SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
WIND RIVER SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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.
(6) Amount Previously Paid:
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1010 ATLANTIC AVENUE
ALAMEDA, CA 94501
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1998
------------------------
TO THE STOCKHOLDERS OF WIND RIVER SYSTEMS, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of Wind River
Systems, Inc., a Delaware corporation (the "Company"), will be held on Thursday,
June 25, 1998, at 10:00 a.m. local time at 980 Atlantic Avenue, Alameda,
California, for the following purposes:
1. To elect five directors to hold office for the ensuing year and until
their successors are elected and have qualified.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase the authorized number of shares of
Common Stock from 75,000,000 to 125,000,000 shares.
3. To approve the Company's 1998 Equity Incentive Plan and the issuance of
1,000,000 shares of the Company's Common Stock thereunder.
4. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for its fiscal year ending January 31, 1999.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on May 4, 1998 as the
record date for the determination of stockholders entitled to notice of and to
vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
RICHARD W. KRABER
SECRETARY
Alameda, California
May 22, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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1010 ATLANTIC AVENUE
ALAMEDA, CALIFORNIA 94501
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of Wind
River Systems, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on June 25, 1998, at 10:00 A.M. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at Wind River Systems, Inc.'s training center at
980 Atlantic Avenue, Alameda, California. The Company intends to mail this proxy
statement and accompanying proxy card on or about May 22, 1998, to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company
or, at the Company's request, D.F. King & Co., Inc. No additional compensation
will be paid to directors, officers or other regular employees for such
services, but D.F. King & Co., Inc. will be paid its customary fee, estimated to
be $3,500, if it renders solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on May 4,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on May 4, 1998, the Company had outstanding and entitled to
vote 26,074,460 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum but, except with respect to Proposal 2, are not counted for any purpose
in determining whether a matter has been approved. With respect to Proposal 2,
broker non-votes will have the same effect as negative votes.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal office, 1010 Atlantic
Avenue, Alameda, California 94501, a written notice of revocation or a duly
executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 annual meeting of stockholders must be received by the Company not later
than January 22, 1999 in order to be included in the proxy statement and proxy
relating to that annual meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board positions currently authorized in
the Company's By-laws. Each director to be elected will hold office until the
next annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee currently is a director of the Company and previously was elected by the
stockholders.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the five nominees named below. In the event that any nominee should
be unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
Set forth below is biographical information for each person nominated.
JERRY L. FIDDLER, 46, has served as Chairman of the Board since he
co-founded the Company in February 1983. From February 1983 to March 1994, he
also served as Chief Executive Officer of the Company. Prior to founding the
Company, he was a computer scientist in the Real-Time Systems Group at Lawrence
Berkeley Laboratory. Mr. Fiddler holds a B.A. in music and photography and an
M.S. in computer science from the University of Illinois.
RONALD A. ABELMANN, 60, joined the Company in March 1994 as Chief Executive
Officer, President and a director. From 1987 to 1993, he served as the founding
Chief Executive Officer of Vantage Analysis Systems, a developer of VHDL-based
simulation software for design automation. Prior to then, he served as group
Vice President and General Manager for the Instrument Division of Varian
Associates. Mr. Abelmann holds a B.S. and an M.S. in applied physics from the
University of California at Los Angeles and an M.B.A. from Stanford University.
DAVID N. WILNER, 44, has served as Chief Technical Officer and a Director
since he co-founded the Company in February 1983. Prior to founding the Company,
he was a senior staff scientist in the Real-Time Systems Group at Lawrence
Berkeley Laboratory. Mr. Wilner holds a B.S. in computer science from the
University of California at Berkeley.
2
WILLIAM B. ELMORE, 45, became a director of the Company in August 1990. He
currently is a general partner of Foundation Capital, a venture capital
investment firm. From 1987 to 1995, he was a general partner of Inman & Bowman
and Inman & Bowman Entrepreneurs, venture capital investment firms. Mr. Elmore
holds a B.S. and an M.S. in electrical engineering from Purdue University and an
M.B.A. from Stanford University.
DAVID B. PRATT, 58, became a director of the Company in April 1995. He has
been a Venture Partner with Foundation Capital since January 1998. From 1988 to
December 1997, he was an officer, most recently Executive Vice President and
Chief Operating Officer, of Adobe Systems Incorporated, a developer of software
for printing and publishing. From 1987 to 1988, he was Executive Vice President
and Chief Operating Officer of Logitech Corporation. From 1986 to 1987, he was
Senior Vice President and Chief Operating Officer of Quantum Corporation. Mr.
Pratt holds a B.S.E.E. degree from the Massachusetts Institute of Technology and
an M.B.A. from the University of Chicago.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended January 31, 1998, the Board of Directors held
seven meetings. The Board has an Audit Committee and a Compensation Committee.
It has no nominating committee.
The Audit Committee meets with the Company's independent accountants at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent accountants to be
retained and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee is composed of two
non-employee directors: Messrs. Elmore and Pratt. It met once during fiscal
1998.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two non-employee directors:
Messrs. Elmore and Pratt. It acted five times during fiscal 1998.
During the fiscal year ended January 31, 1998, each director attended 75% or
more of the aggregate of the meetings of the Board and of the committees on
which he served, held during the period for which he was a director or committee
member, respectively.
3
PROPOSAL 2
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In April 1998, the Board of Directors adopted, subject to stockholder
approval, an amendment to the Company's Restated Certificate of Incorporation,
as amended, to increase the Company's authorized number of shares of Common
Stock from 75,000,000 to 125,000,000 shares.
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common Stock
of the Company, except for effects incidental to increasing the number of shares
of the Company's Common Stock outstanding, such as dilution of earnings per
share and voting rights of current holders of Common Stock. If the amendment is
adopted, it will become effective upon filing of a Certificate of Amendment of
the Company's Restated Certificate of Incorporation, as amended with the
Secretary of State of Delaware.
At May 4, 1998, in addition to the 26,074,460 shares of Common Stock
outstanding, 5,608,721 shares were reserved for issuance under the Company's
stock plans (excluding the 1998 Equity Incentive Plan, which is the subject of
Proposal 3), 2,886,598 shares were reserved for issuance upon conversion of 5%
Convertible Subordinated Notes due 2002 and 225,000 shares were reserved for
issuance upon exercise of outstanding warrants.
The Board of Directors desires to have such shares available to provide
additional flexibility in using its capital stock for business and financial
purposes in the future. The additional shares may be used, without further
stockholder approval, for various purposes including, without limitation,
raising capital; providing equity incentives to employees, officers, directors
or consultants; establishing strategic relationships with other companies;
expanding the Company's business or product lines through the acquisition of
other businesses or products; or paying stock dividends. The Board of Directors
has not taken any definitive action with respect to such shares.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could adopt a "poison pill" which would, under certain circumstances
related to an acquisition of shares not approved by the Board, give certain
holders the right to acquire additional shares of Common Stock at a low price,
or the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board. Although this proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), stockholders nevertheless should be aware that
approval of the proposal could facilitate future efforts by the Company to deter
or prevent changes in control of the Company, including transactions in which
the stockholders might otherwise receive a premium for their shares over then
current market prices.
The affirmative vote of the holders of a majority of the shares of the
Common Stock will be required to approve this amendment to the Company's
Restated Certificate of Incorporation, as amended. As a result, abstentions and
broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
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PROPOSAL 3
APPROVAL OF THE COMPANY'S 1998 EQUITY INCENTIVE PLAN
In April 1998, the Board of Directors adopted, subject to stockholder
approval, the Wind River Systems, Inc. 1998 Equity Incentive Plan (the "Equity
Plan") and authorized and reserved 1,000,000 shares of the Company's Common
Stock for issuance under the Equity Plan. The Equity Plan provides for the grant
of incentive and nonstatutory stock options, stock appreciation rights, rights
to purchase restricted stock and stock bonuses. The Board adopted the Equity
Plan as a means to retain the services of persons who are now employees and
directors of and consultants to the Company and its affiliates, to secure and
retain the services of new employees, directors and consultants and to provide
incentives for such persons to exert maximum efforts on behalf of the Company.
As of April 30, 1998, no awards had been granted under the Equity Plan.
Stockholders are requested in this Proposal 3 to approve the Equity Plan.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Equity Plan.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Equity Plan are outlined below.
GENERAL
The Equity Plan provides for the grant of "Stock Awards," which may be
incentive stock options ("ISOs"), nonstatutory stock options ("NSOs"), stock
appreciation rights ("SARs"), rights to purchase restricted stock or stock
bonuses. ISOs granted under the Equity Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). NSOs granted under the Equity
Plan are intended not to qualify as incentive stock options under the Code. See
"Federal Income Tax Information" for a discussion of the tax treatment of the
various Stock Awards included in the Equity Plan.
PURPOSE
The Equity Plan was adopted to provide a means by which employees (including
officers) and directors of and consultants to the Company and its affiliates may
be given an opportunity to purchase stock of the Company, to secure and retain
the services of persons holding or capable of filling such positions and to
provide incentives for such persons to exert maximum efforts on behalf of the
Company.
ADMINISTRATION
The Equity Plan is administered by the Board. The Board has the power to
construe and interpret the Equity Plan and, subject to the provisions of the
Equity Plan, to determine the persons to whom and the dates on which Stock
Awards will be granted, what type of Stock Award will be granted, the number of
shares to be subject to each Stock Award, the time or times during the term of
each Stock Award within which all or a portion of such Stock Award may be
exercised, the exercise price, the type of consideration and other terms of the
Stock Award. The Board is authorized to delegate administration of the Equity
Plan to a committee or committees composed of one or more members of the Board
and has delegated such administration to the Compensation Committee. The
Compensation Committee has the powers to administer the Equity Plan which were
originally possessed by the Board, subject to such limitations as the Board
provides. As used herein with respect to the Equity Plan, the "Board" refers to
the Compensation Committee as well as to the Board of Directors.
5
In order to maximize the Company's ability to recognize a business expense
deduction under Section 162(m) of the Code in connection with compensation
recognized by "covered employees" (defined in Section 162(m) as the chief
executive officer and other four most highly compensated officers), the
regulations under Section 162(m) require that the directors who serve as members
of the committee responsible for administering the Equity Plan with respect to
these covered employees must be "outside directors." The Board currently intends
to limit the directors who may serve as members of the Compensation Committee to
those who are "outside directors" as defined in Section 162(m) of the Code. This
limitation excludes from the Compensation Committee (i) current employees of the
Company, (ii) former employees of the Company receiving compensation for past
services (other than benefits under a tax-qualified pension plan), (iii) current
and former officers of the Company, and (iv) directors currently receiving
direct or indirect remuneration from the Company in any capacity (other than as
a director), unless any such person is otherwise considered an "outside
director" for purposes of Section 162(m).
The Board or committee may delegate to a committee of one or more members of
the Board the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and/or who are either (i) not then employees covered by
Section 162(m) of the Code and are not expected to be covered by Section 162(m)
of the Code at the time of recognition of income resulting from such Stock
Award, or (ii) not persons with respect to whom the Company wishes to avoid the
application of Section 162(m) of the Code. The Board may abolish such committee
at any time and revest in the Board the administration of the Equity Plan.
ELIGIBILITY
ISOs and SARs appurtenant thereto may be granted under the Equity Plan to
employees (including officers) of the Company and any affiliates. Employees
(including officers), directors and consultants are eligible to receive awards
other than ISOs and SARs appurtenant thereto under the Equity Plan. As of May 4,
1998, all of the Company's approximately 485 employees, directors and
consultants were eligible to participate in the Equity Plan.
No ISO may be granted under the Equity Plan to any person who, at the time
of the grant, owns (or is deemed to own) stock possessing more than 10 percent
of the total combined voting power of the Company or any affiliate of the
Company, unless the option exercise price is at least 110 percent of the fair
market value of the stock subject to the option on the date of grant, and the
term of the option does not exceed five years from the date of grant To the
extent an optionee would have the right in any calendar year to exercise for the
first time one or more ISOs for shares having an aggregate fair market value
(under all plans of the Company and its affiliates and determined for each share
as of the date the option was granted ) in excess of $100,000, any such excess
options will be treated as NSOs.
The Company has included in the Equity Plan a per-employee limitation of
750,000 shares of Common Stock subject to stock options and SARs that may be
granted during a calendar year. The purpose of including this limitation is to
ensure that the Company generally will be able to deduct for tax purposes the
compensation attributable to the exercise of options and SARs granted under the
Equity Plan.
STOCK SUBJECT TO THE PLAN
If any Stock Award granted under the Equity Plan expires or otherwise
terminates in whole or in part without having been exercised in full (or vested
in the case of restricted stock), the Common Stock not purchased under such
Stock Award will revert to and again become available for issuance under the
Incentive Plan. Shares of stock subject to exercised stock appreciation rights
shall not again become available for issuance under the Equity Plan.
6
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
Equity Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of ISOs under the Equity Plan
may not be less than 100 percent of the fair market value of the Common Stock
subject to the option on the date of the option grant, (110 percent for
optionees deemed to own more than 10 percent of the outstanding voting power of
the Company), and the exercise price of NSOs under the Equity Plan may not be
less than 85 percent of the fair market value of Common Stock subject to the
option on the date of the option grant. With respect to any options granted with
exercise prices below fair market value to covered employees, deductions for
compensation attributable to the exercise of such options could be limited by
Section 162(m). See "Federal Income Tax Information." As of May 4, 1998, the
closing price of the Company's Common Stock, as reported on the Nasdaq National
Market, was $35.56 per share.
The exercise price of options granted under the Equity Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement; or (iii) in any other form of
legal consideration acceptable to the Board.
EXERCISE/VESTING. Options granted under the Equity Plan may become
exercisable ("vest") in cumulative increments as determined by the Board. Such
typically is time-based or performance-based. The Board has the power to
accelerate the time during which an option may be exercised. In addition,
options granted under the Equity Plan may permit exercise prior to vesting, but
in such event the optionee may be required to enter into an early exercise stock
purchase agreement that allows the Company to repurchase shares not yet vested
at their exercise price should the optionee leave the employ of the Company
before vesting. To the extent provided by the terms of an option, an optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned and unencumbered stock of the Company or by a
combination of these means.
TERM. The maximum term of stock options under the Equity Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Equity Plan generally terminate three months after termination
of the optionee's employment or relationship as a consultant or director of the
Company or any affiliate of the Company, unless (a) such termination is due to
such person's permanent and total disability (as defined in the Code), in which
case the option may, but need not, provide that it may be exercised at any time
within one year of such termination; (b) the optionee dies while serving, or
within in a three-month period of having served, the Company or any affiliate of
the Company, in which case the option may, but need not, be exercisable (to the
extent that the option was exercisable at the time of the optionee's death)
within 18 months of the optionee's death by the person or persons to whom the
rights to such option pass by will or by the laws of descent and distribution;
or (c) the option by its terms specifically provides otherwise. Individual
options by their terms may provide for exercise within a longer period of time
following termination of employment or the other relationship.
RESTRICTIONS ON TRANSFER. No stock option may be transferred by the
optionee other than by will or the laws of descent or distribution, provided
however that the Board of Directors may grant a NSO that is transferable, and
provided further that an optionee may designate a beneficiary who may exercise
the option following the optionee's death. In addition, shares subject to
repurchase by the Company under an early exercise stock purchase agreement may
be subject to restrictions on transfer which the Board deems appropriate.
7
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
PURCHASE PRICE; PAYMENT. The purchase price under each stock purchase
agreement will be determined by the Board, but in no event shall the purchase
price be less than 85 percent of the stock's fair market value on the date such
award is made. The purchase price of stock pursuant to a stock purchase
agreement must be paid either: (i) in cash at the time of purchase; (ii) at the
discretion of the Board, according to a deferred payment or other arrangement
with the person to whom the Common Stock is sold; or (iii) in any other form of
legal consideration that may be acceptable to the Board in its discretion.
Eligible participants may be awarded stock pursuant to a stock bonus agreement
in consideration of past services actually rendered to the Company or for its
benefit.
REPURCHASE. Shares of the Common Stock sold or awarded under the Equity
Plan may, but need not, be subject to a repurchase option in favor of the
Company in accordance with a vesting schedule determined by the Board. In the
event a person ceases to be an employee of or ceases to serve as a director of
or consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the bonus or
restricted stock held by that person that have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person. The Board has the power to
accelerate such vesting.
RESTRICTIONS ON TRANSFER. Rights under a stock bonus or restricted stock
bonus agreement may not be transferred except where such assignment is required
by law or expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement.
STOCK APPRECIATION RIGHTS
The Equity Plan authorizes three types of SARs.
TANDEM STOCK APPRECIATION RIGHTS. Tandem SARs are tied to an underlying
option and require the holder to elect whether to exercise the underlying option
or to surrender the option for an appreciation distribution equal to the market
price of the vested shares purchasable under the surrendered option less the
aggregate exercise price payable for such shares. Appreciation distributions
payable upon exercise of tandem stock appreciation rights must be made in cash.
CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent SARs are tied to an
underlying option and are exercised automatically at the same time the
underlying option is exercised. The holder receives an appreciation distribution
equal to the market price of the vested shares purchased under the option less
the aggregate exercise price payable for such shares. Appreciation distributions
payable upon exercise of concurrent stock appreciation rights must be made in
cash.
INDEPENDENT STOCK APPRECIATION RIGHTS. Independent SARs are granted
independently of any option and entitle the holder to receive upon exercise an
appreciation distribution equal to the fair market value on the date of exercise
of a number of shares equal to the number of share equivalents to which the
holder is vested under the independent stock appreciation right less the fair
market value of such number of shares of stock on the date of grant.
Appreciation distributions payable upon exercise of independent stock
appreciation rights may, at the Board's discretion, be made in cash, in shares
of the Common Stock or a combination thereof.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Equity Plan or subject to
any award granted under the Equity Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Equity Plan and awards
outstanding thereunder will be appropriately adjusted as to the type of security
and the maximum number of shares subject to such plan,
8
the maximum number of shares which may be granted to an employee during any
calendar year, and the type of security, number of shares and price per share of
stock subject to such outstanding Stock Awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Equity Plan provides that, in the event of a dissolution or liquidation
of the Company, specified type of merger or other corporate reorganization, at
the sole discretion of the Board and to the extent permitted by law, any
surviving corporation will be required to either assume Stock Awards outstanding
under the Equity Plan or substitute similar Stock Awards for those outstanding
under the Equity Plan, such outstanding Stock Awards will continue in full force
and effect or such Stock Awards will be accelerated. In the event that any
surviving corporation declines to assume or continue awards outstanding under
the Equity Plan, or to substitute similar awards, then the time during which
such Stock Awards may be exercised will be accelerated and the Stock Awards
terminated if not exercised at or prior to such event. The acceleration of a
Stock Award in the event of an acquisition or similar corporate event may be
viewed as an anti-takeover provision, which may have the effect of discouraging
a proposal to acquire or otherwise obtain control of the Company.
The Equity Plan also provides for the acceleration of vesting for Stock
Awards which otherwise would vest within the thirty (30) month period following
the occurrence of certain hostile changes of control. A "hostile" change of
control would involve either (i) the acquisition by any person or related group
of a majority of the company's voting securities which has not been approved by
the Board of Directors or (ii) a change of a majority of the members of the
Board of Directors in a 24-month period where the new directors were not
approved by a majority of the members of the Board of Directors at the beginning
of such period or were seated as the result of a proxy contest or other contest
over election of members of the Board of Directors.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Equity Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Equity Plan will terminate on December 16, 2006.
The Board may also amend the Equity Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company, to the extent stockholder approval is necessary in order for the
Plan to satisfy Section 422 of the Code, if applicable, Rule 16b-3 or Nasdaq or
other securities exchange listing requirements. The Board may submit any other
amendment to the Equity Plan for stockholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section 162(m) of
the Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Equity Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may cause an optionee to
become subject to alternative minimum tax liability or increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will
9
be a mid-term or long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term, mid-term or short-term depending
on how long the optionee holds the stock. Long-term capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum long-term
capital gains rate for federal income tax purposes currently is 20 percent (28
percent for mid-term capital gain), while the maximum ordinary income rate
currently is effectively 39.6 percent. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Equity Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company generally will be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be
long-term, mid-term or short-term depending on how long the optionee holds the
stock. Slightly different rules may apply to optionees who acquire stock subject
to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
RESTRICTED STOCK PURCHASE AWARDS AND STOCK BONUSES. Restricted stock
purchase awards and stock bonuses granted under the Equity Plan generally have
the following federal income tax consequences:
Upon acquisition of stock, the recipient normally will recognize taxable
ordinary income equal to the excess of the stock's fair market value over the
purchase price, if any. However, to the extent the stock is subject to certain
types of vesting restrictions, the taxable event will be delayed until the
vesting restrictions lapse, unless the recipient elects to be taxed at the time
of receipt of the stock. With respect to employees, the Company generally is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, Section 162(m) of the Code and the satisfaction of a tax
reporting obligation, the Company generally will be entitled to a business
expense deduction equal to the taxable ordinary income realized by the
recipient. Upon disposition of the stock, the recipient will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock, if any, plus any amount recognized as ordinary
income upon acquisition (or vesting) of the stock. Such gain or loss will be
long-term, mid-term or short-term depending on how long the stock was held.
Slightly different rules may apply to persons who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
10
STOCK APPRECIATION RIGHTS. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation
right, the fair market value of the shares (or cash in lieu of shares) received
must be treated as compensation taxable as ordinary income to the recipient in
the year of such exercise. Generally, with respect to employees, the Company is
required to withhold from the payment made on exercise of the stock appreciation
right or from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness,
Section 162(m) of the Code and the satisfaction of a reporting obligation, the
Company will be entitled to a business expense deduction equal to the taxable
ordinary income recognized by the recipient.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that compensation exceeds
$1,000,000 for a covered employee. It is possible that compensation attributable
to awards under the Equity Plan, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options and SARs will qualify as performance-based
compensation, provided that the award is granted by a compensation committee
comprised solely of "outside directors" and either: (i) the plan contains a
per-employee limitation on the number of shares for which options may be granted
during a specified period, the per-employee limitation is approved by the
stockholders, and the exercise price of the award is no less than the fair
market value of the stock on the date of grant; or (ii) the award is granted (or
exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in writing
by the compensation committee while the outcome is substantially uncertain, and
the option is approved by stockholders.
Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors"; and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under the Treasury regulations only if: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied; and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the maximum amount) payable upon attainment of the
performance goal).
OTHER STOCK PLANS OF THE COMPANY
1987 AMENDED AND RESTATED EQUITY INCENTIVE PLAN. The Company's Amended and
Restated 1987 Equity Incentive Plan (the "1987 Plan") provides for grants of
ISOs, NSOs, stock bonuses, rights to purchase restricted stock and SARs. An
aggregate of 9,450,000 shares of Common Stock have been reserved for issuance
under the 1987 Plan. As of May 18, 1998, options to purchase 4,526,250 shares of
Common Stock were outstanding under the 1987 Plan, and 475,409 shares remained
available for grant. ISOs and SARs appurtenant thereto may be granted to
employees (including officers) of the Company and any affiliates. Employees
(including officers), directors and consultants are eligible to receive awards
other than ISOs and SARs appurtenant thereto. The exercise price of ISOs granted
under the 1987 Plan may not be less than 100 percent of the fair market value of
the Company's Common Stock on the date of grant (110 percent for optionees
deemed to own more than 10 percent of the outstanding voting power of the
Company), and the exercise price of NSOs may not be less than 85 percent of the
fair market value of the
11
Common Stock on the date of grant. The purchase price under a restricted stock
purchase agreement may not be less than 85 percent of the stock's fair market
value on the date of grant. Stock bonuses may be awarded in consideration of
services rendered. All stock options have a maximum term of 10 years. Options
granted under the 1987 Plan typically vest over a four-year period. Certain
options have been granted that vest after seven years, subject to acceleration
in installments based upon the achievement of certain performance criteria. The
1987 Plan and awards thereunder may be amended by the Board at any time or from
time to time. Certain amendments require stockholder approval, if necessary for
the Plan to satisfy Section 422 of the Code, Rule 16b-3 or Nasdaq or other
securities exchange listing requirements. The 1987 Plan also contains the
adjustment and change of control provisions described above with respect to the
Equity Plan. The 1987 Plan will terminate on September 29, 2002.
1998 NON-OFFICER STOCK OPTION PLAN. The Company's 1998 Non-Officer Stock
Option Plan (the "Non-Officer Plan"), adopted in April 1998, provides for grants
of NSOs to employees and consultants who are not officers or directors of the
Company. An aggregate of 300,000 shares of Common Stock have been reserved for
issuance under the Non-Officer Plan. As of May 18, 1998, options to purchase
200,950 shares were outstanding and 99,050 shares remained available for grant.
The exercise price of NSOs granted under the Non-Officer Plan may not be less
than 85 percent of the fair market value of the Common Stock on the date of
grant. All NSOs granted under the Non-Officer Plan have a maximum term of 10
years. Options generally will vest over four years, although options may be
granted that vest upon achievement of performance criteria. The Non-Officer Plan
and options thereunder may be amended by the Board at any time or from time to
time. The Non-Officer Plan also contains the adjustment and change of control
provisions described above with respect to the Equity Plan. The Non-Officer Plan
will terminate on April 22, 2008.
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. See "Directors' and
Executive Officers' Compensation--Compensation of Directors."
12
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending January 31, 1999 and has
further directed that management submit the selection of independent accountants
for ratification by the stockholders at the Annual Meeting. Price Waterhouse LLP
has audited the Company's financial statements since the fiscal year ended
January 31, 1990. Representatives of Price Waterhouse LLP are expected to be
present at the Annual Meeting, will have an opportunity to make a statement if
they so desire and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Price Waterhouse LLP as the
Company's independent accountants is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Price Waterhouse
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of different independent accountants at any time during the year
if they determine that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Price Waterhouse LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
13
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and footnotes set forth certain information regarding
the ownership of the Company's Common Stock as of May 4, 1998, by: (i) each
director and nominee for director as of May 4, 1998; (ii) each of the executive
officers named in the Summary Compensation below; (iii) all executive officers
and directors of the Company as a group; and (iv) all those known by the Company
to be beneficial owners of more than five percent of its Common Stock:
BENEFICIAL OWNERSHIP(1)
------------------------------------
BENEFICIAL OWNERS NUMBER OF SHARES PERCENT OF TOTAL
- ---------------------------------------------------------- ----------------- -----------------
Janus Capital Corporation ................................ 2,988,084 11.46%
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Jerry L. Fiddler(2) ...................................... 2,909,887 11.15%
1010 Atlantic Avenue
Alameda, CA 94501
David N. Wilner(3) ....................................... 1,698,764 6.51%
1010 Atlantic Avenue
Alameda, CA 94501
Pilgrim Baxter and Associates ............................ 1,621,070 6.22%
825 Duportail Road
Wayne, PA 19087
Ronald A. Abelmann(4)..................................... 424,817 1.60%
William B. Elmore(5)...................................... 65,370 *
David G. Fraser(6)........................................ 23,829 *
Richard W. Kraber(7)...................................... 50,155 *
David R. Larrimore(8)..................................... 61,826 *
David Pratt(9)............................................ 13,125 *
Robert L. Wheaton(10)..................................... 6,999 *
All executive officers and directors as a group (10
persons)(11)............................................ 5,454,722 20.29%
- ------------------------
* Less than one per cent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable
percentages are based on 26,074,460 shares outstanding on May 4, 1998,
adjusted as required by rules promulgated by the SEC.
(2) Includes 2,220,287 shares held by The Fiddler and Alden Family Trust, of
which Mr. Fiddler is a trustee; 370,000 shares held by Jazem II Family
Partners LP, of which Mr. Fiddler is a general partner; and 286,136 shares
held by Jazem III Family Partners LP, of which Mr. Fiddler also is a
partner. Also includes 33,464 shares subject to stock options exercisable
within 60 days of May 4, 1998.
(3) Includes 258,750 shares held in trust for Mr. Wilner's minor child. Also
includes 33,464 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(4) Includes 396,627 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(5) Includes 24,375 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(6) Includes 23,829 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(7) Includes 50,155 shares subject to stock options exercisable within 60 days
of May 4, 1998.
14
(8) Includes 61,826 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(9) Includes 13,125 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(10) Includes 6,999 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(11) Includes 805,215 shares subject to stock options held by officers and
directors exercisable within 60 days of May 4, 1998. See footnotes
(2)-(10).
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that: 2
reports, covering an aggregate of 5 transactions, were filed late by Mr.
Abelmann; 1 report, covering 1 transaction, was filed late by Mr. Elmore; 1
report, covering 1 transaction, was filed late by Mr. Fiddler; 1 report,
covering 1 transaction, was filed late by Mr. Fraser; 1 report, covering 1
transaction, was filed late by Mr. Pratt; 1 initial report on Form 3 was filed
late by Mr. Schacker; and 2 reports, covering an aggregate of 2 transactions,
were filed late by Mr. Wilner.
DIRECTORS' AND EXECUTIVE OFFICERS' COMPENSATION
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company (a "Non-Employee
Director") receives a per meeting fee of $1,200. In accordance with Company
policy, Directors may be reimbursed for certain expenses in connection with
attendance at Board and committee meetings. Directors who are also executive
officers of the Company are not separately compensated for their service as
directors.
All Non-Employee Directors participate in the Company's 1995 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for the automatic grant of options to purchase Common Stock of the
Company to Non-Employee Directors. Stock options granted under the Director's
Plan have an exercise price equal to the fair market value of the common stock
on the date of grant and expire ten years from the date of grant. Under the
Directors' Plan, each person who was a Non-Employee Director on April 27, 1995
was granted, and each person after such date who is elected for the first time
as a Non-Employee Director will automatically be granted, an option to purchase
15,000 shares of Common Stock upon the date of his or her election to the Board,
whichever is applicable, which vests in four equal annual increments.
Additionally, on April 1 of each year, commencing with April 1, 1996, each
person who is then a Non-Employee Director automatically is granted an option to
purchase 3,000 shares of Common Stock vesting in full one year from the grant
date, provided the optionee has attended at least 75% of the meetings of the
Board and any committees on which he serves held during such period. As of May
18, 1998, options to purchase 66,000 shares were outstanding under the
Directors' Plan and 147,750 shares remained available for grant.
During the last fiscal year, options were granted covering an aggregate of
3,000 shares to each of Messrs. Elmore and Pratt at an exercise price of $23.125
per share. Also during such fiscal year, Mr. Pratt exercised options to purchase
6,000 shares of Common Stock.
15
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal year ended January 31, 1998,
compensation awarded or paid to, or earned by the Company's Chief Executive
Officer and its other five most highly compensated executive officers who earned
over $100,000 (the "Named Executive Officers"):
LONG-TERM
COMPENSATION
AWARDS
----------
SHARES
ANNUAL COMPENSATION UNDERLYING
-------------------------- OPTIONS
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($)(1) (#)(2)
- -------------------------------------------------------------- ------------- ---------- ------------ ----------
Ronald A. Abelmann ........................................... 1998 271,250 127,875 (3) 325,000
President and 1997 228,333(3) 161,000 (3) 60,000
Chief Executive Officer 1996 201,667(3) 100,000 135,000
David G. Fraser .............................................. 1998 153,417 73,147 100,000
Vice President of Engineering 1997 135,500 89,550 75,936
1996 123,750 58,256 54,000
Richard W. Kraber(4) ......................................... 1998 153,750 72,992 100,000
Vice President and 1997 139,583 97,900 42,750
Chief Financial Officer 1996 56,769 28,574 182,250
Robert L. Wheaton ............................................ 1998 154,083 99,423 100,000
Senior Vice President of Sales 1997 143,605 117,202 30,000
1996 135,000 83,115 54,000
David N. Wilner .............................................. 1998 147,708 70,592 100,000
Chief Technical Officer 1997 145,000 101,500 --
1996 140,833 64,398 47,250
David R. Larrimore(5) ........................................ 1998 166,667 54,043 30,000
Vice President of Marketing 1997 141,417 98,850 42,750
1996 96,144 47,331 182,250
- ------------------------
(1) Includes bonuses and sales commissions earned in respective fiscal year and
paid the following fiscal year pursuant to the Company's fiscal management
incentive arrangements.
(2) Options have exercise prices ranging from 85% to 100% of the fair market
value of the Common Stock at the time of the grant. All options granted in
fiscal year 1998 have exercise prices equal to 100% of the fair market value
of the Common Stock at the time of the grant.
(3) Payment of portions of Mr. Abelmann's salary for fiscal years 1996 and 1997,
and all of his bonus for fiscal years 1997 and 1998, has been deferred.
(4) Mr. Kraber joined the Company in August 1995.
(5) Mr. Larrimore resigned as an officer of the Company on December 31, 1997 and
currently serves as a consultant. Compensation for fiscal year 1998 includes
consulting payments made to Mr. Larrimore following his resignation.
16
STOCK OPTION GRANTS AND EXERCISES
The following tables show for the fiscal year ended January 31, 1998,
certain information regarding options granted to, exercised by, and held at year
end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SHARES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN PER SHARE FOR OPTION TERM (5)
OPTIONS FISCAL EXERCISE EXPIRATION --------------------------
NAME GRANTED(#)(1) YEAR(3) PRICE(4) DATE 5%($) 10%($)
- ------------------------------- ------------- ------------- ---------- ------------ ------------ ------------
Ronald A. Abelmann............. 75,000 3.77% $ 38.0625 07/23/2007 1,795,298 4,549,637
175,000(2) 8.79% $ 41.0000 09/07/2007 4,512,319 11,435,102
75,000 3.77% $ 38.3750 09/25/2007 1,810,037 4,586,990
David G. Fraser................ 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
70,000(2) 3.52% $ 41.0000 09/07/2007 1,804,928 4,574,041
Richard W. Kraber.............. 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
70,000(2) 3.52% $ 41.0000 09/07/2007 1,804,928 4,574,041
Robert L. Wheaton.............. 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
70,000(2) 3.52% $ 41.0000 09/07/2007 1,804,928 4,574,041
David N. Wilner................ 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
70,000(2) 3.52% $ 41.0000 09/07/2007 1,804,928 4,574,041
David R. Larrimore............. 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
- ------------------------
(1) Except as set forth in Note (2), options generally become exercisable at a
rate of 1/4 of the shares subject to the option at the end of the first year
and 1/48 of the shares subject to the option at the end of each month
thereafter.
(2) Options vest seven years from the date of grant, subject to acceleration in
installments based upon the achievement of certain performance criteria.
(3) Based on options to purchase an aggregate of 991,000 shares of Common Stock
granted in the fiscal year.
(4) For all options granted in fiscal year 1998, the exercise price is equal to
the fair market value of the Company's Common Stock at the time of the
grant.
(5) The potential realizable value is based on the term of the option at its
time of grant. In accordance with rules promulgated by the SEC, it is
calculated by assuming that the stock price at the time of grant appreciates
at the indicated annual rate, compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its term
for the appreciated stock price. There can be no assurance that the values
shown in this table will be achieved.
17
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND VALUE OF OPTIONS AT END OF FISCAL YEAR 1998
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT END OF THE-MONEY OPTIONS AT END
NUMBER OF FISCAL 1998(#) OF FISCAL 1998($)(2)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------- --------------- -------------- ----------------- ------------------------
Ronald A. Abelmann................. 105,000 $ 3,747,041 392,230/448,395 $ 12,633,952/3,542,812
David G. Fraser.................... 24,000 $ 778,605 29,319/130,432 $ 817,877/$775,292
Richard W. Kraber.................. 20,000 $ 550,176 56,722/200,278 $ 1,499,769/$2,686,490
Robert L. Wheaton.................. 53,484 $ 965,529 34,229/140,833 $ 946,481/$1,017,539
David N. Wilner.................... -- -- 28,543/118,707 $ 819,812/$519,095
David R. Larrimore................. 50,000 $ 1,691,827 68,393/121,607 $ 1,909,607/$2,520,121
- ------------------------
(1) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise minus the exercise price and does not
necessarily indicate that the optionee sold such stock.
(2) Fair market value of the Company's Common Stock on January 31, 1998
($36.625) minus the exercise price of the options.
EMPLOYMENT AGREEMENT
In March 1994, the Company and Mr. Abelmann entered into an employment
agreement providing for the employment of Mr. Abelmann as President and Chief
Executive Officer. The agreement provided for Mr. Abelmann's base salary and
bonuses of up to 50% of base salary determined upon the achievement of worldwide
goals related to revenue and net income. In fiscal year 1998, the Compensation
Committee approved a 47% bonus for Mr. Abelmann.
Under the agreement, Mr. Abelmann was granted an option to purchase 815,625
shares of the Company's Common Stock under the 1987 Plan with an exercise price
equal to the then fair market value of the Common Stock. In addition, 112,500
shares of the Company's Common Stock were purchased with cash and a full
recourse promissory note (the "Note"), also under the 1987 Plan. The Note in the
amount of $182,812.50 accrued interest at 5.36% per annum and was secured by a
pledge of shares of Common Stock of the Company. On September 24, 1996, Mr.
Abelmann paid all of the outstanding principal and interest due under the Note.
The agreement also provides that, in the event Mr. Abelmann's employment is
terminated without cause, he will receive, as severance, continued payment of
his then base salary for six months following such termination.
SEVERANCE PLAN
In November 1995, the Compensation Committee of the Board of Directors
adopted a Change in Control Incentive and Severance Benefit Plan (the "Severance
Plan") to provide an incentive to officers of the Company with the title of Vice
President or above in the event of certain "change of control" transactions, and
severance benefits in the event of certain terminations of employment within
twelve (12) months of the change of control.
Upon the occurrence of a change of control, all executive officers, except
the Chief Executive Officer, will receive acceleration of vesting for all shares
subject to stock options which would otherwise have vested within one year of
the date of the change of control. The Chief Executive Officer will receive two
years' worth of accelerated vesting, except to the extent that the option
acceleration would create adverse
18
tax consequences for the Chief Executive Officer and the Company under the
golden parachute provisions of sections 280G and 49999 of the Internal Revenue
Code ("Code"), in which case the Chief Executive Officer will have accelerated
the maximum number of shares allowed under the golden parachute provisions.
If an executive officer other than the Chief Executive Officer is terminated
without "Cause" or voluntarily terminates with "Good Reason" (in each case as
defined in the Severance Plan) within twelve (12) months of a change in control,
the executive will receive continued compensation for 12 months (including an
estimated bonus amount), continued health insurance for the same period, and
accelerated vesting of stock options that would otherwise vest within one year
of the date of termination. In addition, for the Chief Executive Officer, any
shares which would have received acceleration of vesting on account of the
change in control but did not because of the limitation to avoid the golden
parachute tax provisions shall receive accelerated vesting on the termination
date. If the total severance payments would cause an executive to become liable
for golden parachute excise tax payments, then the Company shall pay that
executive's excise tax liability and all other taxes associated with the
Company's payment of the excise tax in order to leave the executive in the same
after-tax position as if no excise tax had been imposed.
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer and director, under the circumstances and to the extent provided
for therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's
By-laws.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Board of Directors has delegated to the Compensation Committee of the
Board of Directors (the "Committee") the authority to establish and maintain the
compensation programs for all employees, including executives. For the Chief
Executive Officer and other executive officers, the Committee evaluates
performance and determines compensation policies and levels. The Compensation
Committee is presently comprised of two non-employee directors. Neither of these
non-employee directors has any interlocking or other type of relationship that
would call into question his independence as a committee member.
The objectives of the Company's executive compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align the financial interests of executive officers with the
performance of the Company, to strengthen the relationship between executive pay
and stockholder value, to motivate executive officers to achieve the Company's
business objectives and to reward individual performance. In carrying out these
objectives, the Committee considers the level of compensation paid to executive
officers in positions of companies similarly situated in size and products, the
individual performance of each executive officer, corporate performance, and the
responsibility and authority of each position relative to other positions within
the Company.
An executive officer's base salary is supplemented by two additional
compensation components: awards under the Management Incentive Plan ("MIP"),
designed to reward participants for individual and
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(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after
the date hereof and irrespective of any general incorporation language
contained in any filing.
19
Company-wide performance; and stock options, designed to provide long-term
incentives to all employees of the Company. Each of these components is
discussed in turn below:
BASE SALARY
The method used by the Compensation Committee to determine executive
compensation is designed to provide for a base salary that, while competitive
with comparable companies, is nevertheless calculated to result in a base salary
that is at the lower end of the competitive range for those companies. In
establishing base salaries for executive officers, the Company considers the
individual executive's level of responsibility, compensation surveys and market
data of general industry companies of similar size. These companies include
some, but not all, of the companies on the Nasdaq Computer and Data Processing
Stocks Index and are selected to represent the types of companies with which the
Company competes in the market for executive talent. Salaries for executives are
reviewed on an annual basis and may be changed at that time on the basis of a
subjective analysis of the individual performance of the executive, the
Company's financial performance and changes in salary levels at comparable
companies.
MANAGEMENT INCENTIVE PLAN
The MIP has been established to provide cash bonuses to reward executives
for their contributions to the achievement of Company-wide performance goals.
The MIP provides for the yearly establishment of a compensation pool based on
achieving worldwide goals related to revenue and net income in the Company's
operating plan, as well as other objectives in the operating plan specific to
such officers' individual areas of management responsibility, some of which may
be determined subjectively.
STOCK OPTION PLANS
The 1987 Plan, Equity Plan and Non-Officer Plan were established to provide
all employees of the Company with an opportunity to share, along with the
stockholders of the Company, in the long-term performance of the Company.
Periodic grants of stock options generally are made annually to all eligible
employees, with additional grants being made to certain employees upon
commencement of employment and, occasionally, following a significant change in
job responsibilities, scope or title. Stock options generally have a four-year
vesting schedule and generally expire ten years from the date of grant. Certain
stock options vest in accordance with corporate performance criteria established
from time to time by the Committee. The exercise price of stock options is
typically 100% of fair market value of the underlying stock on the date of
grant.
The Compensation Committee considers, periodically, the grant of stock-based
compensation to all executive officers. Such grants are made on the basis of a
subjective analysis of individual performance, the Company's financial
performance, and the executive's existing options.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million paid to certain Named Executive
Officers in a taxable year. Compensation above $1 million may be deducted if it
is "performance-based compensation" within the meaning of the Code. The
Compensation Committee has determined that stock options granted under the 1987
Plan and the Equity Plan with exercise prices at least equal to the fair market
value of the Company's Common Stock on the date of grant shall be treated as
"performance-based compensation."
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary established for Mr. Abelmann for fiscal 1998 was determined
based upon reference to external competitive pay practices, the above described
compensation approach to executive officers and a subjective assessment by this
Committee of Mr. Abelmann's performance. In addition, as a result of both the
Company's and his individual performance during fiscal 1998, Mr. Abelmann was
awarded a cash bonus of $127,875 and granted options to purchase 325,000 shares
of Common Stock.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
William B. Elmore
David Pratt
20
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows a comparison of cumulative returns for the
Company's Common Stock, the Nasdaq Stock Market (United States Companies) and
the Nasdaq Computer and Data Processing Stocks Index on April 15, 1993, when the
Company's Common Stock commenced public trading, and at the end of fiscal years
1994 through 1998. The graph assumes an investment of $100 in each of the
Company's Common Stock, the Nasdaq Stock Market (United States Companies) and
Nasdaq Computer and Data Processing Stocks Index and that all dividends were
reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TOTAL STOCKHOLDER RETURN
FISCAL YEAR ENDED
WIND RIVER SYSTEMS, INC. NASDAQ US INDEX COMPOSITE
15-Apr-93 $100.00 $100.00
Jan-94 $60.49 $119.67
Jan-95 $87.65 $114.17
Jan-96 $280.25 $161.40
Jan-97 $753.72 $211.51
Jan-98 $813.90 $250.34
TOTAL STOCKHOLDER RETURN
FISCAL YEAR ENDED
NASDAQ COMPUATER & DATA PROCESSING
15-Apr-93 $100.00
Jan-94 $113.23
Jan-95 $127.33
Jan-96 $197.06
Jan-97 $267.51
Jan-98 $324.22
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(1) This section is not "soliciting material," is not deemed filed with the SEC,
and is not to be incorporated by reference into any filing of the Company
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, whether made before or after the date hereof and
irrespective of any general incorporation language contained in such filing.
21
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
RICHARD W. KRABER
SECRETARY
May 22, 1998
22
WIND RIVER SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1998
The undersigned hereby appoints Ronald A. Abelmann and Richard W.
Kraber, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of Wind River
Systems, Inc. which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of Wind River Systems, Inc. to be held at 980
Atlantic Avenue, Alameda, California on June 25, 1998 at 10:00 a.m., local
time, and at any and all postponements, continuations and adjournments
thereof, with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with
the following instructions, with discretionary authority as to any and all
other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, AND 4, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(CONTINUED, AND TO BE DATED AND SIGNED ON OTHER SIDE)
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE USING DARK INK ONLY.
MANAGEMENT RECOMMENDS A VOTE "FOR" THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below). listed below.
NOMINEES: Jerry L. Fiddler, Ronald A. Abelmann, David N. Wilner, William B.
Elmore, David B. Pratt
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)' NAME(S)
BELOW
- --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE "FOR" PROPOSALS 2, 3 AND 4.
PROPOSAL 2: To approve an amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase the authorized number of
shares of Common Stock from 75,000,000 to 125,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 3: To approve the Company's 1998 Equity Incentive Plan and the issuance
of 1,000,0000 shares of Common Stock thereunder.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 4: To ratify selection of Price Waterhouse LLP as independent
accountants of the Company for its fiscal year ending January 31,
1999.
/ / FOR / / AGAINST / / ABSTAIN
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Dated _________________ ________________________________________________
________________________________________________
Signature(s)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED
IN THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR
TITLES. IF SIGNER IS A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE
A DULY AUTHORIZED OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.