`
SCHEDULE 14A INFORMATION
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 Sec. 240.14a-11-C- or Sec. 240 14a-12
EXTENDED SYSTEMS INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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paid previously. Identify the previous filing by registration statement
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[LETTERHEAD]
NOTICE OF THE 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 5, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders (the
"Annual Meeting") of Extended Systems Incorporated, a Delaware corporation (the
"Company"), will be held Thursday, November 5, 1998, at 9:00 a.m., local time,
at the Doubletree Hotel Boise Riverside located at 2900 Chinden Boulevard,
Boise, Idaho, for the following purposes:
1. To elect two Class III directors to serve until the 2001 Annual Meeting of
Shareholders or until their successors are duly elected and qualified;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the Company's fiscal year ending June
30, 1999; and
3. 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 accompanying this Notice.
The Board of Directors has fixed the close of business on September 7,
1998, as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting. Only shareholders of record at the
close of business on September 7, 1998, are entitled to notice of and to vote at
the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date, and return the enclosed Proxy as promptly as possible
in the postage prepaid envelope enclosed for that purpose. Any shareholder
attending the Annual Meeting may vote in person even if he or she has returned a
Proxy.
By Order of the Board of Directors,
Robert G. Hamlin
Secretary
Boise, Idaho
October 2, 1998
IMPORTANT: IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING,
REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE REQUESTED TO COMPLETE,
SIGN, DATE, AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE PROVIDED.
EXTENDED SYSTEMS INCORPORATED
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Extended Systems Incorporated, a Delaware corporation (the "Company"), for use
at the 1998 Annual Meeting of Shareholders (the "Annual Meeting") to be held
Thursday, November 5, 1998 at 9:00 a.m., local time, or at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held at the
Doubletree Hotel Boise Riverside located at 2900 Chinden Boulevard, Boise,
Idaho.
The Company's principal executive offices are located at 5777 North Meeker
Avenue, Boise, Idaho 83713. These proxy solicitation materials were first mailed
on or about October 2, 1998, together with the Company's 1998 Annual Report to
Shareholders, to all shareholders entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company's Secretary a
written notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Pursuant to Delaware General Corporation Law and the Company's Restated
Certificate of Incorporation and Bylaws, each shareholder will be entitled to
one vote for each share of the Company's Common Stock held at the close of
business on September 7, 1998 (the "Record Date"), for all matters, including
the election of directors. Shareholders do not have the right to cumulate their
votes in the election of directors. The Company's transfer agent, BankBoston
N.A., will tabulate the votes at the Annual Meeting.
This solicitation of proxies is made by the Company, and the Company will
bear all related costs. The Company has elected to retain the services of
Corporate Investor Communications, Inc. for the purposes of conducting the
broker nominee search, distribution of proxy materials to banks, brokers,
nominees and intermediaries and solicitation in order to obtain voted proxies
for the Annual Meeting at an estimated cost of $1,000, plus out of pocket
expenses. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares of the Company's Common Stock
for their expenses in forwarding solicitation material to such beneficial
owners. Certain of the Company's directors, officers and regular employees may
also solicit proxies without additional compensation, personally or by telephone
or telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of the
Company's Common Stock issued and outstanding on the Record Date. Shares that
are voted "FOR," "WITHHOLD AUTHORITY" or "AGAINST" a matter are treated as being
present at the Annual Meeting for the purposes of establishing a quorum and are
also treated as shares entitled to vote at the Annual Meeting (the "Votes Cast")
with respect to such matter.
1
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of a controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
of voting against a proposal.
In a 1988 Delaware case, BERLIN V. EMERALD PARTNERS, the Delaware Supreme
Court held that, while broker non-votes should be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which a broker has
expressly not voted. Accordingly, the Company intends to treat broker non-votes
in this manner. Thus, a broker non-vote will not effect the outcome of the
voting on a proposal.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules promulgated by
the Securities and Exchange Commission. Proposals of shareholders of the
Company intended to be presented for consideration at the Company's 1999 Annual
Meeting of Shareholders (the "1999 Annual Meeting") must be received by the
Company no later than June 4, 1999, in order that they may be included in the
proxy statement and form of proxy related to that meeting.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a shareholder intends to
submit a proposal at the 1999 Annual Meeting, which is not eligible for
inclusion in the proxy statement and form of proxy relating to that meeting, the
shareholder must do so no later than August 18, 1999. If such a shareholder
fails to comply with the foregoing notice provision, the proxy holders will be
allowed to use their discretionary voting authority when the proposal is raised
at the 1999 Annual Meeting.
RECORD DATE
Only shareholders of record at the close of business on September 7, 1998,
are entitled to notice of and to vote at the Annual Meeting. The Company has one
class of voting securities outstanding, which is designated as Common Stock,
$0.001 par value per share. As of the Record Date, 8,247,260 shares of the
Company's authorized Common Stock were issued and outstanding.
PRINCIPAL SHARE OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date with respect to
(i) each person who is known by the Company to own beneficially more than 5% of
the Company's outstanding shares of Common Stock, (ii) each director of and each
nominee for director of the Company, (iii) each of the executive officers named
in the Summary Compensation Table in "Executive Compensation and Other Matters"
below, and (iv) all directors and executive officers of the Company as a group.
Except as otherwise indicated, the address of each of the persons listed in the
table below is as follows: c/o Extended Systems Incorporated, 5777 North Meeker
Avenue, Boise, Idaho 83713.
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AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON STOCK
NAME OF BENEFICIAL OWNER OWNERSHIP (1) OUTSTANDING
----------------------------------------- ------------------- -------------
Douglas B. Winterrowd................... 1,462,300 (2) 17.7%
Charles M. Jopson...................... 1,233,777 (3) 15.0%
Gary D. Atkins.......................... 912,578 (4) 10.6%
P.O. Box 68
Pinedale, Wyoming 82941
Ted L. Wimer............................ 970,578 (5) 11.8%
Raymond A, Smelek....................... 370,491 (6) 4.3%
Steven D. Simpson....................... 105,363 (7) 1.3%
S. Scott Wald........................... 33,607 (8) *
Gregory M. Avis......................... 90,000 (9) 1.1%
John M. Russell......................... 10,000 *
Holmes T. Lundt......................... 324,063(10) 3.9%
Thomas C. White......................... 30,081(11) *
Scott J. Ritchie........................ 14,875(12) *
All directors and executive officers
as a group (11 persons)............. 2,526,384 28.6%
- --------------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable, or exercisable within 60 days of
September 7, 1998, and are deemed outstanding for computing the percentage
of the person holding such options but are not deemed outstanding for
computing the percentage of any other person. Except as indicated by a
footnote and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock owned by them.
(2) Includes 333,872 shares held of record by the Employee Stock Ownership Plan
for which Mr. Winterrowd serves as trustee. Mr. Winterrowd is Chief
Engineer and a director of the Company.
(3) Includes 6,000 shares held of record by Mr. Jopson's daughter. Mr. Jopson
is an employee of the Company.
(4) Includes 15,277 shares held of record by Mr. Atkins' wife and 333,334
shares subject to options exercisable within 60 days of September 7, 1998.
(5) Mr. Wimer is an employee of the Company.
(6) Includes 1,942 shares held of record by Smelek & Associates, a business
owned by Mr. Smelek's wife, 17,933 shares held of record by Mr. Smelek's
wife and 271,333 shares subject to options exercisable within 60 days of
September 7, 1998. Mr. Smelek is Chairman of the Board of Directors.
(7) Includes 104,245 shares subject to options exercisable within 60 days of
September 7, 1998. Mr. Simpson is the President, Chief Executive Officer
and a director of the Company.
(8) Includes 19,607 shares subject to options exercisable within 60 days of
September 7, 1998. Mr. Wald is a director of the Company.
(9) Represents 1,090 shares held by Summit Investors II, L.P. and 73,910 shares
held by Summit Ventures II, L.P. Mr. Avis is the Managing Partner of Summit
Partners, L.P. which is the general partner of Summit Investors II, L.P.
("Summit Investors") and Summit Ventures II, L.P. ("Summit Ventures").
Summit Investors and Summit Ventures also hold subordinated notes
convertible into 557,787 shares of the Company's Common Stock. Mr. Avis is
a director of the Company.
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(10) Includes 68,667 shares subject to options exercisable within 60 days of
September 7, 1998. Mr. Lundt is Vice President of Corporate Research and
Development and Business Development of the Company.
(11) Represents shares subject to options exercisable within 60 days of
September 7, 1998. Mr. White is Vice President of Sales and Marketing of
the Company.
(12) Includes 14,532 shares subject to options exercisable within 60 days of
September 7, 1998. Mr. Ritchie is Vice President of Operations of the
Company.
PROPOSAL ONE
ELECTION OF CLASS III DIRECTORS
Two Class III Directors are to be elected at the Annual Meeting to serve
for a three-year term or until their successors are duly elected and qualified.
The Company's Board of Directors is divided into three classes. The term of each
class of directors is three years. Unless otherwise instructed, the holders of
proxies solicited by this Proxy Statement will vote the proxies received by them
for the Company's two nominees named below, both of whom are currently serving
the Company as Class III Directors. In the event that a nominee is unable or
declines to serve as a Class III Director at the time of the Annual Meeting, the
proxy holders will vote for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. The Company is not aware of any reason
that any nominee will be unable or will decline to serve as a Class III
Director. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner as will assure the election of as many of the nominees listed below as
possible, and, in such event, the specific nominees to be voted for will be
determined by the proxy holders.
NOMINEES FOR ELECTION AS CLASS III DIRECTORS FOR A TERM EXPIRING IN 2001
RAYMOND A. SMELEK; AGE 63; CHAIRMAN OF THE BOARD OF DIRECTORS. Mr. Smelek
has served as the Company's Chairman of the Board of Directors since June 1995
and has been a Director of the Company since June 1994. From June 1994 to
February 1996, he was the Company's President and Chief Executive Officer. Prior
to joining the Company, Mr. Smelek was employed by Hewlett-Packard and held a
number of positions, most recently as Vice President and General Manager of the
Mass Storage Group. Mr. Smelek is a director of Inference Corporation.
S. SCOTT WALD; AGE 43; PRESIDENT, ROMAR SERVICES, L.L.C. Mr. Wald has been
a Director of the Company since July 1994. He was the founder of ASAP Software
Express, Inc. ("ASAP") and served as President and Chief Executive Officer of
ASAP from September 1985 to June 1998.
INCUMBENT CLASS I DIRECTORS SERVING FOR A TERM EXPIRING IN 1999
STEVEN D. SIMPSON; AGE 51; PRESIDENT AND CHIEF FINANCIAL OFFICER, EXTENDED
SYSTEMS, INCORPORATED. Mr. Simpson has served as the Company's President and
Chief Executive Officer and as a director since January 1996. From January 1995
to January 1996, Mr. Simpson served as the Company's Executive Vice President of
Sales and Marketing. From 1978 to 1994, Mr. Simpson was employed by
Hewlett-Packard. From 1991 to 1994, Mr. Simpson was General Manager of the Boise
LaserJet Printer Division
DOUGLAS B. WINTERROWD; AGE 47; CHIEF ENGINEER. Mr. Winterrowd is a
founder of the Company and has been a Director since October 1995. Previously,
he served as Director of the Company from 1984 to 1992. Mr. Winterrowd has
served as Chief Engineer since February 1994 and, prior to such time, held
various positions with the Company, including Program Manager, Quality Assurance
Manager, Technical Support Manager, Project Manager and Senior Engineer.
4
INCUMBENT CLASS II DIRECTORS SERVING FOR A TERM EXPIRING IN 2000
GREGORY M. AVIS; AGE 39; GENERAL PARTNER, SUMMIT PARTNERS, L.P. Mr. Avis
has been a Director of the Company since September 1992. He has served as a
General Partner of Summit Partners, L.P., a venture capital partnership, since
1987 and has served as a Managing Partner of Summit Partners, L.P. since 1990.
Mr. Avis is also a director of Digital Link Corporation, Powerwave Technologies,
Inc. and Splash Technology Holdings, Inc.
JOHN M. RUSSELL; AGE 56; RETIRED. Mr. Russell has been a Director of the
Company since April 1998. He is currently retired. From December 1991 to March
1994, Mr. Russell served as Vice President of Finance and Administration, Chief
Financial Officer and Secretary of Cisco Systems, Inc.
VOTE REQUIRED
If a quorum is present and voting, the two nominees who receive the highest
number of affirmative votes will be elected to the Board of Directors as Class
III Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE TWO
NOMINEES FOR CLASS III DIRECTORS NAMED ABOVE.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended June 30, 1998, ("Fiscal 1998") the Board of
Directors held 11 meetings (including regularly scheduled and special meetings),
and all of the incumbent directors attended 75% or more of the meetings of the
Board of Directors and committees upon which such directors served, except Mr.
Avis, who was present at 8 of the 11 Board meetings and all committee meetings
of which he was a member. Certain matters were approved by the Board of
Directors by unanimous written consent. The Company's Board of Directors has an
Audit Committee, Compensation Committee and Nominating Committee.
AUDIT COMMITTEE. The Audit Committee of the Board of Directors reviews and
monitors the corporate financial reporting and external audits of the Company,
including among other things, the Company's internal control functions, the
results and scope of the annual audit and other services provided by the
Company's independent accountants, and the Company's compliance with legal
matters with a significant impact on the Company's financial reports. In
addition, the Audit Committee has the responsibility to consider and recommend
the appointment of the Company's independent accountants. The Audit Committee
also monitors transactions between the Company and its officers, directors and
employees for any potential conflicts of interest. The current members of the
Audit Committee are Gregory M. Avis (Chairman) and John M. Russell. The Audit
Committee held one meeting in Fiscal 1998.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors reviews and makes recommendations to the Board regarding the Company's
compensation policy and all forms of compensation to be provided to executive
officers and directors of the Company, including, among other things, annual
salaries and bonuses, and stock option and other incentive compensation
arrangements. In addition, the Compensation Committee reviews stock
compensation arrangements for all other employees of the Company. As part of the
foregoing responsibilities, the Compensation Committee also administers the
Company's 1998 Stock Plan and 1998 Employee Stock Purchase Plan. The current
members of the Compensation Committee are S. Scott Wald (Chairman) and Gregory
M. Avis. The Compensation Committee held four meetings in Fiscal 1998.
NOMINATING COMMITTEE. The Nominating Committee of the Board of Directors
reviews and makes recommendations to the Board regarding annual elections of
directors and potential new directors. The Nominating Committee will consider
qualified nominees for director whose names are submitted in accordance with the
Company's Restated Bylaws. The current members of the Nominating Committee are
5
Raymond A. Smelek (Chairman), Gregory M. Avis and S. Scott Wald. The Nominating
Committee held three meetings in Fiscal 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during Fiscal 1998 consisted of S. Scott Wald
and Gregory M. Avis, neither of whom is or has been an officer or employee of
the Company. No interlocking relationship exists between the Company's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent public accountants to audit the Company's financial
statements for the fiscal year ending June 30, 1999 ("Fiscal 1999"). The Board
of Directors recommends that shareholders vote "FOR" ratification of such
appointment. In the event of a negative vote on ratification, the Board of
Directors will reconsider its selection.
PricewaterhouseCoopers LLP has audited the Company's financial statements
annually since the Company's fiscal year ended June 30, 1984. Representatives of
PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR FISCAL 1999.
6
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned during the Company's
fiscal years ended June 30, 1998, 1997 and 1996, by (i) the Company's Chief
Executive Officer and (ii) the Company's four other most highly compensated
executive officers whose total annual salary and bonus during the fiscal year
exceeded $100,000 (collectively, the "Named Executive Officers").
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- ---------------
SECURITIES ALL OTHER
NAME AND FISCAL UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (1)
------------------------------------------ -------- ------------ ----------- --------------- ----------------
Steven D. Simpson....................... 1998 $217,500 $ 4,922 36,667 $ 43,133 (2)
President and Chief 1997 193,333 4,256 33,333 59,268 (3)
Executive Officer 1996 164,586 - 43,333 73,188 (4)
Scott J. Ritchie........................ 1998 132,225 2,997 16,667 5,102 (5)
Vice President, Operations 1997 120,450 2,657 6,000 4,448 (6)
1996 63,338 (7) 15,000 33,333 64 (8)
Holmes T. Lundt......................... 1998 129,300 2,926 8,667 4,998 (9)
Vice President, Corporate Research 1997 122,850 2,711 4,000 4,334 (10)
and Development and Business 1996 114,625 - - 5,619 (11)
Development
Thomas C. White......................... 1998 120,000 41,291 (12) 16,667 16,613 (13)
Vice President, Sales and Marketing 1997 110,040 41,402 (14) 6,000 16,321 (15)
1996 100,873 29,536 (16) - 14,567 (17)
Raymond A. Smelek....................... 1998 100,000 27,259 10,000 4,070 (18)
Chairman of the Board of Directors 1997 100,000 27,212 - 2,486 (19)
1996 201,667 50,000 6,667 326,786 (20)
(1) Includes $78 in premiums paid by the Company with respect to term life
insurance for the benefit of the respective individual.
(2) Includes $6,449 of contributions by the Company to defined contribution
plans and $36,684 deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(3) Includes $5,674 of contributions by the Company to defined contribution
plans and $53,516 deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(4) Includes $8,055 of contributions by the Company to defined contribution
plans and $65,133 deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(5) Includes $5,102 of contributions by the Company to defined contribution
plans.
(6) Includes $4,448 of contributions by the Company to defined contribution
plans.
(7) Mr. Ritchie joined the Company in December 1995; therefore, his salary for
the year ended June 30, 1996, represents 7 months of compensation.
(8) Includes $64 of contributions by the Company to defined contribution plans.
(9) Includes $4,998 of contributions by the Company to defined contribution
plans.
(10) Includes $4,334 of contributions by the Company to defined contribution
plans.
(11) Includes $5,619 of contributions by the Company to defined contribution
plans.
(12) Includes sales commissions of $38,580.
(13) Includes $6,163 of contributions by the Company to defined contribution
plans and $10,450 deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(14) Includes sales commissions of $38,968.
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(15) Includes $4,983 of contributions by the Company to defined contribution
plans and $11,260 deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(16) Includes sales commissions of $29,536.
(17) Includes $3,307 of contributions by the Company to defined contribution
plans and $11,260 deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(18) Includes $4,070 of contributions by the Company to defined contribution
plans.
(19) Includes $2,408 of contributions by the Company to defined contribution
plans.
(20) Includes $4,786 of contributions by the Company to defined contribution
plans and $322,000 stock compensation from the exercise of stock options.
OPTION GRANTS DURING FISCAL 1998
The following table provides information with respect to grants by the
Company to the Named Executive Officers during Fiscal 1998, of options to
purchase shares of its Common Stock.
POTENTIAL REALIZABLE
INDVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF SHARES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM (3)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION --------------------------
NAME GRANTED (1) LAST FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
---------------------------- ----------------- ------------------ -------------- ---------- --------------------------
Steven D. Simpson.......... 10,000 (2) 2.3% $ 7.05 07/01/07 $ 114,837 $ 182,859
26,667 6.0% 8.00 12/24/07 347,502 553,339
Scott J. Ritchie........... 16,667 3.8% 8.00 12/24/07 217,190 345,839
Holmes T. Lundt............ 4,667 1.1% 8.00 12/24/07 60,816 96,840
4,000 0.9% 8.13 04/07/08 52,939 84,297
Thomas C. White............ 16,667 3.8% 8.00 12/24/07 217,190 345,839
Raymond A. Smelek.......... 10,000 (2) 2.3% 7.05 08/14/07 114,837 182,859
(1) Unless otherwise noted, all options vest over a period of 4 years and have
a ten year term.
(2) Options vest over a period of 5 years and have a 10-year term.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant, which is 10 years, and is calculated by
assuming that the stock price on the date of grant, which is based on the
closing sales price of the Company's Common Stock on that date as reported
by the Nasdaq National Market System, 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 price. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock and overall stock
market conditions.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL 1998 OPTION VALUES
The following table sets forth the number of shares acquired upon exercise
of stock options during Fiscal 1998 by each of the Named Executive Officers, and
the value of unexercised options as of June 30, 1998. Also reported are values
"in-the-money" options that represent the positive "spread" between the
respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock as of June 30, 1998, as determined by the
Board of Directors.
8
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END (1) AT FISCAL YEAR-END (2)
------------------------------ -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------------- ------------- --------------- ------------- ---------------
Steven D. Simpson............ 115,579 93,334 $ 477,964 $ 34,711
Scott J. Ritchie............. 14,532 41,468 17,798 26,701
Holmes T. Lundt.............. 52,400 16,267 32,800 -
Thomas C. White.............. 30,081 22,800 35,204 8,798
Raymond A. Smelek............ 269,333 14,001 2,839 4,261
(1) No Named Executive Officer exercised options during Fiscal 1998.
(2) The value of unexercised "in-the-money" options is calculated based on a
price of $6.75 per share, the closing sales price of the Company's Common
Stock on June 30, 1998, as reported by the Nasdaq National Market System.
Amounts reflected are based on the assumed value minus the exercise price
and do not necessarily indicate that the optionee sold such stock.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
The Company has entered into employment agreements with each Named
Executive Officer. These agreements generally set forth the individual's salary,
position and benefits. In addition, Mr. Simpson's contract with the Company
entitles Mr. Simpson to a continued salary and bonus for a period of 12 months
if he is terminated by the Company without cause or without 12-months written
notice.
DIRECTOR COMPENSATION
Non-employee directors of the Company (the "Outside Directors") receive no
cash fees as compensation for their services as directors. The Outside Directors
are reimbursed for travel and other expenses incurred in attending meetings of
the Company's Board of Directors and meetings of committees of the Board of
Directors.
The Company's 1998 Director Option Plan (the "Director Plan") was adopted
by the Board of Directors in December 1997 and approved by the shareholders in
January 1998. The Director Plan became effective on March 2, 1998 in
conjunction with the effectiveness of the registration statement relating to the
Company's initial public offering. A total of 250,000 shares of Common Stock
were reserved for issuance under the Director Plan. The Outside Directors are
eligible to participate in the Director Plan. Option grants under the Director
Plan are automatic and non-discretionary, and the exercise price of the options
is 100% of the fair market value of the Common Stock on the grant date. The
Director Plan provides for an initial grant of an option to purchase 15,000
shares of Common Stock (the "First Option") to each Outside Director on the
later of the date on which such person first becomes an Outside Director or the
date of effectiveness of the Director Plan; provided, however, that an Inside
Director who ceases to be an Inside Director but who remains a Director shall
not receive the First Option. Thereafter, the Company shall automatically grant
to each Outside Director an option to purchase 7,500 shares of Common Stock (a
"Subsequent Option") on the date of the Company's annual meeting of stockholders
of each year; provided, however, that such Outside Director shall have served on
the Board for at least 6 months. Each First Option and each Subsequent Option
shall have a term of 10 years, or shorter upon termination of an Outside
Director's status as a director. The shares subject to each First Option shall
vest and become exercisable in installments at a rate of one-third of the total
of such shares on the first anniversary date of grant and at a rate of 1/36th of
the total of such shares per month thereafter. The shares subject to each
Subsequent Option shall vest and become exercisable in full on the first
anniversary of the date of grant of that Subsequent Option.
The Director Plan provides that in the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding option under the Director Plan will be assumed
or substituted for by the successor corporation (the "Successor Corporation").
9
If the Successor Corporation refuses to assume or substitute for the option, the
optionee shall have the right to exercise all of the optioned stock, including
shares as to which it would not otherwise be exercisable.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION POLICIES
The Company's executive compensation program is designed to: (i) enable
the Company to attract, retain and motivate superior executive personnel (ii)
align compensation with business objectives and performance; and (iii) align
incentives for executive officers with the interests of shareholders in
maximizing shareholder value. The Company's executive compensation program is
based on the same principles applicable to compensation decisions for all
employees of the Company.
The Company is committed to maintaining a compensation program that
attracts and retains the most qualified executives in the industry. To ensure
that its compensation program is competitive, the Company regularly compares its
compensation practices to those of other leading companies and sets its
parameters based on this review.
Employees, including executive officers, are rewarded based on the
Company's performance and the executive's individual performance. The Company's
performance is evaluated by reviewing the extent to which strategic and business
plan goals are met, including such factors as growth, profitability, performance
relative to competitors and timely new product introductions. Individual
performance is evaluated by reviewing organizational and management development
progress against set objectives and the degree to which teamwork and Company
values are fostered. The Company strives to compensate a particular individual
equitably compared to other employees at similar levels both inside the Company
and at comparable companies.
EXECUTIVE OFFICER COMPENSATION PROGRAM
SALARY. The Company sets a base salary range for each executive officer by
reviewing the base salary for comparable positions within a broad peer group,
including companies similar in size and businesses who compete with the Company
in the recruitment and retention of senior personnel. Generally, the Company
sets its competitive salary at the midpoint for an executive officer position
above the median level of those companies it surveys. The Company then creates a
salary range based on this midpoint. The range is designed to place an executive
officer above or below the midpoint, according to that officer's overall
individual performance. As described above, overall individual performance is
measured against the following factors: long-term strategic goals, short-term
business goals, growth, profitability, the development of employees and the
fostering of teamwork and other Company values. In both setting goals and
measuring an executive officer's performance against those goals, the Company
takes into account the performance of its competitors and general economic and
market conditions. None of the factors included in the Company's strategic and
business goals is assigned a specific weight. Instead, the Company recognizes
that these factors may change in order to adapt to specific business challenges
and to changing economic and marketplace conditions.
BONUS. The Company has an executive bonus that is designed to reward
executive officers for the Company's financial performance during the fiscal
year. Accordingly, an executive's bonus is calculated as a percentage of the
executive's base salary based on Company performance criteria established at the
beginning of each fiscal year, specifically, growth in net revenue and income
from operations.
PROFIT-SHARING. Executive officers are also eligible to participate in the
Company's profit-sharing plan. The Company reserves a percentage of income
before income taxes for distribution to all eligible employees worldwide,
including executive officers. Distributions are made at six-month intervals with
individual payments determined pro rata based on the employee's base salary.
10
EQUITY-BASED COMPENSATION. The purpose of the equity-based compensation
program is to provide employees, including executive officers, additional
incentive to maximize shareholder value. Option grants to executive officers
under the Company's 1998 Stock Plan are designed to further strengthen the link
between executive compensation and shareholder return, to provide additional
incentives to executive officers that are tied to growth of the Company's stock
price over time and encourage continued employment, with the options generally
vesting over a period of four years and granted at a price that is equal to the
fair market value of the Company's Common stock on the date of grant.
CEO COMPENSATION
Steven D. Simpson has been President and Chief Executive Officer of the
Company since February 1996. The Committee used the same compensation policy
described above to determine Mr. Simpson's Fiscal 1998 compensation. In setting
both the cash and equity-based elements of Mr. Simpson's compensation, the
Committee made an overall assessment of Mr. Simpson's leadership in achieving
the Company's objectives with respect to financial results and business goals
and the progress of the Company's initial public offering of its Common Stock,
which was completed in March 1998.
CASH COMPENSATION. Mr. Simpson's base salary reflects a consideration of
both competitive forces and the Company's performance. The Committee did not
assign specific weights to these categories. In determining the amount of Mr.
Simpson's salary for Fiscal 1998, the Committee considered the following:
(1) total cash compensation for chief executive officers at all
manufacturing companies with revenues of less than $100 million as
listed in the 1998 ECS GEOGRAPHIC REPORT ON TOP MANAGEMENT
COMPENSATION published by Watson Wyatt Data Services and cash
compensation at other comparable computer networking companies. In
both cases, the Committee used national data rather than regional
data; and
(2) the Company's financial results as compared to other companies within
the high-technology industry and the Company's financial performance
for Fiscal 1997 as compared to Fiscal 1996.
As a result of this review, the Committee concluded that Mr. Simpson's base
salary was in the low end of the competitive market, and his total direct
compensation (including stock incentives) was competitive for Chief Executive
Officers leading companies comparable in size and complexity to the Company.
Through Fiscal 1998, Mr. Simpson's annual salary was $220,000, the amount the
Committee set in July 1997.
EQUITY-BASED COMPENSATION. The Company follows the same policy described
above for other executive officers, to determine Mr. Simpson's incentive awards.
On July 1, 1997, the Committee granted Mr. Simpson an option to purchase
10,000 shares of Common Stock. In granting the option to Mr. Simpson, the
Committee reviewed the financial and operational results of the Company for the
fiscal year ended June 30, 1997 with internal goals and objectives.
On December 24, 1997, the Committee granted Mr. Simpson an option to
purchase 26,667 shares of Common Stock. The Committee awarded this option grant
at the same time the Company granted annual awards to other key employees under
its broad based stock option program.
QUALIFYING COMPENSATION
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code ("Section 162(m)") adopted under the Federal Revenue
Reconciliation Act of 1993. Section 162(m) disallows a tax deduction for any
publicly held corporation for certain executive officers' compensation
11
which exceeds $1 million per person in any taxable year unless it is
"performance-based" within the meaning of Section 162(m). Since to date the
non-performance based compensation to the Company's executive officers has been
below the $1 million threshold and since the Committee believes that options
granted under the Company's 1998 Stock Plan will meet the requirements of being
performance-based compensation under the provisions of Section 162(m), the
Committee believes that Section 162(m) will not reduce the tax deduction
available to the Company for Fiscal 1998 or prior fiscal years. The Company's
policy is, to the extent possible, to qualify its executive officers'
compensation for deductibility under the applicable tax laws.
Respectfully submitted,
S. Scott Wald, Chairman
Gregory M. Avis
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
with the Nasdaq Stock Market (U.S.) Index and the Russell 2000 Index for the
period March 4, 1998, the first public trading date of the Company's Common
Stock, to June 30, 1998. The graph assumes that $100 was invested on March 4,
1998 in the Company's Common Stock in the Nasdaq Stock Market and the Russell
2000 Index, and that all dividends were reinvested. No dividends have been
declared or paid on the Company's Common Stock. Shareholder returns over the
indicated period illustrated below should not be considered indicative of future
shareholder returns.
COMPARISON OF 4 MONTH CUMULATIVE TOTAL RETURN*
Extended Systems Incorporated,
The Nasdaq Stock Market (U.S.) Index
and the Russell 2000 Index
CUMULATIVE TOTAL RETURN
-----------------------
3/4/98 6/30/98
EXTENDED SYSTEMS INCORPORATED 100.00 84.38
NASDAQ STOCK MARKET (U.S.) 100.00 106.71
RUSSELL 2000 100.00 101.20
The information contained in the performance graph shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission (the "Commission"), nor shall such information be incorporated by
reference into any future filing under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, except to the extent that
the Company specifically incorporates it by reference into such filing.
12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's outstanding shares Common Stock to
file with the Commission reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company. Executive officers, directors
and greater than 10% shareholder are required by regulation of the Commission to
furnish the Company with copies of all Section 16(a) forms that they file with
the Commission. Based solely on the Company's review of such forms received by
it, or written representations from certain reporting persons, the Company
believes that during Fiscal 1998 its executive officers and directors and
greater than 10% shareholders complied with all applicable filing requirements,
except for Gregory M. Avis and S. Scott Wald., who each filed amended reports on
Form 3 to report options granted to each of them by the Company on March 2,
1998, under the Company's 1998 Director Option Plan, and Gary D. Atkins, a
holder of more than 10% of the Company's outstanding Common Stock, who failed to
file a Form 4 reporting a sale or sales of shares of the Company's Common Stock
by his spouse.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual Meeting, or any
adjournment thereof, it is the intention of the persons named in the
accompanying form of proxy to vote the shares they represent as the Board of
Directors may recommend.
It is important that your shares be represented at the Annual Meeting,
regardless of the number of shares which you hold. You are therefore urged to
execute and return, at your earliest convenience, the accompanying proxy card in
the envelope which has been provided to you.
THE BOARD OF DIRECTORS
Dated: October 2, 1998
13
DETACH HERE
- --------------------------------------------------------------------------------
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
A VOTE FOR PROPOSALS 1 AND 2 ARE RECOMMENDED BY THE BOARD OF DIRECTORS.
1. Proposal to elect Raymond A. Smelek and S. Scott Wald as Class III
Directors to serve for a three-year term that expires upon the annual
meeting of shareholders in 2001, or until his successor is duly elected
VOTE / / / / WITHHOLD
FOR AUTHORITY
/ /
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To withhold authority for an individual nominee, write the nominee's name
on the line above.
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of / / / / / /
PricewaterHouseCoopers LLP as the
Independent accountants of the Company.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournments
or postponements thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign this Proxy exactly as your name appears on the books of the Company.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and, where more than one name appears,
a majority must sign. If a corporation, this signature should be that of any
authorized officer who should state his or her title.
EXTENDED SYSTEMS INCORPORATED
Dear Shareholder:
Please take note of the important information enclosed with this Proxy Ballot.
You are encouraged to read carefully the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote most by received prior to the Annual Meeting of Shareholders on
November 5, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Extended Systems Incorporated
DETACH HERE
- --------------------------------------------------------------------------------
PROXY
EXTENDED SYSTEMS INCORPORATED
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 5, 1998
The undersigned, having received notice of the meeting and the proxy statement
therefor, and revoking all prior proxies, hereby appoint(s) Steven D. Simpson
and Karla K. Rosa, and each of them, attorney or attorneys of the undersigned
(with full power of substitution) for and in the name(s) of the undersigned to
attend the Annual Meeting of Shareholders of Extended Systems Incorporated (the
"Company"), to be held at the DoubleTree Hotel Boise Riverside, 2900 Chinden
Boulevard, Boise, Idaho on November 5, 1998 at 9:00 a.m., and any adjourned or
postponed sessions thereof, and to vote and act upon the following matters in
respect of all shares of stock of the Company that the undersigned will be
entitled to vote or act upon, with all powers the undersigned would possess if
personally present.
Attendance of the undersigned at the meeting or at any adjourned or postponed
sessions thereof will not be deemed to revoke this proxy unless the undersigned
shall affirmatively indicate at the meeting the intention of the undersigned to
vote said shares in person. If the undersigned is not the registered direct
holder of his or her shares, the undersigned must obtain appropriate
documentation from the registered holder in order to be able to vote the shares
in person. If the undersigned hold(s) any of the shares of the Company in
fiduciary, custodial or joint capacity or capacities, this proxy is signed by
the undersigned in every such capacity as well as individually.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THE PROXIES SHALL VOTE
"FOR" PROPOSALS 1 AND 2.
This proxy is solicited on behalf of the Board of Directors of the Company.
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SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
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