, in pro-forma statements to the Company's
financial statements, the impact the purchase rights granted under the Purchase
Plan would have upon the Company's reported earnings were the fair value of
those purchase rights treated as compensation expense.
Stock Issuances
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table of the Executive Compensation and
Related Information section of this Proxy Statement and the various indicated
individuals and groups, the number of shares of Common Stock purchased under the
Purchase Plan between the November 20, 1995 effective date of the Purchase Plan
and the most recent May 28, 1999 purchase date, together with the weighted
average purchase price paid per share.
PURCHASE PLAN TRANSACTIONS
Weighted
Number of Average
Purchased Purchase
Name Shares Price
---- --------- --------
Daniel J. Warmenhoven.................................... 16,361 $ 5.007
Jeffry R. Allen.......................................... 4,132 $ 10.155
M. Helen Bradley......................................... 13,677 $ 4.350
Thomas F. Mendoza........................................ 16,754 $ 5.145
Charles E. Simmons....................................... 4,502 $ 9.507
All current executive officers as a group (5 persons).... 55,426 $ 5.636
16
All employees, including current officers who are not....
executive officers, as a group (613 persons)........... 1,131,490 $ 7.127
New Plan Benefits
No purchase rights have been granted, and no shares of Common Stock have
been issued, under the Purchase Plan on the basis of the 250,000-share increase
for which shareholder approval is sought under this Proposal.
Shareholder Approval
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, is required for
approval of the 250,000-share increase to the Purchase Plan. Should such
shareholder approval not be obtained, then the 250,000-share increase will not
be implemented, no purchase rights will be granted on the basis of such share
increase, and the Purchase Plan will terminate once the existing share reserve
as previously approved by the shareholders has been issued.
The Board of Directors recommends that the shareholders vote FOR the
amendment to the Purchase Plan.
PROPOSAL NO. 4:
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 28, 2000. 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.
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 28, 2000.
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 28, 1999 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......................... 5,006,900 6.8%
One Federal Street
Boston, Massachusetts 02109
Daniel J. Warmenhoven(2)............................... 1,964,128 2.7%
Jeffry R. Allen(3)..................................... 496,981 *
M. Helen Bradley(4).................................... 512,670 *
Thomas F. Mendoza(5)................................... 876,857 1.2%
Charles E. Simmons(6).................................. 225,331 *
17
Donald T. Valentine(7)................................. 568,395 *
Sanjiv Ahuja(8)........................................ 97,000 *
Carol A. Bartz(9)...................................... 192,000 *
Larry R. Carter(10).................................... 120,000 *
Michael R. Hallman(11)................................. 415,912 *
Robert T. Wall(12)..................................... 549,028 *
All directors and executive officers as a group (11
persons)............................................. 6,018,302 8.3%
- ----------
* Less than 1%
(1) Percentage of ownership is based on 72,892,671 shares of Common Stock
outstanding on May 28, 1999. Shares of Common Stock subject to stock
options which are currently exercisable or will become exercisable within
60 days after May 28, 1999 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 1,613,820 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. Excludes 11,520 shares held by Charmaine A.
Warmenhoven, Mr. Warmenhoven's spouse, as separate property. Also excludes
600,000 shares held by Richard A. Andre, trustee to The Warmenhoven 1995
Children's Trust, under trust agreement dated 5/1/95, and 28,200 shares
held by Richard A. Andre, trustee to the Daniel J. Warmenhoven 1991
Children's Trust, as Mr. Warmenhoven disclaims beneficial ownership over
the shares held by such trusts. Includes 203,338 shares of Common Stock
issuable upon exercise of currently exercisable options granted under the
1993 Plan and 130,609 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 28, 1999.
(3) Includes 492,849 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 28, 1999.
(4) Does not include 5,651 shares held by Ms. Bradley's spouse. Includes
260,000 shares of Common Stock issuable upon exercise of currently
exercisable options granted under the 1993 Plan and 94,993 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 28, 1999.
(5) Does not include 23,812 shares held by Mr. Mendoza's spouse. Includes
141,245 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 28, 1999.
(6) Includes 195,829 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 28, 1999.
(7) Includes 379,915 shares held by Sequoia Capital Growth Fund, 19,926 shares
held Sequoia Technology Partners III, 8,808 shares held by Sequoia XXIV
and 87,746 shares held in trust by Donald T. Valentine, trustee to the
Donald T. Valentine Family Trust dated 4/29/67. With exception to the
shares held by the Donald T. Valentine Family Trust, Mr. Valentine, who is
the Chairman of the Company's Board of Directors, disclaims beneficial
ownership of the shares. Mr. Valentine is an affiliate of the Sequoia
entities and may be deemed to share voting and investment power with
respect to such shares. Holdings for Mr. Valentine include 72,000 shares
of Common Stock issuable upon exercise of currently exercisable stock
options granted under the 1995 Plan.
(8) Includes 96,000 shares of Common Stock issuable upon exercise of currently
exercisable options granted under the 1995 Plan.
(9) Includes 120,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted under the 1993 Plan and 72,000
shares of Common Stock issuable upon exercise of currently exercisable
options granted under the 1995 Plan. Does not include 80,698 shares held
by Ms. Bartz' spouse.
18
(10) Includes 120,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted under the 1995 Plan.
(11) Includes 180,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted under the 1993 Plan and 72,000
shares of Common Stock issuable upon exercise of currently exercisable
options granted under the 1995 Plan.
(12) Includes 160,000 shares of Common Stock issuable upon exercise of
currently exercisable options granted under the 1993 Plan and 72,000
shares of Common Stock issuable upon exercise of currently exercisable
options granted under the 1995 Plan. In addition, includes 2,000 shares
held as custodian for Jennifer C. Wall, 2,000 shares held as custodian for
Kristen E. Wall and 4,000 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.
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.
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 30, 1999, 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 4 filing by Mr.
Valentine reporting sale transactions made by the Sequoia entities 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 1999, 1998 and 1997 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 1999 fiscal year has
resigned or terminated employment during that fiscal year.
Summary Compensation Table
Long-Term
Compensation
Awards (1)
------------
Annual Compensation Securities
--------------------------------- Underlying All Other
Name and Principal Position Years Salary ($) Bonus ($) Options(#) Compensation($)(2)
- --------------------------- ------ ---------- --------- ------------ ------------------
Daniel J. Warmenhoven......... 1999 $323,077 $250,000 501,667(3) $ 1,392
President and Chief 1998 292,789 102,000 324,444(4) 1,392
Executive Officer 1997 223,077 150,075 -- 1,385
Jeffry R. Allen............... 1999 222,692 110,000 80,900(3) 1,376
Senior Vice President, 1998 193,077 53,000 2,400(4) 1,156
Finance and Operations, 1997 40,385 34,000 800,000 241
Chief Financial Officer
and Secretary
M. Helen Bradley.............. 1999 188,462 100,000 80,000 831
Senior Vice President, 1998 169,231 46,200 146,666(4) 588
Engineering 1997 159,231 75,000 80,000 551
Thomas F. Mendoza............. 1999 205,385 125,000 102,500(3) 1,255
Senior Vice President, 1998 150,000 278,228 146,666(4) 94,830(5)
Worldwide Sales and 1997 124,616 335,985 90,000 700
Marketing
Charles E. Simmons............ 1999 179,077 80,000 90,000 1,255
Vice President, Corporate 1998 167,385 45,700 -- 1,217
Development 1997 152,000 72,000 400,000 893
- ----------
19
(1) The options listed in the table were granted under the 1995 Plan.
(2) Except as noted in item (5), represents the cost of term life insurance.
(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; 1,667 to Mr. Warmenhoven; 900 to Mr. Allen and 2,500 to Mr. Mendoza.
(4) Includes options for the following numbers of shares granted on January 2,
1998 pursuant to the Salary Investment Option Grant Program of the 1995
Plan: 2,222 to Mr. Warmenhoven; 1,200 to Mr. Allen; 3,333 to Ms. Bradley
and 3,333 to Mr. Mendoza.
(5) Includes $94,000 relocation allowance.
Stock Options
The following table contains information concerning the stock option
grants made to each of the Named Officers for the 1999 fiscal year. No stock
appreciation rights were granted to those individuals during such year.
Individual Grant Potential Realizable
-------------------------------------- Value of Assumed Annual
Number of Percent of Rates of Stock
Securities Total Options Market Price Appreciation for
Underlying Granted to Exercise Price on Option Term($)(2)
Options Employees in Price Date of Expiration -------------------------------------
Name Granted Fiscal Year ($/Share)(1) Grant Date 0% 5% 10%
- ---- ---------- ------------- ------------ -------- ---------- -------- ---------- ------------
Daniel J. Warmenhoven .. 500,000(3) 8.05% $ 18.03 $ 18.03 4/29/08 $ -- $5,670,114 $14,369,092
1,667(4) 0.03% 15.00 45.00 1/3/09 50,010 97,187 169,565
Jeffry R. Allen......... 80,000(3) 1.29% 18.03 18.03 4/29/08 -- 907,218 2,299,069
900(4) 0.01% 15.00 45.00 1/3/09 27,000 52,470 91,547
M. Helen Bradley........ 80,000(3) 1.29% 18.03 18.03 4/29/08 -- 907,218 2,299,069
Thomas F. Mendoza....... 100,000(3) 1.61% 18.03 18.03 4/29/08 -- 1,134,023 2,873,836
2,500(4) 0.04% 15.00 45.00 1/3/09 75,000 145,751 254,296
Charles E. Simmons...... 80,000(3) 1.29% 18.03 18.03 4/29/08 -- 907,218 2,299,069
10,000(3) 0.16% 28.44 28.44 11/1/08 -- 178,845 453,228
- ----------
(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 the following dates: Mr. Warmenhoven (500,000 shares),
Ms. Bradley and Messrs. Allen and Simmons (80,000 shares) and Mr. Mendoza
(100,000 shares) on April 30, 1998; and Mr. Simmons (10,000 shares) on
November 2, 1998. 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 Ms. Bradley
and Messrs. Allen, Mendoza and Simmons will vest as to twenty-five percent
(25%) of the shares upon the optionee's completion of one year of service
measured from the applicable grant date and with respect to the balance of
the shares in a series of equal monthly installments over the thirty-six
(36) months of service thereafter. The option granted to Mr. Warmenhoven
will vest in equal monthly installments over thirty-six (36) months of
service, with such vesting to commence upon his completion of two years of
service measured from the option grant date.
(4) Pursuant to the Salary Investment Option Grant Program of the 1995 Plan,
Messrs. Warmenhoven, Allen and Mendoza elected to reduce their base
salaries for the 1999 calendar year by $50,000, $27,000 and $75,000,
respectively, 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 4, 1999 at an exercise price of $15.00 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 ($30.00 per share). The
20
options vest in twelve (12) equal installments upon the optionee's
completion of each month of service during the 1999 calendar year. Each
option has a maximum term of 10 years measured from the grant date.
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 1999 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 204,662 $7,099,796 320,335(3) 701,114 $14,856,587 $24,786,454
Jeffry R. Allen...... 50,000 1,473,228 439,366 393,934 17,860,461 15,635,562
M. Helen Bradley..... 190,000 6,698,500 337,910(3) 178,756 15,717,397 6,854,713
Thomas F. Mendoza.... 16,458 690,742 122,287 200,421 4,849,764 7,610,330
Charles E. Simmons... 75,000 1,984,915 167,496 187,504 7,217,610 7,381,575
- ----------
(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 1999 fiscal
year ($50.31 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
30, 1999, Mr. Warmenhoven had vested in 147,122 shares and Ms. Bradley had
vested in 296,243 shares.
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 1999 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 1995 Plan and will
have responsibility for the 1999 Plan, if and when adopted and approved the
shareholders, 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
21
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 1999 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 1999 fiscal year, the base salary of the
Company's executive officers ranged from the fiftieth percentile to the
seventy-fifth percentile of the base salary levels in effect for comparable
positions in the surveyed compensation data.
Incentive Compensation. For the 1999 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 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. No bonus would have been paid 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.
Long-Term Stock-Based Incentive Compensation. From time to time, the
Committee makes option grants to the Company's executive officers under the 1995
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 1999, 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 $250,000 for the 1999 fiscal year.
The options granted to Mr. Warmenhoven during the 1999 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 1999 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 2000 fiscal
year will exceed that limit. In addition, the 1995 and 1999 Plans 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
22
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, Board and Compensation
Committee Member
Robert T. Wall, Board and Compensation
Committee Member
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 1999 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, President and Chief
Executive Officer, under the Company's 1993 Stock Option/Stock Issuance Plan and
the 1995 Plan, and to Jeffry R. Allen, Chief Financial Officer and Senior Vice
President of Finance and Operations, under the 1995 Plan, will immediately vest
in full in the event of the termination of the officer's employment in
connection with an acquisition of the Company by merger or asset sale. 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. The options granted to Messrs. Warmenhoven, Allen and
Mendoza on January 4, 1999 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.
CERTAIN TRANSACTIONS
Larry R. Carter, a director of the Company, is the Senior Vice President
Finance, Chief Financial Officer (Principal Financial and Accounting Officer) of
Cisco Systems, Inc. ("Cisco"). During the 1999 fiscal year, the Company sold
materials to Cisco having an aggregate value of $3,921,359, and purchased
materials from Cisco having an aggregate value of $147,114.
Sanjiv Ahuja, a director of the Company, is the President and Chief
Operating Officer of Telcordia Technologies, Inc. During the 1999 fiscal year,
the Company sold materials to Telcordia Technologies having an aggregate value
of $208,070.
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.
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 Hambrecht & Quist Technology Index compiled by Hambrecht & Quist
LLC. The comparison for each of the periods assumes that
23
$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 Hambrecht & Quist 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.
[PERFORMANCE GRAPH]
11/21/95 4/96 4/97 4/98 4/99
-------- ---- ---- ---- ----
Network Appliance, Inc.......... 100 119 108 267 745
Nasdaq Stock Market (U.S.)...... 100 117 123 184 251
Hambrecht & Quist Technology ... 100 114 121 181 241
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, 1999. Shareholders may obtain a copy of
this report, without charge, by writing to Jeffry R. Allen, Senior 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 2000 must be received by
May 6, 2000 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 2000 will confer discretionary authority
to vote on any shareholder proposal presented at that meeting unless the Company
is provided with notice of such proposal no later than July 20, 2000.
BY ORDER OF THE BOARD OF DIRECTORS
DANIEL J. WARMENHOVEN
President and Chief Executive Officer
August 27, 1999
24
NETWORK APPLIANCE, INC.
1999 STOCK OPTION PLAN
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.
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.
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 3,300,000 shares.
Such authorized share reserve shall be in
2
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 750,000 shares of Common Stock in the aggregate per
calendar year, beginning with the 1999 calendar year.
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.
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.
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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.
4
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.
5
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.
6
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
7
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.
8
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
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 1999 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 1999 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 10,000 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 10,000-share option grants any one non-employee
Board member may receive over his or her period of Board service.
3. Shareholder approval of the Plan at the 1999 Annual
Shareholders Meeting shall constitute pre-approval of each option grant made
under this Automatic Option Grant Program on or after the date of such 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 shall
supersede and replace the Automatic Option Grant Program previously in effect
for the non-employee Board members under the Corporation's 1995 Stock Incentive
Plan. Accordingly, upon shareholder approval of the Plan at the 1999 Annual
Shareholders Meeting, that program shall immediately terminate and no further
option grants shall be made to the non-employee Board members under that
program. 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. Should shareholder approval of the Plan not be obtained at the
1999 Annual Meeting, then the Automatic Option Grant Program under the
Corporation's 1995 Stock Incentive Plan, as amended by the Board on August 17,
1999, shall remain in full force and effect, and option grants shall be made
under that program to all non-employee Board members who will continue to serve
on the Board at and after the 1999 Annual Shareholders Meeting.
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.
9
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 10,000-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.
(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
10
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.
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.
11
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.
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
12
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. 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.
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.
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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.
15
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.
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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.
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NETWORK APPLIANCE, INC
EMPLOYEE STOCK PURCHASE PLAN
As Amended and Restated Effective August 17, 1999
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Network Appliance, Inc. by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
All share numbers which appear in this August 17, 1999 restatement
of the Plan reflect (i) the two-for-one split of the Common Stock effected on
December 18, 1997 and (ii) the two-for-one split of the Common Stock effected on
December 21, 1998.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased 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 Two Million Fifty
Thousand (2,050,000) shares, including (i) an increase of Four Hundred Thousand
(400,000) shares authorized by the Board on August 11, 1998, and approved by the
shareholders at the 1998 Annual Meeting, and (ii) an increase of Two Hundred
Fifty Thousand (250,000) shares authorized by the Board on August 17, 1999,
subject to shareholder approval at the 1999 Annual Meeting.
B. 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 class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable in the aggregate by all Participants on any one purchase
date under the Plan and (iv) the number and class of securities and the price
per share in effect under each outstanding purchase right in order to prevent
the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. However, the initial offering period shall commence at the Effective
Time and terminate on the last business day in November 1997. The next offering
period shall commence on the first business day in December 1997, and subsequent
offering periods shall commence as designated by the Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the first
business day in June each year to the last business day in November of the same
year and from the first business day in December each year to the last business
day in May of the following year. However, the first Purchase Interval in effect
under the initial offering period commenced at the Effective Time and terminated
on the last business day in May 1996.
V. ELIGIBILITY
A. An individual who is an Eligible Employee may enter an offering
period under the Plan on the start date of any Purchase Interval within that
offering period, provided he or she remains an Eligible Employee on that date.
The date an individual enters an offering period shall be designated his or her
Entry Date for purposes of that offering period.
B. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. For offering periods which commenced before December 1, 1999, the
payroll deduction authorized by the Participant for purposes of acquiring shares
of Common Stock during such offering period may be any multiple of one percent
(1%) of the Base Salary paid to the Participant during each Purchase Interval
within that offering period, up to a maximum of ten percent (10%). For the
offering period scheduled to commence on December 1, 1999, each Participant's
payroll deduction shall be based on such Participant's Cash Earnings and may be
any multiple of one percent (1%) of Cash Earnings paid to the Participant during
each Purchase Interval within that offering period, up to a maximum of ten
percent (10%).
The deduction rate so authorized by a Participant shall continue in
effect throughout the offering period, except to the extent such rate is changed
in accordance with the following guidelines:
2
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become effective as
soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one (1)
such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or
her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the ten percent (10%)
maximum) shall become effective as of the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
E. The Plan Administrator shall have the discretion, exercisable
prior to the start date of any offering period under the Plan, to determine
whether the payroll deductions authorized by Participants during such offering
period shall be calculated as a percentage of Base Salary or Cash Earnings.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
3
B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded pursuant to the Termination of Purchase Right
provisions below) on each such Purchase Date. The purchase shall be effected by
applying the Participant's payroll deductions for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.
C. Purchase Price. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date. However, for each Participant whose Entry Date is
other than the start date of the offering period, the clause (i) amount shall in
no event be less than the Fair Market Value per share of Common Stock on the
start date of that offering period.
D. Number of Purchasable Shares. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed One Thousand Five Hundred (1,500) shares, subject to periodic adjustments
in the event of certain changes in the Corporation's capitalization. The maximum
number of shares of Common Stock purchasable in the aggregate by all
participants on any one Purchase Date shall not exceed Four Hundred Thousand
(400,000) shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization. However, the Plan Administrator
shall have the discretionary authority, exercisable prior to the start of any
offering period under the Plan, to increase or decrease the limitations to be in
effect for the number of shares purchasable per Participant and in total by all
Participants on each Purchase Date during that offering period.
E. Excess Payroll Deductions. Any payroll deductions not applied to
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan Administrator
(or its designate), and no further payroll deductions shall be collected
from the Participant with
4
respect to the terminated purchase right. Any payroll deductions collected
during the Purchase Interval in which such termination occurs shall, at
the Participant's election, be immediately refunded or held for the
purchase of shares on the next Purchase Date. If no such election is made
at the time such purchase right is terminated, then the payroll deductions
collected with respect to the terminated right shall be refunded as soon
as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into that
offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the Participant
cease to remain in active service by reason of an approved unpaid leave of
absence, then the Participant shall have the right, exercisable up until
the last business day of the Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions collected to date on
his or her behalf for that Purchase Interval or (b) have such funds held
for the purchase of shares on his or her behalf on the next scheduled
Purchase Date. In no event, however, shall any further payroll deductions
be collected on the Participant's behalf during such leave. Upon the
Participant's return to active service (i) within ninety (90) days
following the commencement of such leave or (ii) prior to the expiration
of any longer period for which such Participant's right to reemployment
with the Corporation is guaranteed by either statute or contract, his or
her payroll deductions under the Plan shall automatically resume at the
rate in effect at the time the leave began, unless the Participant
withdraws from the Plan prior to his or her return. An individual who
returns to active employment following a leave of absence which exceeds in
duration the applicable time period shall be treated as a new Employee for
purposes of subsequent participation in the Plan and must accordingly
re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into the
offering period.
G. Change in Control. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) (or such greater percentage as the Plan Administrator may have
established for the offering period in which the Change in Control occurs) of
the lower of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into the offering period in which such Change in
Control occurs or (ii) the Fair Market Value per share of
5
Common Stock immediately prior to the effective date of such Change in Control.
However, the applicable limitation on the number of shares of Common Stock
purchasable per Participant shall continue to apply to any such purchase, and
the clause (i) amount above shall not, for any Participant whose Entry Date for
the offering period is other than the start date of that offering period, be
less than the Fair Market Value per share of Common Stock on that start date.
The Corporation shall use its best efforts to provide at least ten
(10) days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. Proration of Purchase Rights. Should the total number of shares
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed either (i) the maximum limitation on the number of shares
purchasable in the aggregate on such date or (ii) the number of shares then
available for issuance under the Plan, the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
I. Assignability. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the Participant.
J. Shareholder Rights. A Participant shall have no shareholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.
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(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one (1) or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined on the basis
of the Fair Market Value per share on the date or dates of grant) for each
calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on September 26, 1995, was
subsequently approved by the shareholders and became effective at the Effective
Time. The Plan was amended by the Board on August 11, 1998 (the "1998
Amendment") to increase the maximum number of shares of Common Stock authorized
for issuance under the Plan by an additional Four Hundred Thousand (400,000)
shares. The 1998 Amendment was approved by the shareholders at the 1998 Annual
Meeting. On August 17, 1999, the Board amended the Plan to (i) increase the
maximum number of shares of Common Stock authorized for issuance under the Plan
by an additional Two Hundred Fifty Thousand (250,000) shares and (ii) make
amendments to certain administrative provisions of the Plan (the "1999
Amendment"). The 1999 Amendment is subject to shareholder approval at the 1999
Annual Meeting, and no purchase rights shall be granted, and no shares shall be
issued, on the basis of the Two Hundred Fifty Thousand (250,000)-share increase
unless and until the 1999 Amendment is approved by the shareholders. Upon such
shareholder approval of the 1999 Amendment, the Corporation shall comply with
all applicable requirements of the 1933 Act (including the registration of the
additional Two Hundred Fifty Thousand (250,000) shares of Common Stock issuable
under the Plan on a Form S-8 registration statement filed with the Securities
and Exchange Commission), all applicable listing requirements of the Nasdaq
National Market with respect to those shares and all other applicable
requirements established by law or regulation.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in November 2005, (ii) the date
on which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Change in Control. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
7
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or discontinue the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the recognition of compensation
expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following amendments
or revisions to the Plan without the approval of the Corporation's shareholders:
(i) materially increase the number of shares of Common Stock issuable under the
Plan, except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the requirements for eligibility to participate
in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
8
Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
Network Appliance, Inc.
APPENDIX
The following definitions shall be in effect under the Plan:
A. Base Salary shall mean the regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan, plus any
pre-tax contributions made by the Participant to any Code Section 401(k) salary
deferral plan or any Code Section 125 cafeteria benefit program now or hereafter
established by the Corporation or any Corporate Affiliate. The following items
of compensation shall not be included in Base Salary: (i) all overtime payments,
bonuses, commissions (other than those functioning as base salary equivalents),
profit-sharing distributions and other incentive-type payments and (ii) any and
all contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate under any employee benefit or welfare plan now or hereafter
established.
B. Board shall mean the Corporation's Board of Directors.
C. Cash Earnings shall mean the (i) base salary payable to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, current profit-sharing
distributions and other incentive-type payments received during such period.
Such Cash Earnings shall be calculated before deduction of (A)any income or
employment tax withholdings or (B) any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation or
any Corporate Affiliate. However, Cash Earnings shall not include any
contributions (other than Code Section 401(k) or Code Section 125 contributions
deducted from such Cash Earnings) made by the Corporation or any Corporate
Affiliate on the Participant's behalf to any employee benefit or welfare plan
now or hereafter established.
D. Change in Control shall mean a change in ownership or control of
the Corporation effected through any of the following transactions:
(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,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation; or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or
9
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.
E. Code shall mean the Internal Revenue Code of 1986, as amended.
F. Common Stock shall mean the Corporation's common stock.
G. Corporate Affiliate shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
H. 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.
I. Effective Time shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
J. Eligible Employee shall mean any person who is employed by a
Participating Company on a basis under which he or she is regularly expected to
render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
K. Entry Date shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
L. 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 or any successor system. 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.
10
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.
(iii) For purposes of the initial offering period which began
at the Effective Time, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is sold in the initial
public offering pursuant to the Underwriting Agreement.
M. 1933 Act shall mean the Securities Act of 1933, as amended.
N. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
O. Participating Corporation shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
P. Plan shall mean the Corporation's Employee Stock Purchase Plan,
as set forth in this document.
Q. Plan Administrator shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
R. Purchase Date shall mean the last business day of each Purchase
Interval.
S. Purchase Interval shall mean each successive six (6)-month period
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
T. Stock Exchange shall mean either the American Stock Exchange or
the New York Stock Exchange.
U. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
3
NETWORK APPLIANCE, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. |X|
[ ]
1. Election of Directors: For Withhold For All
Nominees: Daniel J. Warmenhoven, All All Except
Donald T. Valentine, Sanjiv Ahuja,
Carol A. Bartz, Larry R. Carter, |_| |_| |_|
Michael R. Hallman and Robert T.
Wall.
(INSTRUCTION: To withhold authority
to vote for any individual nominee,
write such name or names in the
space provided below.)
- -----------------------------------------
2. Approve the Company's new 1999 For Against Abstain
Stock Option Plan pursuant to which
3,300,000 shares of common stock |_| |_| |_|
will be reserved for issuance.
3. Approve a 250,000 share increase in For Against Abstain
the maximum number of shares of
common stock authorized for |_| |_| |_|
issuance under the Company's
Employee Stock Purchase Plan.
4. Proposal to ratify the appointment For Against Abstain
of Deloitte and Touche LLP as
independent accountants of the |_| |_| |_|
Company for the fiscal year ending
April 28, 2000.
5. Transaction of 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: ______________________, 1999
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.)
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
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 26, 1999, 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 the reverse side.)
- --------------------------------------------------------------------------------