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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
EXTENDED SYSTEMS INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
(LOGO)
NOTICE OF THE 2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 24, 2001
TO THE STOCKHOLDERS OF EXTENDED SYSTEMS INCORPORATED:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of Stockholders of Extended
Systems Incorporated, a Delaware corporation, will be held:
DATE: Wednesday, October 24, 2001
TIME: 10:00 a.m.
PLACE: Boise Centre on the Grove
850 West Front Street
Boise, Idaho
At our 2001 Annual Meeting, stockholders will be asked to vote on each of the
following:
1. Election of three nominees to serve as Class III directors on our
Board of Directors;
2. Approval of an increase in the number of shares reserved for issuance
under our 1998 Stock Plan by 500,000;
3. Ratification of the appointment of PricewaterhouseCoopers LLP as our
independent public accountants for fiscal 2002; and
4. Any other matters as may properly come before the meeting.
We more fully describe the matters to be voted on in the accompanying proxy
statement.
Only holders of record of our common stock at the close of business on September
5, 2001, are entitled to notice of and to vote at this meeting.
We cordially invite all stockholders to attend our 2001 Annual Meeting in
person.
By Order of the Board of Directors,
Robert G. Hamlin
Secretary
Boise, Idaho
September 19, 2001
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YOUR VOTE IS IMPORTANT!
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, WE URGE YOU TO COMPLETE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE TO ENSURE YOUR
REPRESENTATION AT THE MEETING. SENDING IN YOUR PROXY WILL NOT PREVENT YOU FROM
VOTING YOUR SHARES AT THE MEETING IF YOU DESIRE TO DO SO, AS YOUR PROXY IS
REVOCABLE AT YOUR OPTION.
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EXTENDED SYSTEMS INCORPORATED
PROXY STATEMENT
FOR
2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 24, 2001
The Board of Directors of Extended Systems Incorporated is soliciting proxies
for our 2001 Annual Meeting of Stockholders to be held on Wednesday, October 24,
2001, at 10:00 a.m. The meeting will be held at the Boise Centre on the Grove,
which is located at 850 West Front Street, Boise, Idaho. Please read this Proxy
Statement carefully, as it contains important information for you to consider
when deciding how to vote on the matters brought before the meeting.
Our Board of Directors has set September 5, 2001, as the record date for the
meeting. Stockholders who owned shares of the Company's common stock of record
at the close of business on that date are entitled to vote at and attend the
meeting, with each share entitled to one vote. On the record date, the closing
price of our common stock on the Nasdaq National Stock Market was $3.30 per
share. There were 10,972,764 shares of our common stock, par value $0.001,
outstanding on the record date.
This Proxy Statement, together with our 2001 Annual Report to Stockholders, is
being mailed on or about September 19, 2001, to all stockholders entitled to
vote at the meeting.
In this Proxy Statement:
o "we", "Company" and "Extended Systems" mean Extended Systems Incorporated,
a Delaware corporation with principal executive offices located at 5777
North Meeker Avenue, Boise, Idaho 83713;
o references to fiscal years are to our fiscal years ended June 30; and
o holding shares in "street name" means your Extended Systems shares are
held in an account at a brokerage firm and the stock certificates and
record ownership are not in your name;
QUESTIONS AND ANSWERS
Q: WHY DID THE COMPANY SEND ME THIS PROXY STATEMENT AND PROXY CARD?
A: We sent to you this Proxy Statement and proxy card because you owned
shares of Extended Systems' common stock on the record date. This Proxy
Statement describes issues on which we would like you, as a stockholder,
to vote. It also gives you information on these issues so that you can
make an informed decision. The proxy card is used for voting.
Q. WHAT IS THE EFFECT OF SIGNING AND RETURNING THE PROXY CARD?
A. When you sign and return the proxy card, you appoint Steven D. Simpson
and Karla K. Rosa as your representatives at the meeting. Mr. Simpson
and Ms. Rosa, as the proxy holders, will vote your shares, as you have
instructed them on the proxy card, at the meeting. In this way, your
shares will be voted whether or not you attend the meeting. Even if you
plan to attend the meeting, it is a good idea to complete, sign and
return your proxy card in advance of the meeting just in case your plans
change. You can always vote in person at the meeting, even if you have
already sent in your proxy card.
It is not expected that any matters other than those described in this
Proxy Statement will be brought before the meeting. However, if any
other matters properly come before the meeting,
Mr. Simpson and Ms. Rosa will be authorized by your proxy to vote on
those matters in their discretion.
Q: WHAT AM I VOTING ON?
A: You are being asked to vote on the following:
o election of three nominees to serve as Class III directors on our
Board of Directors;
o approval of an increase in the number of shares reserved for
issuance under our 1998 Stock Plan by 500,000;
o ratification of the appointment of PricewaterhouseCoopers LLP as
our independent public accountants for fiscal 2002; and
o any other matters as may properly come before the meeting.
Stockholders will be entitled to one vote for each share of common stock
held. Stockholders do not have the right to cumulate their votes in the
election of directors. In accordance with Delaware General Corporation
Law and our Restated Certificate of Incorporation and Bylaws, if a
quorum is present at the meeting:
o the three nominees for director who receive the highest number of
affirmative votes cast in the election of Class III directors
will be elected,
o the proposal to increase the number of shares reserved for
issuance under our 1998 Stock Plan will be approved if such
proposal receives the affirmative vote of a majority of the votes
cast, and
o the proposal to ratify the appointment of independent public
accountants will be approved if such proposal receives the
affirmative vote of a majority of the votes cast.
Q: HOW DO I VOTE?
A: There are two ways in which you may vote (please see detailed
instructions on your proxy card). First, mail in your completed, signed
and dated proxy card. PLEASE NOTE, however, that if you return a signed
card but do not provide voting instructions, your shares will be voted
as follows: FOR the three (3) named nominees; FOR approval of the
increase in the number of shares reserved for issuance under our 1998
Stock Plan; and FOR ratification of the appointment of
PricewaterhouseCoopers LLP as our independent public accountants.
Second, vote in person by attending the meeting. We will pass out
written ballots to stockholders who desire to vote in person at the
meeting. PLEASE NOTE, however, that if you hold your shares in street
name, you must request a legal proxy from your stockbroker in order to
vote at the meeting.
Q: WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY CARD?
A: You may revoke your proxy (that is, cancel it) and change your vote at
any time prior to the voting at the meeting by doing any one of the
following:
o delivering written notice of revocation to the Corporate
Secretary;
o submitting a proxy card with a later date; or
o attending the meeting and voting in person.
Q: WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?
A: If your shares are held in street name, your brokerage firm may either
vote your shares on "routine" matters (such as election of directors) or
leave your shares unvoted. Your brokerage firm cannot vote on
"non-routine matters" such as a proposal submitted by a stockholder.
Accordingly, we encourage you to provide instructions to your brokerage
firm by completing the proxy that they send to you. This ensures that
your shares will be voted at the meeting.
Q: HOW ARE ABSTENTIONS COUNTED?
A: Stockholders may abstain from voting for the nominees for director and
may abstain from voting on the other proposals. While there is no
definitive statutory or case law authority in the State of Delaware as
to the proper treatment of abstentions, we believe that abstentions
should be counted for the purposes of determining both (1) the presence
or absence of a quorum for the transaction of business at the meeting
and (2) the total number of votes cast with respect to a proposal (other
than the election of directors). We will treat abstentions in this
manner. Accordingly, abstentions will have the same effect as voting
against a proposal (other than the election of directors), since
approval of these matters is based solely on the number of votes
actually cast. With respect to the election of directors, the nominees
who receive the most votes cast are elected as directors. Since
abstentions do not represent votes cast in favor of any nominee,
abstentions have no effect on the election of directors.
Q: WHAT IS A "BROKER NON-VOTE"?
A: As discussed briefly above, brokerage firms and other intermediaries
holding shares in street name for customers are generally required to
vote such shares in the manner directed by their customers. In the
absence of timely directions from their customers, brokers will
generally have the discretion to vote such shares on "routine" matters
(E.G., election of directors), but not on "non-routine" matters (E.G.,
stockholder proposals). The absence of a vote with respect to any
non-routine matter under these circumstances is referred to as a "broker
non-vote".
Q: HOW ARE BROKER NON-VOTES COUNTED?
A: Pursuant to applicable law, 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
determining the number of votes cast with respect to the particular
proposal on which a broker has expressly not voted. We intend to treat
broker non-votes in this manner. Accordingly, a broker non-vote will not
affect the outcome on any proposal, since approval of these matters is
based solely on the number of votes actually cast.
Q: WHAT IS A "QUORUM?"
A: A "quorum" is the number of shares that must be present, in person or by
proxy, at the meeting for business to be transacted at the meeting. The
required quorum for the meeting is a majority of the shares outstanding
as of the record date. All completed and signed proxy cards, whether
representing a vote for, against, withheld, abstained or a broker
non-vote, will be counted toward of the presence of a quorum at the
meeting.
Q: IS THERE A LIST OF STOCKHOLDERS AVAILABLE FOR MY REVIEW?
A: A complete list of stockholders will be available during normal business
hours for ten days prior to the meeting at our headquarters at 5777
North Meeker Avenue, Boise, Idaho, 83713. A stockholder may examine the
list for any legally valid purpose related to the meeting. The list will
also be available during the Annual Meeting for inspection by any
stockholder present at the meeting.
Q: HOW MANY SHARES CAN VOTE AT THE MEETING?
A: As of the record date, 10,972,764 shares of our common stock were
outstanding. In accordance with Delaware General Corporation Law and our
Restated Certificate of Incorporation and Bylaws, each outstanding share
of common stock as of the record date,
September 5, 2001, entitles the holder to one vote on all matters
covered in this Proxy Statement. There are a maximum of 10,972,764 votes
that may be cast at the meeting.
Q: WHO IS THE INSPECTOR OF ELECTION?
A: In accordance with our Restated Bylaws, our Board of Directors has
appointed a representative of Fleet National Bank (Equiserve), our
transfer agent, to act as Inspector of Election at the meeting. The
Inspector of Election will determine:
o determine the number of shares outstanding and the voting power
of each share;
o determine the number of shares represented at the meeting;
o determine the existence of a quorum;
o determine the authenticity, validity and effect of proxies;
o receive votes or ballots;
o hear and determine all challenges and questions in any way
arising in connection with the right to vote;
o count and tabulate all votes;
o determine the result of the vote; and
o do such acts as may be proper to conduct the election or vote
with fairness to all stockholders.
Q: WHO IS SOLICITING MY VOTE?
A: This proxy solicitation is being made and paid for by Extended Systems.
We have retained the services of Georgeson Shareholder Communications,
Inc. to conduct the broker nominee search, distribute proxy materials to
banks, brokers, nominees and intermediaries, and solicit voted proxies
for the meeting. We will pay approximately $10,000, plus out-of-pocket
expenses, for these services. In addition, we will request brokerage
firms, nominees, custodians and fiduciaries to forward solicitation
materials to the beneficial owners, and we will reimburse such persons
for their reasonable out-of-pocket expenses in forwarding such
materials. Also, our directors, officers and other employees may solicit
proxies without additional compensation, personally by telephone, email,
telegram, or otherwise.
SHARE OWNERSHIP OF BENEFICIAL OWNERS
The table below shows the number of shares of our common stock beneficially
owned as of August 31, 2001 by the following persons:
o each person who we know beneficially owns more than 5% of our common stock;
o each director and nominee for director;
o each executive officer named in the Summary Compensation Table on page 10;
and
o all directors and executive officers as a group.
The address of each person listed in the table below is:
c/o Extended Systems Incorporated
5777 North Meeker Avenue
Boise, Idaho 83713
AMOUNT AND NATURE OF PERCENT OF COMMON
BENEFICIAL OWNERSHIP (1) STOCK OUTSTANDING
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Charles M. Jopson................... 1,225,596 (2) 11.2 %
Doug Winterrowd..................... 1,147,503 (3) 10.5
Ted L. Wimer........................ 973,480 (4) 8.9
Holmes T. Lundt..................... 350,474 (5) 3.2
Raymond A. Smelek................... 347,779 (6) 3.1
Steven D. Simpson................... 265,098 (7) 2.4
S. Scott Wald....................... 100,171 (8) *
Karla K. Rosa....................... 94,724 (9) *
Bradley J. Surkamer................. 66,894 (10) *
Scott J. Ritchie.................... 54,011 (11) *
John M. Russell..................... 47,500 (12) *
John J. Katsaros.................... 6,250 (13) *
Charles W. Jepson................... - -
All directors and executive
officers as a group (11 persons).. 2,480,404 21.2
Total current assets......
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* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes shares over which the
beneficial owner exercises voting or investment power. Shares of common
stock subject to options currently exercisable or exercisable within 60
days of August 31, 2001, are deemed outstanding for the purpose of
computing the percentage ownership of the person holding the options, but
are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. Except as otherwise indicated, and subject
to community property laws where applicable, we believe, based on
information provided by such persons, that the persons named in the table
above have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them.
(2) Includes 6,000 shares held of record by Mr. Jopson's daughter and 588
shares held of record by Mr. Jopson's son. Mr. Jopson is an Extended
Systems employee.
(3) Includes 26,000 shares held of record by the Doug and Eileen Education
Trust. Mr. Winterrowd is Chief Engineer and a director.
(4) Includes 2,032 shares held of record by Mr. Wimer's spouse. Mr. Wimer is
an Extended Systems employee.
(5) Includes 20,090 shares subject to options exercisable within 60 days of
August 31, 2001. Mr. Lundt is our Vice President of Research and
Development and Business Development.
(6) Includes 1,942 shares held of record by Smelek & Associates, a business
owned by Mr. Smelek's spouse, 17,933 shares held of record by Mr.
Smelek's spouse, 15,866 shares held of record by the Smelek Family
Foundation, and 232,209 shares subject to options exercisable within 60
days of August 31, 2001. Mr. Smelek is the Chairman of our Board of
Directors.
(7) Includes 211,888 shares subject to options exercisable within 60 days of
August 31, 2001. Mr. Simpson is our President, Chief Executive Officer
and a director.
(8) Includes 71,171 shares subject to options exercisable within 60 days of
August 31, 2001. Mr. Wald is a director.
(9) Includes 59,068 shares subject to options exercisable within 60 days of
August 31, 2001. Ms. Rosa is our Vice President of Finance and Chief
Financial Officer.
(10) Includes 54,872 shares subject to options exercisable within 60 days of
August 31, 2001. Mr. Surkamer is our Vice President of Worldwide Sales
and Service.
(11) Includes 10 shares held of record by Mr. Ritchie's son and 19,762 shares
subject to options exercisable within 60 days of August 31, 2001. Mr.
Ritchie resigned as our Vice President of Operations on June 30, 2001,
effective July 15, 2001.
(12) Includes 37,500 shares subject to options exercisable within 60 days of
August 31, 2001. Mr. Russell is a director.
(13) Includes 6,250 shares subject to options exercisable within 60 days of
August 31, 2001. Mr. Katsaros is a director.
PROPOSAL ONE
ELECTION OF CLASS III DIRECTORS
The number of directors authorized by our Restated Certificate of Incorporation
and Bylaws is currently fixed by our Board of Directors at seven. Our Board of
Directors is divided into three classes, with the classes serving for staggered,
three-year terms. At present, there are two Class I directors, two Class II
directors and three Class III directors.
Three Class III directors are to be elected at the 2001 Annual Meeting. The
Class III directors elected at the meeting will hold office until the 2004
Annual Meeting of Stockholders or until their successors have been duly elected
and qualified, except in the event of their earlier death, resignation or
removal.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the three nominees named below, each of whom is currently a director.
On September 10, 2001, our Board of Directors appointed Mr. Jepson to fill a
vacancy on the Board. In the event that any of the nominees becomes unable or
declines to serve as a director at the time of the meeting the proxy holders
will vote the proxies for any substitute nominee who is designated by the
current Board of Directors to fill the vacancy. It is not expected that either
nominee listed below will be unable or will decline to serve as a director. The
names of the three Class III nominees for director and certain information about
them are set forth below. The names of, and certain information about, the
current Class I and Class II directors with unexpired terms are also set forth
below.
NOMINEES FOR ELECTION AS CLASS III DIRECTORS SERVING FOR A TERM EXPIRING IN 2004
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CHARLES W. JEPSON; AGE 55; CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, WEBANGO, INC. Mr. Jepson was appointed to our board of
directors on September 10, 2001. He is the Chairman, President and CEO of
Webango, Inc., a provider of e-procurement software. From June 2000 to July
2001, he was the Senior Vice President of North American Field Operations at
eGain Communications, a provider of customer service software. From March 1998
to June 2000, Mr. Jepson was the President and Chief Executive Officer of
Inference Corporation, which was acquired by eGain in June 2000. From June 1997
to March 1998, Mr. Jepson was an independent consultant to small technology
companies. From March 1992 to May 1997, he was the President and Chief Executive
Officer of Interlink Computer Sciences.
RAYMOND A. SMELEK; AGE 66; CHAIRMAN OF THE BOARD OF DIRECTORS, EXTENDED SYSTEMS
INCORPORATED; CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER,
THE NETWORK GROUP. Mr. Smelek has served as the Chairman since June 1995 and has
been a director since June 1994. He is also currently the Chairman of the Board
of Directors and Chief Executive Officer of the Network Group, which provides
information technology services to enterprises. From June 1994 to February 1996,
he was our President and Chief Executive Officer. Prior to joining Extended
Systems, Mr. Smelek was employed by Hewlett-Packard Company and held a number of
positions, most recently as Vice President and General Manager of the Mass
Storage Group.
S. SCOTT WALD; AGE 46; PRESIDENT, ROMAR SERVICES, L.L.C. Mr. Wald has been a
director since July 1994. He was the founder of ASAP Software Express, Inc. and
served as President and Chief Executive Officer of ASAP from September 1985 to
June 1998.
INCUMBENT CLASS I DIRECTORS FOR A TERM EXPIRING IN 2002
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STEVEN D. SIMPSON; AGE 54; PRESIDENT AND CHIEF EXECUTIVE OFFICER, EXTENDED
SYSTEMS INCORPORATED. Mr. Simpson has served as our President and Chief
Executive Officer and as a director since January 1996. From January 1995 to
January 1996, Mr. Simpson served as our Executive Vice President of Sales and
Marketing. From 1978 to 1994, Mr. Simpson was employed by Hewlett-Packard
Company. From 1991 to 1994, Mr. Simpson was General Manager of the Boise
LaserJet Printer Division.
DOUGLAS B. WINTERROWD; AGE 50; CHIEF ENGINEER, EXTENDED SYSTEMS INCORPORATED.
Mr. Winterrowd is an Extended Systems founder and has been a director since
October 1995. Previously, he served as a director from 1984 to 1992. Mr.
Winterrowd has served as our Chief Engineer since February 1994 and, prior to
such time, held various positions at Extended Systems, including Program
Manager, Quality Assurance Manager, Technical Support Manager, Project Manager
and Senior Engineer.
INCUMBENT CLASS II DIRECTORS SERVING FOR A TERM EXPIRING IN 2003
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JOHN J. KATSAROS; AGE 50; PRESIDENT, NETSEDGE RESEARCH GROUP. Mr. Katsaros has
been a director since July 2000. He is the President of NetsEdge Research Group,
a marketing and strategy consulting firm. Mr. Katsaros was a Vice President at
Jupiter Communications, a global Internet commerce research and consulting
company. Prior to his position at Jupiter, Mr. Katsaros was the President of
Internet Research Group (formerly Collaborative Marketing), an Internet research
and consulting firm, which was acquired by Jupiter in March 2000.
JOHN M. RUSSELL; AGE 59; RETIRED. Mr. Russell has been a director 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
THREE NOMINEES FOR CLASS III DIRECTORS NAMED ABOVE.
BOARD MEETINGS AND COMMITTEES
During fiscal 2001, the Board of Directors held twenty-one meetings (including
regularly scheduled and special meetings). All of the incumbent directors
attended 75% or more of the meetings of the Board of Directors and committees
upon which directors served, with the exception of Mr. Russell, who attended 14
of the 21 meetings.
Our Board of Directors has the following committees:
AUDIT COMMITTEE. The Audit Committee reviews and monitors our corporate
financial reporting and external audits, including:
o our internal control functions;
o the results and scope of our annual audit and other services provided by our
independent accountants; and
o our compliance with legal matters with a significant impact on our financial
reports.
In addition, the Audit Committee has the responsibility to consider and
recommend the appointment of our independent accountants. The Audit Committee
also monitors transactions between Extended Systems and our officers, directors
and employees for any potential conflicts of interest. The current members of
the Audit Committee are Mr. Russell (Chairman), Mr. Jepson and Mr. Wald, each of
whom is independent as defined in the National Association of Securities Dealers
listing standards. The Audit Committee held four meetings in fiscal 2001.
COMPENSATION COMMITTEE. The Compensation Committee reviews and makes
recommendations to the Board of Directors regarding our compensation policy and
all forms of compensation to be provided to our directors, executive officers
and other employees, including:
o annual salaries and bonuses;
o stock option arrangements; and
o other incentive compensation arrangements.
The Compensation Committee also administers our stock plans. The current members
of the Compensation Committee are Mr. Wald (Chairman) and Mr. Katsaros. The
Compensation Committee held one meeting in fiscal 2001.
NOMINATING COMMITTEE. The Nominating Committee reviews and makes recommendations
to the Board of Directors 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 our bylaws. The current
members of the Nominating Committee are Mr. Smelek (Chairman), Mr. Katsaros and
Mr. Wald. The Nominating Committee did not meet in fiscal 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2001, the Compensation Committee consisted of Mr. Katsaros, Mr.
Russell and Mr. Wald, none of whom are or have been an officer or employee of
Extended Systems. No interlocking relationship exists between our Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company.
PROPOSAL TWO
INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE
UNDER OUR 1998 STOCK PLAN
Stockholders are being asked to approve an increase in the number of shares
reserved for issuance under our 1998 Stock Plan by 500,000 shares. Our Board of
Directors approved this increase on September 10, 2001.
PLAN ACTIVITY
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As of August 31, 2001, options to purchase an aggregate of 209,170 shares of
common stock issued under the 1998 Stock Plan had been exercised, and options to
purchase 1,708,820 shares were outstanding. Without taking into account the
proposal, 182,010 shares remained available for future grants as of August 31,
2001.
DESCRIPTION OF THE 1998 STOCK PLAN AND OPTION TERMS
---------------------------------------------------
The following is a summary of the principal provisions of our 1998 Stock Plan,
but it is not intended to be a complete description of all of the terms and
provisions of the plan. We will furnish a copy of the 1998 Stock Plan to you
upon written request to our Corporate Secretary at our principal executive
offices in Boise, Idaho.
HISTORY. Our Board of Directors adopted the 1998 Stock Plan on December 18,
1997, and our stockholders approved the 1998 Stock Plan on January 22, 1998 with
a total of 1,600,000 shares of our common stock reserved for issuance under the
plan. The stockholders approved a 500,000-share increase in the number of shares
reserved for issuance under the plan on October 25, 2000.
PURPOSE. The plan is intended to:
o provide additional compensation and incentives to individuals whose present
and potential contributions are important to our continued success;
o to afford such persons an opportunity to acquire a proprietary interest in
Extended Systems; and
o enable us to continue to attract and retain the best available talent.
SUMMARY OF THE PLAN AND OPTIONS.
Administration.............. Our Compensation Committee currently administers
the plan. Subject to the terms of the plan, the
Compensation Committee, based on recommendations
from management, determines:
o who will receive awards;
o the number of shares subject to each award;
o the terms and conditions of such awards; and
o the grant date.
The Compensation Committee also has the authority
to construe and interpret any of the provisions of
the plan or any options granted under the plan.
Eligibility................. Regular employees, directors and consultants may
be granted options under the plan.
Exercise Price.............. Generally the fair market value on the date of
grant.
Term........................ Generally 10 years, but could be a shorter period.
Vesting..................... Generally over a period of four years, vesting 25
percent on the first anniversary and 1/48 per
month thereafter.
Exercise.................... The optionee can choose to pay the exercise price
of the option with cash or with proceeds from a
cashless exercise. In a cashless exercise, the
optionee irrevocably instructs his or her
stockbroker to sell the shares to be acquired upon
exercise of the option and pay the exercise price
to us. The optionee can also exercise options by
delivering a promissory note to Extended Systems
in the amount of the exercise price. Promissory
notes are interest bearing, have a term equal to
or less than five years and are collateralized by
a pledge of the shares purchased by the promissory
note.
Transferability............. During the lifetime of the optionee, an option is
exercisable only by the optionee. An option may
not be transferred or assigned, except by will or
the laws of descent and distribution.
Termination of employment... An optionee has three months from the date of
termination of employment, except by reason of
death or disability, to exercise a vested stock
option. In the event of termination of employment
due to death or disability, an optionee (or their
legal representative) may exercise the vested
option within 12 months after the date of
termination of employment.
Merger or asset sale........ If we merge with or into another corporation or
sell substantially all of our assets, the
successor corporation will assume or substitute
each outstanding option under plan. If the
successor corporation refuses to assume or
substitute for options, the outstanding options
under the plan immediately become 100% vested and
the optionee will have the right to exercise all
of their outstanding options.
Term of plan................ The plan will expire on March 3, 2008, unless our
Board of Directors terminates it earlier.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO OPTIONEES. For U.S. federal income tax
purposes, under existing tax laws, an optionee does not realize taxable income
at the time of the grant of an option.
An optionee will have no taxable income upon exercise of an incentive stock
option (except that alternative minimum tax may apply) and generally will not
realize taxable income until the sale of the shares received upon exercise of
the option. If the optionee does not sell the shares until at least two years
after grant and one year after exercise of the option, any gain or loss realized
will be treated as long-term capital gain or loss. Under these circumstances,
Extended Systems will not be entitled to a compensation expense deduction in
connection with the grant or the exercise of the option. If the optionee sells
the shares prior to two years after grant or one year after exercise, the
difference between the option price and the amount realized upon sale of the
shares is taxable as ordinary income to the optionee and is deductible by
Extended Systems for U.S. federal income tax purposes.
Upon the exercise of a non-statutory stock option, the optionee realizes
ordinary income in the amount of the difference between the option price and the
fair market value of the shares on the date of receipt and Extended Systems is
entitled to a compensation expense deduction. On the subsequent sale of the
shares received in the exercise of a non-statutory stock options, the optionee
will realize a capital gain or loss, which will be short or long-term depending
on the period for which the shares are held prior to the sale, in the amount of
the difference between the fair market value of the shares on the date of
receipt and the amount realized on the sale.
The above is only a summary of the effect of federal income taxation upon the
optionee and Extended Systems with respect to the shares purchased under the
1998 Option Plan. You should reference the applicable provisions of the Internal
Revenue Code. In addition, the summary does not discuss the tax consequences of
an optionee's death or the income tax laws of any state or foreign country in
which the optionee may reside.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE 1998 STOCK PLAN.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as our
independent public accountants for fiscal 2002. PricewaterhouseCoopers LLP has
audited our financial statements and performed other audit-related services
since our inception in 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 from stockholders. Although the law does not require this action by
stockholders, the Board of Directors has determined that it is desirable to
request approval of this selection by the stockholders. Notwithstanding the
selection, the Board of Directors, in its discretion, may direct the appointment
of new independent auditors at any time during the year, if the Board of
Directors fees that such a change would be in the best interest of Extended
Systems and our stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT ACCOUNTANTS FOR
FISCAL 2002. IN THE EVENT OF A NEGATIVE VOTE ON RATIFICATION, THE BOARD OF
DIRECTORS WILL RECONSIDER ITS SELECTION.
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
We have included in the following table all compensation earned during the last
three years by our chief executive officer and our three other most highly
compensated executive officers whose total annual salary and bonus during fiscal
2001 exceeded $100,000.
LONG-TERM
COMPENSATION
AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
FISCAL -------------------------- UNDERLYING ALL OTHER
YEAR SALARY BONUS OPTIONS COMPENSATION
---------- -------------- ----------- ------------------- -------------------
Steven D. Simpson............................ 2001 290,000 - 125,000 6,100 (1)
President and 2000 250,000 - 40,000 4,650 (1)
Chief Executive Officer 1999 240,000 - 40,000 107,826 (2)
Karla K. Rosa................................ 2001 160,100 - 35,000 25,710 (3)
Vice President of Finance and 2000 136,290 - 14,000 4,089 (1)
Chief Financial Officer 1999 124,230 - 32,000 3,915 (1)
Scott J. Ritchie............................. 2001 159,361 - 16,000 170,329 (4)
Vice President of 2000 151,395 - 10,000 4,542 (1)
Operations 1999 142,410 - 24,500 4,484 (1)
Bradley J. Surkamer.......................... 2001 146,460 - 29,000 4,354 (1)
Vice President of 2000 136,350 - 14,000 3,917 (1)
Worldwide Sales and Service 1999 127,500 - 22,000 4,015 (1)
--------------
(1) Consists of contributions to our defined contribution plans.
(2) Includes $5,792 of contributions to our defined contribution plans and
$102,034 of deferred stock option compensation
(3) Includes $4,803 contributions to our defined contribution plans and $20,907
of deferred stock option compensation.
(4) Includes $4,781 contributions to our defined contribution plans, $62,390 of
deferred stock option compensation, and $103,158 of severance compensation.
Mr. Ritchie resigned on June 30, 2001, effective July 1, 2001.
OPTION GRANTS DURING FISCAL 2001
The following table includes information on grants of options to purchase shares
of our common stock that we made to the named executive officers during fiscal
2001. All options vest over a 4-year period and have 10-year terms. We
calculated the potential realizable value based on the following:
o the term of the option on its grant date;
o the assumption that the stock price on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option;
and
o the assumption 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 our common stock and overall stock market conditions.
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM
OPTIONS FISCAL PRICE PER EXPIRATION --------------------------------
NAME GRANTED 2001 SHARE DATE 5% 10%
--------------------------------- --------------- ------------------ ------------ ---------------- ---------------- ---------------
Steven D. Simpson............... 100,000 $47.50 08/09/10 $2,987,249 $7,570,277
25,000 7.54 06/06/11 118,547 300,420
--------------- ---------------- ---------------
Total 125,000 14.0% 3,105,796 7,870,697
Karla K. Rosa................... 25,000 35.50 10/25/10 558,144 1,414,446
10,000 6.75 05/31/11 42,450 107,578
--------------- ---------------- ---------------
Total 35,000 3.9 466,640 1,182,557
Scott J. Ritchie................ 16,000 1.8 35.50 10/25/10 357,212 905,246
Bradley J. Surkamer............. 19,000 35.50 10/25/10 424,189 1,074,979
10,000 6.75 05/31/11 42,450 107,578
--------------- ---------------- ---------------
Total 29,000 3.2 600,594 1,522,024
FISCAL 2001 AGGREGATED OPTION EXERCISES
AND OPTION VALUES
The following table provides the number of shares acquired through the exercise
of stock options during fiscal 2001 by each of the named executive officers, and
the value of unexercised options as of June 30, 2001. We have also included the
values of "in-the-money" options that represent the positive "spread" between
the respective exercise prices of outstanding stock options and the fair market
value of our common stock as of June 30, 2001, as determined by the Board of
Directors.
We calculated the value of unexercised "in-the-money" options based on a price
of $6.92 per share, which was the closing sales price of our common stock on
June 29, 2001, as reported by the Nasdaq National Market System, minus the
exercise price. Amounts reflected do not necessarily indicate that the optionee
sold the shares of common stock.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE -------------------------------- ---------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------ ------------- ---------------- -------------- ----------------- --------------- ------------------
Steven D. Simpson............ - $ - 90,000 33,333 $132,614 $63,682
Karla K. Rosa................ 14,355 179,049 1,687 22,625 4,481 34,643
Scott J. Ritchie............. 39,373 1,581,534 6,011 9,604 11,758 25,281
Bradley J. Surkamer.......... - - 13,250 18,750 34,409 24,281
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
We have entered into employment agreements with each executive officer. These
agreements generally set forth the individual's position, salary and benefits
and requires us to continue to pay salary to bonus to the executive officers for
a period of 6 months if we terminate them without cause or without 6-months
written notice. In addition, Mr. Simpson's employment agreement requires us to
continue to pay salary and bonus to Mr. Simpson for a period of 12 months if we
terminate him without cause or without 12-months written notice.
DIRECTOR COMPENSATION
Our directors do not receive cash fees as compensation for their services as
directors. Our outside directors, directors that are not Extended Systems
employees, are, however, reimbursed for travel and other expenses incurred in
attending our Board of Directors meetings and meetings of committees of the
Board of Directors.
Our 1998 Director Option Plan was adopted by the Board of Directors in December
1997 and approved by the stockholders in January 1998. The director plan became
effective on March 4, 1998 in conjunction with the effectiveness of the
registration statement relating to our initial public offering. The Board of
Directors reserved a total of 250,000 shares of common stock for issuance under
the director plan. The outside directors are eligible to participate in the
plan. Option grants under the plan are automatic and non-discretionary, and the
exercise price of the options is 100% of the fair market value of our common
stock on the grant date.
Under the plan, each outside director receives an initial grant of an option to
purchase 15,000 shares of common stock on the date the outside director first
becomes a director. One-third of the shares from this initial grant vest and
become exercisable on the first anniversary of the date of grant and the
remaining shares vest and become exercisable at a rate of 1/36th per month of
the total shares.
After the initial grant, each outside director is automatically granted an
option to purchase 7,500 shares of our common stock on the date of our annual
meeting of stockholders each year, if the outside director has served on the
Board of Directors for at least 6 months. The shares from the director's annual
option vest and become exercisable in full on the first anniversary of the date
of grant of that option.
Each option under the director plan has a term of 10 years unless the outside
director ceases to be a director. If an outside director ceases to be a
director, the director will have three months from the date of termination as a
director to exercise a vested option, and only then to the extent that the
director was entitled to exercise the option on the date of termination.
If we merge with or into another corporation or sell substantially all of our
assets, the successor corporation will assume or substitute each outstanding
option under the director plan. If the successor corporation refuses to assume
or substitute for the options, the outstanding options under the director plan
immediately become 100% vested and the optionee will have the right to exercise
all of their outstanding options.
REPORT OF THE COMPENSATION COMMITTEE
SUMMARY OF EXECUTIVE COMPENSATION POLICIES
------------------------------------------
Our executive compensation program is designed to:
o enable us to attract, retain and motivate superior executive personnel,
o align compensation with business objectives and performance; and
o align incentives for executive officers with the interests of stockholders
in maximizing stockholder value.
Our executive compensation program is based on the same principles applicable to
compensation decisions for all of our employees.
We are committed to maintaining a compensation program that attracts and retains
the most qualified executives in the industry. To ensure that our compensation
program is competitive, we regularly compare our compensation practices to those
of other leading companies and set parameters based on this review.
Employees, including executive officers, are rewarded based on Extended Systems'
performance and the executive's individual performance. Our performance is
evaluated by reviewing the extent to which strategic and business plan goals are
met, including such factors as:
o growth;
o profitability;
o performance relative to competitors; and
o timely new product introductions.
We measure overall individual performance against the following factors:
o long-term strategic goals;
o short-term business goals;
o growth;
o profitability;
o the development of employees; and
o the fostering of teamwork and other values.
We strive to compensate a particular individual equitably compared to other
employees at similar levels both at Extended Systems and at comparable
companies.
EXECUTIVE OFFICER COMPENSATION PROGRAM
--------------------------------------
SALARY. We set 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 us in the recruitment
and retention of senior personnel. Generally, we set our competitive salary at
the midpoint for an executive officer position above the median level of those
companies that we survey. We then create 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.
In both setting goals and measuring an executive officer's performance against
those goals, we take into account the performance of our competitors and general
economic and market conditions. None of the factors included in our strategic
and business goals are assigned a specific weight. Instead, we recognize that
these factors may change in order to adapt to specific business challenges and
to changing economic and marketplace conditions.
BONUS. We have an executive bonus that is designed to reward executive officers
for our financial performance during the fiscal year. Accordingly, an
executive's bonus is calculated as a percentage of the executive's base salary
based on our performance criteria established at the beginning of each fiscal
year, specifically, growth in net revenue and income from operations. We did not
pay a bonus to executive officers for fiscal 2001.
PROFIT-SHARING. Executive officers are also eligible to participate in our
profit-sharing plan. We accrue a percentage of income before income taxes for
distribution to all eligible employees worldwide, including executive officers.
We make distributions at six-month intervals with individual payments determined
pro rata based on the employee's base salary. We did not pay profit sharing
distributions to executive officers for fiscal 2001.
EQUITY-BASED COMPENSATION. The purpose of our equity-based compensation program
is to provide employees, including executive officers, additional incentive to
maximize stockholder value. Option grants to executive officers under our 1998
Stock Plan are designed to:
o further strengthen the link between executive compensation and stockholder
return;
o provide additional incentives to executive officers that are tied to growth
of our stock price over time; and
o encourage continued employment.
Options generally vest over a period of four years and are granted at a price
that is equal to the fair market value of our common stock on the date of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION PROGRAM
--------------------------------------------
Steven D. Simpson has been our President and Chief Executive Officer since
February 1996. We, the Compensation Committee, used the same compensation policy
described above to determine Mr. Simpson's fiscal 2001 compensation. In setting
both the cash and equity-based elements of Mr. Simpson's compensation, we made
an overall assessment of his leadership in achieving Extended Systems'
objectives with respect to financial results and business goals.
CASH COMPENSATION. Mr. Simpson's base salary reflects a consideration of both
competitive forces and Extended Systems' performance. We did not assign specific
weights to these categories. In determining the amount of Mr. Simpson's salary
for fiscal 2001, we considered the following:
o total cash compensation for chief executive officers at all manufacturing
companies nationally with revenues of less than $100 million as listed in
the RADFORD EXECUTIVE COMPENSATION REPORT, 1998, published by the Radford
Division of Aon Consulting;
o cash compensation at other comparable computer networking companies
nationally;
o our financial results as compared to other companies within the
high-technology industry; and
o our financial performance for fiscal 2000.
As a result of this review, we 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 us. For fiscal 2001, Mr.
Simpson's annual salary was $290,000, the amount the Compensation Committee set
in July 2000.
EQUITY-BASED COMPENSATION. We follow the same policy described above for other
executive officers, to determine Mr. Simpson's incentive awards.
On August 9, 2000, we granted Mr. Simpson an option to purchase 100,000 shares
of common stock. In granting this option to Mr. Simpson, we reviewed our
financial and operational results for
fiscal 2000 with internal goals and objectives. On June 6, 2001 we granted Mr.
Simpson an additional option to purchase 25,000 shares of common stock.
QUALIFYING COMPENSATION
-----------------------
We considered the potential impact of Section 162(m) of the Internal Revenue
Code 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, 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 our executive
officers has been below the $1 million threshold and since the Compensation
Committee believes that options granted under our 1998 Stock Plan will meet the
requirements of being performance-based compensation under the provisions of
Section 162(m), we believe that Section 162(m) will not reduce the tax deduction
available to us for fiscal 2001 or prior fiscal years. Our policy is, to the
extent possible, to qualify our executive officers' compensation for
deductibility under the applicable tax laws.
Respectfully submitted,
S. Scott Wald, Chairman
REPORT OF THE AUDIT COMMITTEE
AUDIT
-----
You should not deem the information contained in this report to be "soliciting
material" or "filed" or incorporated by reference in our future filings with the
SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act
of 1934, as amended, except to the extent that we specifically incorporate it by
reference into a document that we file under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended.
The following is the report of our Audit Committee with respect to our audited
financial statements for the fiscal year ended June 30, 2001, included in our
Annual Report on Form 10-K for that year, as well as our unaudited quarterly
financial statements for fiscal 2001.
The Audit Committee has reviewed and discussed these financial statements with
our management.
The Audit Committee discussed with our independent public accountants,
PricewaterhouseCoopers LLP, the matters required to be discussed by Statement on
Auditing Standards No. 61, "Communication with Audit Committees," which
includes, among other items, matters related to the conduct of the audit of our
financial statements.
The Audit Committee received from the written disclosures and the letter from
PricewaterhouseCoopers LLP required by Independence Standards Board Standard No.
1, "Independence Discussions with Audit Committees," and discussed with
PricewaterhouseCoopers LLP the independence of PricewaterhouseCoopers LLP from
the Company.
Based on the review and discussions referred to above in this report, the Audit
Committee recommended to our Board of Directors that the audited financial
statements be included in our Annual Report on Form 10-K for fiscal 2001, for
filing with the SEC.
AUDIT, AUDIT-RELATED AND NON-AUDIT SERVICES AND FEES
----------------------------------------------------
During fiscal 2001, PricewaterhouseCoopers LLP provided Extended Systems with
various audit, audit-related and non-audit services. Aggregate fees of
approximately $150,000 were billed for professional services rendered for the
annual audit and the quarterly reviews of our consolidated financial statements
for fiscal 2001, and aggregate fees of approximately $30,000 were billed for all
other non-audit professional services rendered by PricewaterhouseCoopers LLP.
The Audit Committee believes that the provision of non-audit services during
fiscal 2001 is compatible with maintaining PricewaterhouseCoopers LLP's
independence and has determined that such services have not adversely affected
PricewaterhouseCoopers LLP `s independence.
Respectfully submitted,
John M. Russell, Chairman of the Audit Committee
CHARTER
-------
Our audit committee is governed by the following charter.
CHARTER FOR THE AUDIT COMMITTEE
PURPOSE
-------
The Audit Committee will make such examinations as are necessary to:
o monitor the corporate financial reporting and external audits of Extended
Systems Incorporated and its subsidiaries (the "Company");
o provide to the Board of Directors the results of its examinations and
recommendations derived therefrom;
o outline to the Board improvements made, or to be made, in internal
accounting controls;
o nominate independent auditors; and
o provide to the Board such additional information and materials as it may
deem necessary to make the Board aware of significant financial matters that
require Board attention.
In addition, the Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
from time to time prescribe.
MEMBERSHIP
----------
The Audit Committee will consist of at least three (3) members of the Board, all
of whom shall be independent directors, in accordance with the rules of the
Nasdaq National Market. The members of the Audit Committee will be appointed by
and will serve at the discretion of the Board of Directors.
RESPONSIBILITIES
----------------
The responsibilities of the Audit Committee shall include:
o reviewing on a continuing basis the adequacy of the Company's system of
internal controls;
o reviewing the independent auditors' proposed audit scope and approach;
o conducting a post-audit review of the financial statements and audit
findings, including any significant suggestions for improvements provided to
management by the independent auditors;
o reviewing the performance of the independent auditors;
o recommending the appointment of independent auditors to the Board of
Directors;
o reviewing before release the audited financial statements and Management's
Discussion and Analysis in the Company's annual report on Form 10-K;
o reviewing before release the unaudited quarterly operating results in the
Company's quarterly earnings release;
o overseeing compliance with SEC requirements for disclosure of auditor's
services and audit committee members and activities;
o reviewing management's monitoring of compliance with the Company's Standards
of Business Conduct and with the Foreign Corrupt Practices Act;
o reviewing, in conjunction with counsel, any legal matters that could have a
significant impact on the Company's financial statements;
o Providing oversight and review of the Company's asset management policies,
including an annual review of the Company's investment policies and
performance for cash and short-term investments;
o if necessary, instituting special investigations and, if appropriate, hiring
special counsel or experts to assist;
o reviewing related party transactions for potential conflicts of interest;
and
o performing other oversight functions as requested by the full Board of
Directors.
In addition to the above responsibilities, the Audit Committee will undertake
such other duties as the Board of Directors delegates to it, and will report, at
least annually, to the Board regarding the Committee's examinations and
recommendations.
MEETINGS
--------
The Audit Committee will meet at least two (2) times each year. The Audit
Committee may establish its own schedule, which it will provide to the Board of
Directors in advance.
The Audit Committee will meet separately with the Chief Executive Officer and
separately with the Chief Financial Officer of the Company at least annually to
review the financial affairs of the Company. The Audit Committee will meet with
the independent auditors of the Company, at such times as it deems appropriate,
to review the independent auditor's examination and management report.
MINUTES
-------
The Audit Committee will maintain written minutes of its meetings, which minutes
will be filed with the minutes of the meetings of the Board of Directors.
REPORTS
-------
The Audit Committee will record its summaries of recommendations to the Board in
written form which will be incorporated as a part of the minutes of the Board of
Directors meeting at which those recommendations are presented.
PERFORMANCE GRAPH
The following graph compares the performance of our common stock with the Nasdaq
Stock Market Index (U.S.) and the Russell 2000 Index for the period March 4,
1998, the first public trading date of our common stock, to June 30, 2001. The
graph assumes that $100 was invested on March 4, 1998, in our common stock and
on February 28, 1998, in the Nasdaq Stock Market Index and the Russell 2000
Index, and that all dividends were reinvested. We have not declared or paid any
dividends on our common stock. You should not consider stockholder returns over
the indicated period illustrated below indicative of future stockholder returns.
You should not consider the information contained in the performance graph to be
"soliciting material" or consider it as "filed" with the Securities and Exchange
Commission. This information should not 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, unless Extended Systems specifically does so.
[PERFORMANCE GRAPH APPEARS HERE]
[INSERT PLOT POINTS]
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors, executive officers and holders of more than 10% of our outstanding
shares of common stock are required to file with the Securities and Exchange
Commission reports indicating the number of shares of our common stock they
beneficially own and any changes in their beneficial ownership. Directors,
executive officers and greater than 10% stockholders are required to provide
copies of these reports to us. Based on our review of these reports and written
representations from the persons required to file them, we believe each of our
directors, executive officers and greater than 10% stockholders filed all
required reports during fiscal 2001, except that Mr. Wimer and Mr. Lundt filed
delinquent Forms 4 to correctly report ESOP shares distributed from the
terminated plan. Mr. Wimer filed an amended Form 3 to correct the number of
shares beneficially owned. Mr. Ritchie filed two delinquent Forms 4 to correctly
report the number of shares sold.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
You are entitled to present proposals for action at an annual meeting if the
proposals comply with the requirements of the proxy rules promulgated by the
Securities and Exchange Commission. If you intend to present proposals to our
stockholders for consideration at our 2002 Annual Meeting of Stockholders, our
Corporate Secretary must receive the proposals no later than May 24, 2002, in
order for us to include the proposals in the proxy statement and form of proxy
relating to that meeting.
If you intend to submit a proposal at the 2002 Annual Meeting, which is not
eligible for inclusion in the proxy statement and form of proxy relating to that
meeting, you must do so no later than August 7, 2002. If you fail to comply with
this foregoing notice provision, the proxy holders will be allowed to use their
discretionary voting authority when the proposal is raised at the 2002 Annual
Meeting, without any discussion of the matter in the proxy statement.
OTHER MATTERS
We are not aware of any business to be presented at the annual meeting other
than the proposals discussed above. If other proposals are properly brought
before the meeting, any proxies returned to us will be voted as the proxy
holders see fit.
You can contact us at:
5777 North Meeker Ave.
Boise, ID 83713
Attn: Investor Relations
208-322-7575
xtnd@extendsys.com
It is important that your shares be represented at the 2001 Annual Meeting,
regardless of the number of shares that you hold, therefore, we urge you to
execute and return, at your earliest convenience, the accompanying proxy card in
the envelope provided.
THE BOARD OF DIRECTORS
Dated: September 19, 2001