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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 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 any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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EXTENDED SYSTEMS LOGO
NOTICE OF THE 2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 11, 2003
TO THE STOCKHOLDERS OF EXTENDED SYSTEMS INCORPORATED:
Your are cordially invited to attend the 2003 Annual Meeting of Stockholders of
Extended Systems Incorporated, a Delaware corporation, which will be held on:
DATE: Thursday, December 11, 2003
TIME: 10:00 a.m. Local Time
PLACE: Extended Systems Executive Offices - Auditorium
5777 North Meeker Avenue
Boise, Idaho 83713
The principal business of the meeting will be:
1. To elect three Directors as Class II directors for three-year terms;
2. To elect two Directors as Class I directors for two-year terms;
3. To elect one Director as a Class III director for a one-year term;
4. To approve an increase of 725,000 shares reserved for issuance under our
1998 Stock Plan;
5. To approve an amendment to our 1998 Director Option Plan including approval
of an increase of 125,000 shares reserved for issuance under the plan;
6. To approve an increase of 25,000 shares reserved for issuance under our
2001 Approved Share Option Scheme;
7. To ratify the appointment of PricewaterhouseCoopers LLP as our independent
public accountants for fiscal 2004; and
8. To transact such other business as may properly come before the meeting.
These items are more fully described in the following pages, which are hereby
made a part of this Notice. Only stockholders of record at the close of business
on October 24, 2003 (the "Record Date"), are entitled to vote at this meeting,
or any adjournment thereof.
By Order of the Board of Directors,
/s/ Karla K. Rosa
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Karla K. Rosa
Vice President of Finance,
Chief Financial Officer and
Corporate Secretary
Boise, Idaho
October 28, 2003
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YOUR VOTE IS IMPORTANT!
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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
2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 11, 2003
The Board of Directors of Extended Systems Incorporated is soliciting proxies
for our 2003 Annual Meeting of Stockholders to be held on Thursday, December 11,
2003, at 10:00 a.m. local time. The meeting will be held at the Extended Systems
Executive Offices, which are located at 5777 North Meeker Avenue, Boise, Idaho
83713. Please read this Proxy Statement carefully, as it contains important
information for you to consider when deciding how to vote on the matters to be
brought before the meeting.
Our Board of Directors has set October 24, 2003, 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. There were 14,055,580 shares of
our common stock, par value $0.001, outstanding on the record date held by 313
holders of record.
This Proxy Statement, together with our 2003 Annual Report to Stockholders, is
being mailed on or about November 5, 2003, 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 Charles W. Jepson and
Karla K. Rosa as your representatives at the meeting. Mr. Jepson 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
by following the instructions BELOW. PLEASE NOTE, HOWEVER, THAT IF YOU HOLD
YOUR SHARES IN STREET NAME, YOU MUST REQUEST A LEGAL PROXY FROM YOUR
STOCKBROKER IN ADVANCE OF THE MEETING IN ORDER TO VOTE AT THE MEETING.
Q. HOW WILL THE PROXY HOLDERS VOTE ON MATTERS AT THE ANNUAL MEETING THAT ARE
NOT DESCRIBED IN THIS PROXY STATEMENT?
A. 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. Jepson and Ms. Rosa will be
authorized by your proxy to vote on those matters in their discretion.
1
Q: WHAT AM I VOTING ON?
A: You are being asked to vote on the following:
o election of three nominees to serve three-year terms as Class II
directors on our Board of Directors;
o election of two nominees to serve two-year terms as Class I directors
on our Board of Directors;
o election of one nominee to serve a one-year term as a Class III
director on our Board of Directors;
o approval of an increase of 725,000 shares reserved for issuance under
our 1998 Stock Plan;
o approval of an amendment to our 1998 Director Option Plan including
approval of an increase of 125,000 shares reserved for issuance under
the plan;
o approval of an increase of 25,000 shares reserved for issuance under
our 2001 Approved Share Option Scheme;
o ratification of the appointment of PricewaterhouseCoopers LLP as our
independent public accountants for fiscal 2004; and
o any other matters as may properly come before the meeting.
You will be entitled to one vote for each share of common stock held. You
do not have the right to cumulate your 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 the Class II directors to
serve three-year terms will be elected;
o the two nominees for director who receive the highest number of
affirmative votes cast in the election of Class I directors to serve
two-year terms will be elected;
o the one nominee for director who receives the highest number of
affirmative votes cast in the election of the Class III director to
serve a one-year term 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;
o the proposal to amend the terms of our 1998 Director Option Plan,
including an increase the number of shares reserved for issuance under
the plan, will be approved if such proposal receives the affirmative
vote of a majority of the votes cast;
o the proposal to increase the number of shares reserved for issuance
under our 2001 Approved Share Option Scheme 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:
o FOR the three named nominees for Class II directors;
o FOR the two named nominees for Class I directors;
o FOR the named nominee for Class III director;
o FOR approval of the increase in the number of shares reserved for
issuance under our 1998 Stock Plan;
o FOR approval of the amendment to and increase in the number of shares
reserved for issuance under our 1998 Director Option Plan;
o FOR approval of the increase in the number of shares reserved for
issuance under our 2001 Approved Share Option Scheme; and
o 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
ADVANCE OF THE MEETING IN ORDER TO VOTE AT THE MEETING.
2
Q: CAN I VOTE ELECTRONICALLY VIA THE INTERNET OR BY TELEPHONE?
A: If your shares are registered in your own name, you may vote either via the
Internet or by telephone. Specific instructions to be followed by any
registered stockholder interested in voting via Internet or by telephone
are set forth on the enclosed proxy card. The Internet and telephone voting
procedures are designed to authenticate your identity and to allow you to
vote your shares and confirm that your voting instructions have been
properly recorded.
If your shares are registered in the name of a bank or brokerage firm and
you have not elected to receive your proxy statement over the Internet, you
may be eligible to vote your shares electronically over the Internet or by
telephone. A large number of banks and brokerage firms are participating in
the ADP Investor Communication Services online program. This program
provides eligible stockholders who receive a paper copy of this proxy
statement the opportunity to vote via the Internet or by telephone. If your
bank or brokerage firm is participating in ADP's program, your proxy card
will provide instructions. If your proxy card does not reference Internet
or telephone information, please complete and return the proxy card in the
self-addressed, postage paid envelope provided.
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 at
our executive offices listed on the first page of this proxy
statement;
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 the amendment of our option plans or 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, any
abstentions will be counted for purposes of determining a quorum and will
have the same effect as votes against the approval of the proposals, other
than the election of directors. 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., the amendment of our
option plans or 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".
3
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 will 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 broker non-votes do not
constitute votes actually cast and approval of these matters is based 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 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 executive offices 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 2003 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, 14,055,580 shares of our common stock were
outstanding held by 313 holders of record. 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,
October 24, 2003, entitles the holder to one vote on all matters covered in
this Proxy Statement. There are a maximum of 14,055,580 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 Michele Winkle, our Corporate Accounting and Tax Manager, to act
as Inspector of Election at the meeting. The Inspector of Election, with
the assistance of our transfer agent, EquiServe Trust Company, N.A., will:
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
will request banks, brokerage firms, nominees, custodians and fiduciaries
to solicit their customers who have stock of Extended Systems registered in
the names of such persons and we will reimburse them for their reasonable
out-of-pocket expenses. Also, our directors, officers and other employees
may solicit proxies without additional compensation, personally by
telephone, email, telegram, or otherwise. We have hired ADP Investor
Communication Services to manage the tabulation, printing and distribution
of our proxy materials.
4
SHARE OWNERSHIP OF BENEFICIAL OWNERS
The table below shows the number of shares of our common stock beneficially
owned as of October 15, 2003 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 22;
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 PERCENT OF
OF BENEFICIAL COMMON STOCK
OWNERSHIP (1) OUTSTANDING
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Charles M. Jopson (2)....................... 1,216,596 8.7%
Douglas B. Winterrowd (3)................... 1,094,503 7.8
Steven D. Simpson (4)....................... 584,600 4.0
Raymond A. Smelek (5)....................... 384,502 2.7
Karla K. Rosa (6)........................... 156,046 1.1
John M. Russell (7)......................... 62,188 *
Donald J. Baumgartner (8)................... 57,058 *
Mark A. Willnerd (9)........................ 36,907 *
Kerrin Pease (10)........................... 32,751 *
Charles W. Jepson .......................... 10,650 *
Bradley J. Surkamer (11).................... 6,928 *
Russel H. McMeekin (12)..................... 6,250 *
James R. Bean............................... -- --
Archie Clemins.............................. -- --
Robert Frankenberg.......................... -- --
Ralph Godfrey............................... -- --
Jody B. Olson............................... -- --
All directors and executive officers
as a group (17 persons) (13)............. 1,388,963 9.1
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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 October 15, 2003, 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 4,588
shares held of record by Mr. Jopson's son. Mr. Jopson is an Extended
Systems employee.
(3) Includes 93,600 shares held of record by the Doug Winterrowd and Eileen
Winterrowd Education Trust. Mr. Winterrowd is an Extended Systems employee.
(4) Includes 520,000 shares subject to options exercisable within 60 days of
October 15, 2003. Mr. Simpson was the President and Chief Executive Officer
of Extended Systems until August 2003.
5
(5) 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
266,709 shares subject to options exercisable within 60 days of October 15,
2003. Mr. Smelek is the Chairman of the Board of Directors of Extended
Systems.
(6) Includes 116,018 shares subject to options exercisable within 60 days of
October 15, 2003. Ms. Rosa is the Vice President of Finance, Chief
Financial Officer and Corporate Secretary of Extended Systems.
(7) Includes 57,188 shares subject to options exercisable within 60 days of
October 15, 2003. Mr. Russell is a director of Extended Systems.
(8) Includes 20,259 shares held of record by Mr. Baumgartner's spouse and
32,251 shares subject to options exercisable by Mr. Baumgartner's spouse
within 60 days of October 15, 2003. Mr. Baumgartner was the Vice President
of Worldwide Marketing of Extended Systems until January 2003.
(9) Includes 4,092 shares held of record by Mr. Willnerd's spouse, 25,780
shares subject to options exercisable by Mr. Willnerd within 60 days of
October 15, 2003, and 2,534 shares subject to options exercisable by Mr.
Willnerd's spouse within 60 days of October 15, 2003. Mr. Willnerd is the
Vice President of Business Development of Extended Systems.
(10) Includes 28,751 shares subject to options exercisable within 60 days of
October 15, 2003. Mr. Pease is the Vice President of Research and
Development of Extended Systems.
(11) Shares reported as of August 31, 2003. Mr. Surkamer was a Vice President of
Sales of Extended Systems until March 2003.
(12) Includes 6,250 shares subject to options exercisable within 60 days of
October 15, 2003. Mr. McMeekin is a director of Extended Systems.
(13) Includes 1,388,963 shares subject to options exercisable within 60 days of
October 15, 2003.
6
PROPOSAL ONE
ELECTION OF CLASS II DIRECTORS
The number of directors authorized by our Restated Certificate of Incorporation
and Bylaws is currently fixed by our Board of Directors at eight. 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, four Class II
directors and two Class III directors. After our Annual Meeting, assuming the
election of the nominees proposed in this proxy statement, we will have only
three Class II directors and we will have one vacancy on our Board of Directors.
We are proposing the election of our recently appointed Class I and III
directors in "Proposal Two" and "Proposal Three" below as they were appointed by
our incumbent directors to fill vacancies on our Board of Directors.
Three Class II directors are to be elected at the 2003 Annual Meeting. The Class
II directors elected at the meeting will hold office until the 2006 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 nominees named below, each of whom is currently a director. In the
event that any of the nominees become 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. We do not expect that the nominees listed below will be unable or
will decline to serve as a director. The names of the Class II nominees for
director and certain information about them as of October 15, 2003 are set forth
below. The name of, and certain information about, the current Class II director
with whose term will expire at the 2003 Annual Meeting but who is not standing
for re-election is also set forth below.
NOMINEES FOR ELECTION AS CLASS II DIRECTORS FOR A TERM EXPIRING IN 2006
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JOHN M. RUSSELL; AGE 61. Mr. Russell has served as our director since April
1998. He is 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.
ROBERT FRANKENBERG; AGE 56. Mr. Frankenberg has served as our director since
October 2003. Since December 1999, Mr. Frankenberg has served as the Chairman of
Kinzan, Inc., a provider of Internet services platforms and PowerQuest, a
supplier of storage management software. From May 1997 to July 2001, he served
as Chairman, President and Chief Executive Officer of Encanto Networks, Inc. and
from April 1994 to August 1996, he served as the Chairman, President and Chief
Executive Officer of Novell, Inc. Mr. Frankenberg is a member of the Boards of
Directors Daw Technologies, Inc., ElectroGlas, Inc., National Semiconductor
Corporation, ScanSoft, Inc. and Secure Computing Corporation.
RALPH GODFREY; AGE 63. Mr. Godfrey has served as our director since October
2003. Since October 2003 Mr. Godfrey has been retired. From July 1990 to
October 2003, Mr. Godfrey served in various business operations and sales roles
at 3Com Corporation, a provider of networking products, services and solutions
for enterprises, the most recent of which was as a Senior Vice President and a
member of the executive committee. He had previously managed 3Com's sales
organization for the Americas. Prior to joining 3Com in July 1990, Mr. Godfrey
served as President of sales and marketing for a division of Unisys Corporation.
He currently serves as a member of the Board of Directors of Rockford
Corporation.
INCUMBENT CLASS II DIRECTOR SERVING FOR A TERM EXPIRING IN 2003
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RUSSEL MCMEEKIN; AGE 38. Mr. McMeekin was appointed to our Board of Directors in
August 2002, in connection with our acquisition of ViaFone, Inc. Mr. McMeekin is
not standing for re-election and his term will expire at our 2003 Annual
Meeting. He is the President and Chief Executive Officer of Mikohn, a supplier
to the casino gaming industry. From July 2001 to July 2002, he was the Chief
Executive Officer of ViaFone. From December 2000 to June 2001, Mr. McMeekin held
the position of President, E-Business, and from February 1997 to December 2000,
he held the position of President of Honeywell Hi-Spec Solutions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
THREE NOMINEES FOR CLASS II DIRECTOR NAMED ABOVE.
7
PROPOSAL TWO
ELECTION OF CLASS I DIRECTORS
Both of our Class I directors were appointed by our incumbent directors to fill
vacancies on our Board of Directors in August 2003. We are asking that our
stockholders elect them to serve on the Board of Directors for the remainder of
their existing terms, which expire at our 2005 Annual Meeting.
Two Class I directors are to be elected at the 2003 Annual Meeting. The Class I
directors elected at the meeting will hold office until the 2005 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 two nominees named below, each of whom is currently a director. In
the event that either 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. We do not expect that either of the nominees listed below will
be unable or will decline to serve as a director. The names of the two Class I
nominees for director and certain information about them are set forth below.
NOMINEES FOR ELECTION AS CLASS I DIRECTORS FOR A TERM EXPIRING IN 2005
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JAMES R. BEAN; AGE 53. Mr. Bean has served as our director since August 2003.
Since May 1997, Mr. Bean has served as President and Chief Executive Officer of
Preco Electronics, Inc., an industry leader in vehicle warning systems and
custom electronic products. Bean has more than 25 years of operational
experience with Fortune 500 companies, including National Semiconductor
Corporation, Apple Computer and Sun Microsystems. While at Sun, he was part of
the executive team that took the company public and had responsibility for
manufacturing and distribution worldwide
JODY B. OLSON; AGE 56. Mr. Olsen has served as our director since August 2003.
Since July, 2000 Mr. Olson has served as Of Counsel at Hawley Troxell Ennis &
Hawley, a law firm in Boise, Idaho. Mr. Olson served in many roles over 20 years
at Trus Joist, a building products company, now a Weyerhaeuser Company. He
retired as Vice President of Corporate Development. Mr. Olsen is currently
Chairman of the Board of Public Employer Retirement System of Idaho (PERSI). He
also a member of the Board of Advisors of Galen Associates New York City, a
venture capital fund.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
TWO NOMINEES FOR CLASS I DIRECTORS NAMED ABOVE.
PROPOSAL THREE
ELECTION OF CLASS III DIRECTOR
One of our Class III directors, Archie Clemins, was appointed by our incumbent
directors to fill a vacancy on our Board of Directors in October 2003. We are
asking that our stockholders elect Admiral Clemins to serve on the Board of
Directors for the remainder of his existing term, which will expire at our 2004
Annual Meeting. Our remaining Class III director, Raymond Smelek, stood for
election at our 2001 Annual Meeting.
One Class III director is to be elected at the 2003 Annual Meeting. The Class
III director elected at the meeting will hold office until the 2004 Annual
Meeting of Stockholders or until his successor has been duly elected and
qualified, except in the event of his earlier death, resignation or removal.
8
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the nominee named below. In the event that the nominee 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. We do not expect that the
nominee listed below will be unable or will decline to serve as a director. The
name of the Class III nominee for director and certain information about him is
set forth below. The name of, and certain information about, the current Class
III director with an unexpired term is also set forth below.
NOMINEE FOR ELECTION AS A CLASS III DIRECTOR FOR A TERM EXPIRING IN 2004
- ------------------------------------------------------------------------
ARCHIE CLEMINS; AGE 59. Admiral Clemins has served as our director since October
2003. Since January 2003 and November 2001, respectively, Admiral Clemins has
served as the President of Caribou Technologies, Inc., and co-owner of TableRock
International LLC, both consulting firms. Admiral Clemins retired from active
duty in the United States Navy in 1999, and his final assignment was as the 28th
commander of the United States Pacific Fleet.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEE FOR CLASS III DIRECTOR NAMED ABOVE.
INCUMBENT CLASS III DIRECTOR SERVING FOR A TERM EXPIRING IN 2004
- ----------------------------------------------------------------
RAYMOND A. SMELEK; AGE 68. Mr. Smelek has served as chairman of our Board of
Directors since June 1995 and has been our director since June 1994. Since 1999,
Mr. Smelek has served as Chairman of the Board of Directors of the Network
Group, which provides information technology services to enterprises. He also
served as Chief Executive Officer of the Network Group from 1999 to 2003. Since
1998, he has been a Vice President of Smelek & Associates, which provides
management consultant 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, the last of which was Vice President and General Manager of the Mass
Storage Group.
9
BOARD MEETINGS AND COMMITTEES
During fiscal 2003, the Board of Directors held 20 meetings (including regularly
scheduled and special meetings). All of the incumbent directors attended 80% or
more of the meetings of the Board of Directors and committees upon which
directors served, with the exception of our former director, John J. Katsaros,
who attended 15 of the 20 meetings and our current director, Russel McMeekin,
who is not seeking reelection, who attended 11 of the 20 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. During fiscal year 2003,
the Audit Committee consisted of Messrs. Russell (Chairman), Jepson, our former
director and current President and Chief Executive Officer, Katsaros and S.
Scott Wald, former directors. Mr. Jepson resigned from the Audit Committee in
February 2003 upon becoming our Vice President of Worldwide Sales and Marketing.
Mr. Katsaros served on the Audit Committee from February 2003 until July 2003.
The current members of the Audit Committee are Messrs. Russell (Chairman), Bean,
and Olson. Each current member of the Audit Committee is independent as defined
in the National Association of Securities Dealers listing standards. The Audit
Committee held four meetings in fiscal 2003.
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. During fiscal 2003,
the Compensation Committee consisted of Messrs. Katsaros, Russell, Wald and
McMeekin. The current members of the Compensation Committee are Mr. Frankenberg
(Chairman), Admiral Clemins and Mr. Godfrey. The Compensation Committee held two
meetings in fiscal 2003.
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. During fiscal
2003, the Nominating Committee consisted of Messrs. Smelek (Chairman), Katsaros
and Wald. The current members of the Nominating Committee are Messrs. Smelek
(Chairman), Russell and McMeekin. The Nominating Committee did not meet in
fiscal 2003.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2003, the Compensation Committee consisted of Messrs. Katsaros,
Russell, Wald and McMeekin, none of whom are or have been an officer or employee
of Extended Systems. Mr. McMeekin was the president and chief executive officer
of ViaFone, Inc. prior to our acquisition of ViaFone on August 30, 2002. No
interlocking relationship exists between our Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company.
10
DIRECTOR COMPENSATION
Our directors do not receive cash fees as compensation for their services as
directors. Our outside directors (who 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. The outside directors are eligible to participate in the 1998
Director Option Plan (the "Director Plan"). Option grants and Restricted Stock
grants under the Director Plan are automatic and non-discretionary. We are
currently proposing an amendment to our Director Plan (see Proposal Five) that
would change the automatic, nondiscretionary grants made to our non-employee
directors. The current automatic, nondiscretionary grants are described in this
section.
The exercise price of the options is 100% of the fair market value of our common
stock on the grant date. Under the Director 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 six months. The shares from the director's
annual option vest and become exercisable in full on the earliest of the first
anniversary of the date of grant of that option or the date of the next annual
meeting of stockholders.
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.
During fiscal 2003, options were granted under the Director Plan for the
following number of shares of Extended Systems' common stock and at the exercise
prices shown:
NUMBER OF SHARES WEIGHTED AVERAGE
SUBJECT TO OPTIONS EXERCISE PRICE PER SHARE
NAME GRANTED (#) ($/SH)
- ----- ----------- ------------------------
Charles W. Jepson (1).............. 7,500 $2.24
John Katsaros (2).................. 7,500 $2.24
Russel McMeekin.................... 15,000 $2.60
John M. Russell.................... 7,500 $2.24
S. Scott Wald (2).................. 7,500 $2.24
- --------------
(1) Mr. Jepson became our Vice President of Worldwide Sales and Marketing in
February 2003, subsequent to the grant of this option. The option
terminated in October 2003, three months following his resignation from the
Board of Directors.
(2) These options terminated in October 2003, three months following the
resignation of Messrs. Katsaros and Wald from the Board of Directors.
11
PROPOSAL FOUR
INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE
UNDER OUR 1998 STOCK PLAN
You are being asked to approve an increase in the number of shares reserved for
issuance under our 1998 Stock Plan by 725,000 shares. Our Board of Directors
approved this increase in August 2003.
PLAN ACTIVITY
- -------------
As of October 15, 2003, options to purchase an aggregate of 377,040 shares of
common stock issued under the 1998 Stock Plan had been exercised, and options to
purchase 2,396,830 shares were outstanding. Without taking into account the
proposal, 551,130 shares remained available for future grants as of October 15,
2003.
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 Secretary at our principal executive offices listed
on the first page of this proxy statement.
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. Our stockholders approved a 500,000-share increase in the number of shares
reserved for issuance under the plan on October 25, 2000, a 500,000-share
increase under the plan on October 24, 2001 and a 725,000-share increase under
the plan on October 24, 2002.
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. As of October 15,
2003, approximately 191 persons were eligible to
receive options under the 1998 Stock Plan.
Exercise Price.......... Determined by the Compensation Committee, generally
the fair market value on the date of grant.
Term.................... Generally 10 years, but can be a shorter period at
the discretion of the Compensation Committee. Options
to holders of 10% or more of our common stock may
only have a term of five years or less.
12
Vesting................. Determined by the Compensation Committee. Options
generally vest over a period of four years, vesting
as to 25 percent on the first anniversary and 1/48th
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. With the
administrator's approval, 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. The administrator does not
currently allow the payment of the exercise price of
options with a promissory note. The administrator can
also allow the payment of the exercise price through
the surrender of shares of our common stock that the
option holder has held for at least six months prior
to the date of exercise of the options.
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 the vested portion of the
option. In the event of termination of employment due
to death or disability, an optionee (or his or her
legal representative) may exercise the vested option
within 12 months after the date of termination of
employment. In the event of termination as a result
of a change of control, members of the Company's
executive management team may exercise their vested
options within 24 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 is required under the 1998 Stock Plan to
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 his
outstanding options.
Term of plan............ The plan will expire on March 3, 2008, unless our
Board of Directors terminates it earlier.
Amendment of plan....... The Board may at any time amend the 1998 Stock Plan,
but is required to obtain stockholder approval of any
Plan amendment to the extent necessary and desirable
to comply with any applicable laws and regulations.
PLAN BENEFITS. The number of awards (if any) that may be granted to employees,
directors and consultants under the 1998 Stock Plan is subject to the discretion
of the Compensation Committee. As of the date of this proxy statement, there has
been no determination by the Compensation Committee with respect to future
awards under the 1998 Stock Plan. Accordingly, future awards under the 1998
Stock Plan are not determinable. The following table sets forth information with
respect to the grant of options under the 1998 Stock Plan during fiscal 2003 to
(i) each executive officer named in the Summary Compensation Table on page 22,
(ii) all current executive officers as a group, (iii) all current directors who
are not executive officers as a group, and (iv) all employees who are not
executive officers or directors as a group:
13
NUMBER OF SHARES WEIGHTED AVERAGE
SUBJECT TO OPTIONS EXERCISE PRICE PER SHARE
NAME AND POSITION GRANTED (#) ($/SH)
----------------- ----------- ------
Steven D. Simpson................. 75,000 $1.77
Former President and Chief
Executive Officer
Donald J. Baumgartner............. 22,000 $2.42
Former Vice President
of Worldwide Marketing
Karla K. Rosa..................... 23,000 $2.42
Vice President of Finance,
Chief Financial Officer
and Corporate Secretary
Kerrin Pease...................... 75,000 $2.15
Vice President of
Research and Development
Bradley J. Surkamer............... 22,000 $2.42
Former Vice President
of Sales
Mark A. Willnerd.................. 15,000 $2.42
Vice President of
Business Development
All current executive
officers as a group............. 607,782 $2.22
All current directors who are
not executive officers
as a group...................... 15,000 $2.24
All employees who are not
executive officers as a
group........................... 580,027 $2.47
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 for 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 will be taxable as ordinary income to the optionee and will be deductible
by Extended Systems for U.S. federal income tax purposes.
Upon the exercise of a non-statutory stock option, the optionee will realize
ordinary income in the amount of the difference between the option price and the
fair market value of the shares on the date of exercise 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
exercise 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 STOCK 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.
14
PROPOSAL FIVE
AMENDMENT OF AND INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE
UNDER OUR 1998 DIRECTOR OPTION PLAN
You are being asked to approve an amendment to the terms of our Director Plan
including an increase in the number of shares reserved for issuance thereunder
by 125,000 shares. Our Board of Directors approved this increase in October
2003.
PLAN ACTIVITY
- -------------
As of October 15, 2003, options to purchase an aggregate of 16,667 shares of
common stock under the Director Plan had been exercised, and options to purchase
142,500 shares were outstanding. Without taking into account the proposal,
90,833 shares remained available for future grants as of October 15, 2003.
DESCRIPTION OF THE 1998 DIRECTOR OPTION PLAN AND OPTION TERMS
- -------------------------------------------------------------
The following is a summary of the principal provisions of our 1998 Director
Option 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 Director
Option Plan to you upon written request to our Secretary at our principal
executive offices listed on the first page of this proxy statement.
HISTORY. Our Director 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.
PURPOSE. The Director Plan is intended to:
o provide a compensation and incentives to our Board of Directors whose present
and potential contributions are important to our continued success;
o promote the success of our business; and
o enable us to continue to attract and retain the best available talent.
PROPOSED AMENDMENT TO DIRECTOR PLAN
Under the Director Plan, as amended, each outside director would receive an
initial grant of an option to purchase 20,000 shares of common stock on the date
the outside director first becomes a director. One-third of the shares from this
initial grant will vest and become exercisable on the first anniversary of the
date of grant and the remaining shares will vest and become exercisable at a
rate of 1/36th per month of the total shares.
After the initial grant, each outside director will be automatically granted an
option to purchase 10,000 shares of our common stock on the date of our annual
meeting of stockholders each year, if the outside director has served on our
Board of Directors for at least six months. The shares from the director's
annual option would vest and become exercisable in full on the earlier of the
first anniversary of the date of grant of that option or the date of the next
annual meeting of stockholders.
Under the Director Plan, as amended, each outside director would be
automatically granted a number of shares of restricted stock on the date of our
annual meeting of stockholders each year. The number of shares of restricted
stock would be determined by dividing (a) $16,000 by (b) the fair market value
of a share on the date of our annual meeting of stockholders. One-third of the
shares of this restricted stock grant would be released from our option to
repurchase the shares on the anniversary date of grant and remaining shares
would be released from our option to repurchase the shares as to one-third of
the shares in each of the following two years. Our option to repurchase the
shares would lapse in full on the earlier of the anniversary date of the grant
or the date of the next annual meeting of stockholders if the outside director
has attended at least 75% of all board meetings held during the last year.
15
We also propose to amend the Director Plan to provide that the Chairman of our
Board of Directors is automatically granted a number of shares of restricted
stock on the date of our annual meeting of stockholders each year in addition to
the annual grant to all outside directors set forth above. The number of shares
which the Chairman of our Board of Directors would receive would be determined
by dividing (a) $20,000 by (b) the fair market value of a share on the date of
our annual meeting of stockholders. In addition, we propose to amend the
Director Plan to provide that the Chairman of our Audit Committee and the
Chairman of our Compensation Committee are each granted a number of shares of
restricted stock on the date of our annual meeting of stockholders each year
automatically. The number of shares which the Chairman of our Audit Committee
would receive would be determined by dividing (a) $12,500 by (b) the fair market
value of a share on the date of our annual meeting of stockholders. The number
of shares which the Chairman of our Compensation Committee would receive would
be determined by dividing (a) $7,500 by (b) the fair market value of a share on
the date of our annual meeting of stockholders. For each of the grants to the
Chairman of our Board of Directors, the Chairman of our Audit Committee and the
Chairman of our Compensation Committee, our option to repurchase the shares
would lapse with respect to one-third of the shares of these grants on the
anniversary date of grant and remaining option to repurchase the shares would
lapse as to one-third of the shares in each of the following two years. Our
right to repurchase the shares would lapse in its entirety on the earlier of the
anniversary date or the date of the next annual meeting of stockholders if the
director has attended at least 75% of all board meetings held during the last
year with respect to the Chairman of the Board of Directors), 75% of all Audit
Committee meetings with respect to the Chairman of the Audit Committee or 75% of
all Compensation Committee meetings with respect to the Chairman of the
Compensation Committee.
In light of the substantial increase in director compensation of many public
companies, we are proposing to award a one-time grant of an option to purchase
5,000 shares of our common stock on the date of our 2003 Annual Meeting to each
outside director who joined our Board of Directors after July 1, 2003 and before
the 2003 Annual Meeting, provided that such person remains our outside director
on the date of the 2003 Annual Meeting. The one-time 5,000 share grant will be
at 100% of the fair market value on the date of our 2003 Annual Meeting and will
vest in full on the earlier of the first anniversary of our 2003 Annual Meeting
or the date of our 2004 Annual Meeting; provided that the outside director
continues to be an outside director on such date.
SUMMARY OF THE DIRECTOR PLAN, OPTIONS AND RESTRICTED STOCK, AS AMENDED.
Administration.......... Our Director Plan is nondiscretionary and there is no
administrator.
Eligibility............. Outside directors would be granted options and
Restricted Stock under the Plan. All grants are
automatic, non-discretionary grants. As of October
15, 2003, approximately seven persons were eligible
to receive options under the Director Plan.
Exercise Price.......... The fair market value on the date of grant. For
restricted stock, the shares received are outstanding
common stock and the director must pay the Company
par value of $0.001 per share.
Option Term............. 10 years. Restricted stock awards do not have a term.
Vesting/Right of
Repurchase.............. The initial option grant vests over a period of three
years, vesting 33 1/3 percent on the first
anniversary and 1/36th per month thereafter. The
annual option grant vests on the earlier of the first
anniversary date or the date of the next annual
stockholders meeting. The repurchase option we have
on restricted stock grants will lapse over a period
of three years, with the right lapsing as to
one-third of the shares on each of anniversary of the
date of the restricted stock grant. The repurchase
option we have will lapse in its entirety on the
earlier of the first anniversary date or the next
annual meeting date if the outside director attends
75% of all board meetings, Audit Committee meetings
or Compensation Committee meetings, as applicable
Exercise................ The outside director can pay the exercise price of
the option with cash. Although the Company does not
currently have a cashless exercise program in place
for the Director Plan, the Company may implement a
cashless exercise program and allow an outside
director to participate. The outside director can
also pay the exercise price through the surrender of
shares of our common stock that the outside director
has held for at least six months prior to the date of
exercise of the options.
16
Transferability......... During the term of an option, 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
director status......... An outside director has twelve months from the date
of termination as a director to exercise a vested
stock option.
Merger or asset sale.... If we merge with or into another corporation or sell
substantially all of our assets, the successor
corporation is required under the Director Plan to
assume or substitute each outstanding option and
restricted stock award under the Director Plan. If
the successor corporation refuses to assume or
substitute for options or restricted stock award, 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 or the right of repurchase we have will lapse
in its entirety and the successor corporation will
have no further right to repurchase a portion of the
restricted stock award.
Term of Director Plan... The Director Plan will expire in March 2008, unless
our Board of Directors terminates it earlier.
Amendment of
Director Plan........... Without the prior approval of our stockholders, the
Board may amend the Director Plan, except for any
amendment that would modify the terms of the
automatic, nondiscretionary grants to outside
directors or make the terms on which options or
restricted stock may be granted materially more
generous or would increase the maximum number of
shares of the Director Plan.
PLAN BENEFITS. The number of awards (if any) that may be granted directors under
the Director Plan are automatic and non-discretionary. The following table sets
forth information with respect to the grant of options under the Director Plan
during fiscal 2003.
NUMBER OF SHARES WEIGHTED AVERAGE
SUBJECT TO OPTIONS EXERCISE PRICE PER SHARE
NAME GRANTED (#) ($/SH)
- ----- ----------- ------------------------
Charles W. Jepson (1)............ 7,500 $2.24
John Katsaros (2)................ 7,500 $2.24
Russel McMeekin.................. 15,000 $2.60
John M. Russell.................. 7,500 $2.24
S. Scott Wald (2)................ 7,500 $2.24
- --------------
(1) Mr. Jepson became our Vice President of Worldwide Sales and Marketing in
February 2003, subsequent to the grant of this option. The option
terminated in October 2003, three months following his resignation from the
Board of Directors.
(2) These options terminated in October 2003, three months following the
resignation of Messrs. Katsaros and Wald from the Board of Directors.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO OPTIONEES.
For U.S. federal income tax purposes, under existing tax laws, an optionee will
not realize taxable income at the time of the grant of an option or restricted
stock award. Upon the exercise of a non-statutory stock option, the optionee
would realize ordinary income in the amount of the difference between the option
price and the fair market value of the shares on the date of exercise and
Extended Systems would be entitled to a compensation expense deduction. Upon
lapse of our repurchase right on a restricted stock grant, the optionee would
realize ordinary income in the amount of the difference between the par value
and the fair market value of the shares on the date of lapse of the repurchase
right and Extended Systems would be entitled to a compensation expense
deduction. On the subsequent sale of previously restricted stock or the shares
received in the exercise of a non-statutory stock options, the optionee would
17
realize a capital gain or loss, which would be short or long-term depending on
the period for which the shares are held prior to the sale. The gain or loss
would be equal to the difference between the fair market value of the shares on
the date of exercise of an option and the amount realized on the sale or the
date on which the right of repurchase lapsed for restricted stock and the amount
realized on the date of sale.
THE ABOVE IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON THE
OPTIONEE AND EXTENDED SYSTEMS WITH RESPECT TO THE OPTIONS EXERCISED OR
RESTRICTED STOCK RECEIVED UNDER THE DIRECTOR 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 DIRECTOR PLAN.
PROPOSAL SIX
INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE
UNDER OUR 2001 APPROVED SHARE OPTION SCHEME
You are being asked to approve an increase in the number of shares reserved for
issuance under our 2001 Approved Share Option Scheme (the "Scheme") by 25,000
shares. Our Board of Directors approved this increase in August 2003.
PLAN ACTIVITY
- -------------
As of October 15, 2003, 525 options granted under the Scheme had been exercised,
and options to purchase 83,505 shares were outstanding. Without taking into
account the proposal, 40,970 shares remained available for future grant under
the Scheme as of October 15, 2003.
DESCRIPTION OF THE SCHEME AND OPTION TERMS
- ------------------------------------------
The following is a summary of the principal provisions of our Scheme, 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 Scheme to you upon written request to
our Secretary at our principal executive offices listed on the first page of
this proxy statement.
HISTORY. Our Board of Directors adopted the Scheme in January 2001, and the
Inland Revenue of the United Kingdom approved the Scheme on February 19, 2001.
The Board of Directors determines the number of shares of common stock to be
reserved for issuance under the Scheme. They approved 100,000 shares of common
stock reserved for issuance under the Scheme in January 2001. Our stockholders
approved a 25,000 share increase in the number of shares reserved for issuance
under the Scheme on October 24, 2002.
PURPOSE. The Scheme is intended to:
o provide additional compensation and incentives to individuals in the United
Kingdom whose present and potential contributions are important to our
continued success;
o promote the success of our business; and
o enable us to continue to attract and retain the best available talent.
SUMMARY OF THE SCHEME AND OPTIONS.
Administration.......... Our Compensation Committee currently administers the
Scheme. Subject to the terms of the Scheme, 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.
18
The Compensation Committee also has the authority to
construe and interpret any of the provisions of the
Scheme or any options granted under the Scheme.
Eligibility............. Regular employees, directors and consultants may be
granted options under the Scheme up to, but not in
excess of (pound)30,000 (converted from U.S. dollars
to British pounds on the date of grant). As of
October 15, 2003, approximately 25 persons were
eligible to receive options under the Scheme.
Exercise Price.......... Determined by the Compensation Committee, generally
the fair market value on the date of grant.
Term.................... Generally 10 years, but can be a shorter period at
the discretion of the Compensation Committee.
Vesting................. Determined by the Compensation Committee. Options
generally vest over a period of four years, vesting
as to 25% of the shares on the first anniversary and
1/48th per month thereafter.
Exercise................ The optionee can pay the exercise price of the option
with cash.
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 the vested portion of an
option. In the event of termination of employment due
to death or disability, an optionee (or their legal
representative) may exercise the vested portion of an
option within 12 months after the date of termination
of employment. In the event of termination as a
result of a change of control, members of the
Company's executive management team may exercise
their vested options within 24 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 is required under the Scheme to assume or
substitute each outstanding option under the Scheme.
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 Scheme.......... The Scheme will expire in January 2011, unless our
Board of Directors terminates it earlier.
Amendment of Scheme..... The Board may amend the Scheme, except for any
amendment that would make the terms on which options
may be granted materially more generous or would
increase the maximum number of shares of the Scheme
without the prior approval of our stockholders. No
amendment shall have effect until approval by Inland
Revenue of the United Kingdom.
PLAN BENEFITS. The number of awards (if any) that may be granted to employees,
directors and consultants under the Scheme is subject to the discretion of the
Compensation Committee. As of the date of this proxy statement, there has been
no determination by the Compensation Committee with respect to future awards
under the Scheme. Accordingly, future awards under the Scheme are not
determinable. The following table sets forth information with respect to the
grant of options under the Scheme during the last fiscal year to (i) all current
executive officers as a group, and (ii) all employees who are not executive
officers as a group. None of our directors who are not executive officers
received an award from the Scheme in fiscal 2003.
19
NUMBER OF SHARES WEIGHTED AVERAGE
SUBJECT TO OPTIONS EXERCISE PRICE PER SHARE
NAME AND POSITION GRANTED (#) ($/SH)
- ----------------- ----------- ------------------------
All current executive
officers as a group...... 11,718 $4.06
All employees who are
not executive officers
as a group............... 46,748 $2.45
UNITED KINGDOM INCOME TAX CONSEQUENCES TO OPTIONEES.
Since the grant of an option made under the Scheme is made under an Inland
Revenue Approved Share Scheme, the optionee can be granted an option covering
shares with a market value of up to (pound)30,000 (converted from U.S. dollars
to British pounds on the date of grant) and which would be eligible for
preferential tax treatment in the United Kingdom if the optionee exercises the
option within certain parameters. If the optionee qualifies for preferential tax
treatment, there would be no income tax charge incurred at the time of exercise.
To qualify for this tax treatment, the optionee must wait to exercise his or her
options until at least three years after the grant date (or until at least three
years from the date of the exercise of an option that benefited from preferred
tax treatment under this or any other Inland Revenue approved scheme, if later.)
Further the exercise of the option must be made in accordance with the rules of
the Scheme and must be made while the Scheme retains formal Inland Revenue
approval.
If the optionee exercises his or her option under qualifying circumstances, then
the optionee would be subject to capital gains tax on the entire gain (i.e., the
difference between the sales price and the exercise price) at the time of sale.
Capital gains would be subject to tapering relief (the taper period would run
from the time the shares are purchased, i.e., the date of exercise) and the
annual exemption.
If the optionee chooses to exercise his or her option before the expiration of
the holding period, the optionee would be subject to U.K. income tax on the
difference between the fair market value of the shares at the time of exercise
and the exercise price, which would be due at the end of the tax year in which
the exercise occurs. If the optionee exercises his or her option under
non-qualifying circumstances, then at the time of sale the optionee may be
liable for capital gains tax on the difference between the sale price and the
fair market value of the shares at the time of exercise.
There would be no National Insurance Contributions arising on the exercise of
the option even if the exercise does not take place under qualifying
circumstances, unless exceptional circumstances apply such as the option was
invalidly or improperly granted.
THE ABOVE IS ONLY A SUMMARY OF THE EFFECT OF THE UNITED KINGDOM INCOME TAX
CONSEQUENCES AND NATIONAL INSURANCE CONTRIBUTION TREATMENT UPON THE OPTIONEE
WITH RESPECT TO THE SHARES PURCHASED UNDER THE SCHEME. In addition, the summary
does not discuss the tax consequences of an optionee's death or the income tax
laws of any other country or any municipality or state in which the optionee may
reside.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE SCHEME.
20
PROPOSAL SEVEN
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as our
independent public accountants for the fiscal year ending June 30, 2004 ("fiscal
2004"). 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 2003 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 feels 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 2004. IN THE EVENT OF A NEGATIVE VOTE ON RATIFICATION, THE BOARD OF
DIRECTORS WILL RECONSIDER ITS SELECTION.
21
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
We have included in the following table all compensation earned during the last
three years by our former chief executive officer and our five other most highly
compensated executive officers whose total compensation from Extended Systems
during fiscal 2003 exceeded $100,000 (the "Named Executive Officers"). Mr.
Jepson, our current President and Chief Executive Officer, began serving in that
role in August 2003. Mr. Simpson served as our President and Chief Executive
Officer throughout fiscal 2003 and ceased serving in that role in August 2003.
Mr. Baumgartner served as our Vice President of Worldwide Marketing until
January 2003. Mr. Surkamer served as our Vice President of Sales until March
2003. See "Certain Transactions" for a description of our separation agreements
with Messrs. Baumgartner, Simpson and Surkamer.
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION ---------------------
FISCAL ---------------- SECURITIES UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ----------------- ------ -------- ----- ----------- -----------
Steven D. Simpson................ 2003 $254,375 -- 75,000 $ 4,425 (1)
Former President and 2002 255,000 -- 100,000 6,100 (1)
Chief Executive Officer 2001 290,000 -- 125,000 6,100 (1)
Donald J. Baumgartner............ 2003 171,911 -- 22,000 13,397 (2)
Former Vice President 2002 135,324 -- 25,000 4,060 (1)
of Worldwide Marketing 2001 144,000 -- 35,000 4,295 (1)
Karla K. Rosa.................... 2003 161,102 -- 23,000 2,669 (1)
Vice President of Finance, 2002 157,500 -- 25,000 4,725 (1)
Chief Financial Officer 2001 160,100 -- 35,000 25,710 (3)
and Corporate Secretary
Kerrin Pease..................... 2003 159,966 -- 75,000 2,633 (1)
Vice President of 2002 153,966 -- 25,000 2,453 (1)
Research and Development 2001 -- -- -- --
Bradley J. Surkamer.............. 2003 159,709 -- 22,000 18,753 (4)
Former Vice President 2002 138,308 -- 25,000 4,149 (1)
of Sales 2001 146,460 -- 29,000 4,354 (1)
Mark A. Willnerd (6) ............ 2003 101,148 -- 15,000 1,673 (1)
Vice President of 2002 96,140 -- 2,000 3,884 (5)
Business Development 2001 88,725 -- 16,000 2,662 (1)
- --------------
(1) Consists of contributions to our defined contribution plans.
(2) Includes $1,790 in contributions to our defined contribution plans and
$11,607 of stock option compensation recognized upon exercise of
non-qualified stock options.
(3) Includes $4,803 in contributions to our defined contribution plans and
$20,907 of stock option compensation recognized upon exercise of
non-qualified stock options.
(4) Includes $2,375 in contributions to our defined contribution plans, sales
commission of $8,850, and $7,528 of stock option compensation recognized
upon exercise of non-qualified stock options.
(5) Includes $2,884 in contributions to our defined contribution plans and
$1,000 for a computer subsidy.
(6) Mr. Willnerd became Vice President of Business Development on September 4,
2002.
22
OPTION GRANTS DURING FISCAL 2003
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
2003. All options set forth in the following table vested over a four-year
period and had 10 year terms except for options granted on August 30, 2002 and
October 24, 2002 which had a three-year vesting schedule. 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
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS EXERCISE PRICE APPRECIATION
SHARES GRANTED TO PRICE FOR OPTION TERM
UNDERLYING EMPLOYEES IN PER EXPIRATION ---------------------
NAME OPTIONS GRANTED FISCAL 2003 SHARE DATE 5% 10%
- ---- --------------- ----------- --------- ---------- -------- --------
Steven D. Simpson........ 75,000 5.8% $1.77 01/16/13(1) $ 83,486 $211,569
Donald J. Baumgartner.... 11,000 2.60 08/30/12(2) 17,986 45,581
11,000 2.24 10/24/12(2) 15,496 39,270
--------------- ---------------------
22,000 1.7 33,482 84,851
Karla K. Rosa............ 11,500 2.60 08/30/12 18,804 47,653
11,500 2.24 10/24/12 16,200 41,055
--------------- ---------------------
23,000 1.8 35,004 88,708
Kerrin Pease.............. 15,000 2.60 08/30/12 24,527 62,156
15,000 2.24 10/24/12 21,131 53,550
45,000 1.61 04/18/13 55,185 139,851
--------------- ---------------------
75,000 5.8 100,843 255,557
Bradley J. Surkamer...... 11,000 2.60 08/30/12(3) 17,986 45,581
11,000 2.24 10/24/12(3) 15,496 39,270
--------------- ---------------------
22,000 1.7 33,482 84,851
Mark A. Willnerd......... 7,500 2.60 08/30/12 12,263 31,078
7,500 2.24 10/24/12 10,565 26,775
--------------- ---------------------
15,000 1.2 22,828 57,853
(1) In connection with Mr. Simpson's departure in August 2003, we agreed to
amend these options to provide that he will have until August 2005 to
exercise these options.
(2) The unvested portion of these options expired unexercised on April 30,
2003, subsequent to Mr. Baumgartner's departure from our company.
(3) The unvested portion of these options expired unexercised on June 17, 2003,
subsequent to Mr. Surkamer's departure from our company.
23
FISCAL 2003 AGGREGATED OPTION EXERCISES
AND OPTION VALUES
The following table includes information regarding the number of shares acquired
through the exercise of stock options during fiscal 2003 by each of the Named
Executive Officers and the value of unexercised options as of June 30, 2003. 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, 2003, as
determined by the Board of Directors.
We calculated the value of unexercised "in-the-money" options based on a price
of $3.90 per share, which was the closing sales price of our common stock on
June 30, 2003, 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 VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Steven D. Simpson.......... -- $ -- 343,334 176,665 $ 5,833 $ 167,917
Donald J. Baumgartner...... 7,102 28,834 -- -- -- --
Karla K. Rosa.............. -- -- 105,915 42,396 14,806 19,234
Kerrin Pease............... -- -- 23,021 76,979 19,313 112,838
Bradley J. Surkamer........ 7,789 26,460 -- -- -- --
Mark A. Willnerd........... 21,926 17,583 9,657 12,543
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information regarding our equity compensation
plans as of June 30, 2003:
Number of securities remaining
Number of securities to Weighted-average available for future issuance
be issued upon exercise exercise price of under equity compensation plans
of outstanding options, outstanding options, (excluding securities reflected
warrants and rights warrants and rights in column (a))
Plan category (a) (b) (c)
Equity compensation plans
approved by security holders 3,268,769(1) $ 9.54 1,366,130(2)
Equity compensation plans not
approved by security holders 35,000 $ 7.35 --
Total 3,303,769 $ 9.51 1,366,130
========= ========= =========
24
(1) STOCK OPTION PLANS
The aggregate number of shares of common stock for which options may be granted
under the 2001 Approved Share Option Scheme is 125,000. The term of these
non-transferable stock options may not exceed ten years. The exercise price is
generally the fair market value on the date of grant or at a price determined by
our directors. During the years ended June 30, 2003 and 2002, we granted options
to purchase 58,466 and 27,150 shares, respectively. At June 30, 2003, 87,382
options were outstanding under the Scheme, of which 31,573 options were
exercisable.
The aggregate number of shares of common stock for which options may be granted
under the 1998 Stock Plan is 3,325,000. The term of these non-transferable stock
options may not exceed ten years. The exercise price is generally the fair
market value on the date of grant or at a price determined by our directors.
During the years ended June 30, 2003 and 2002, we granted options to purchase
1,195,309 and 485,750 shares, respectively. At June 30, 2003, 2,325,418 options
were outstanding under the 1998 Stock Plan, of which 1,222,153 options were
exercisable.
The aggregate number of shares of common stock for which options have been
granted under the 1994 Stock Plan is 2,666,667. The term of these
non-transferable stock options may not exceed ten years. The exercise price is
generally the fair market value on the date of grant or at a price determined by
our directors. During the years ended June 30, 2003 and 2002, there were no
options granted under the 1994 Stock Plan. At June 30, 2003, 264,233 options
were outstanding and exercisable under the 1994 Stock Plan.
The aggregate number of shares of common stock for which options have been
granted under the 1984 Stock Plan is 3,333,333. The term of these
non-transferable stock options may not exceed ten years. The exercise price is
generally the fair market value on the date of grant or at a price determined by
our directors. During the years ended June 30, 2003 and 2002, there were no
options granted under the 1984 Stock Plan. At June 30, 2003, 13,001 options were
outstanding and exercisable under the 1984 Stock Plan.
The aggregate number of shares of common stock for which options may be granted
under the 1998 Director Option Plan is 250,000. The term of these
non-transferable stock options may not exceed ten years. The exercise price is
generally the fair market value on the date of grant. During the years ended
June 30, 2003 and 2002, we granted options to purchase 45,000 and 37,500 shares,
respectively. At June 30, 2003, 172,500 options were outstanding under the
Director Plan, of which 120,833 options were exercisable.
RESTRICTED STOCK PLANS
The aggregate number of shares of common stock for which options have been
granted under the 1987 Restricted Stock Option Plan is 1,668,334. The term of
these non-transferable stock options may not exceed ten years. The terms, such
as exercise price of the options, were determined at the date of grant. The plan
terminated in September 1997. At June 30, 2003, 406,235 options were outstanding
and exercisable under the 1987 Restricted Stock Option Plan.
EMPLOYEE STOCK PURCHASE PLAN
The aggregate number of shares of common stock that are available for issuance
under this plan as of June 30, 2003 is 573,840 shares and is included in column
(c). As of June 30, 2003, there have been 1,092,108 shares issued since the
plan's inception. The plan provides for annual increases in the number of shares
available for issuance on each anniversary date of the plan's adoption equal to
the lesser of (i) the number of shares needed to restore the maximum aggregate
number of shares available to 700,000, or (ii) an amount determined by the Board
of Directors.
(2) WARRANTS
On January 15, 2002, in connection with obtaining our line of credit with
Silicon Valley Bank, we issued stock warrants to purchase 35,000 shares of our
common stock at an exercise price of $7.35 per share. The warrants vested
immediately upon issuance and expire seven years from the date of the grant.
25
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
In August 2003, we entered into an agreement with Mr. Smelek, the Chairman of
our Board of Directors, that provides that we will provide Mr. Smelek $7,500 in
lieu of other benefits upon termination of his employment with us, as well as
extend the period during which he has to exercise any options to purchase our
common stock until the earlier of 12 months after the termination of his service
as a director or employee of our company or the date of expiration of the stock
options set forth in the agreements governing those options.
In August 2003, we entered into an employment agreement with Charles W. Jepson,
our President and Chief Executive Officer, in which we agreed to pay Mr. Jepson
an annual base salary of $210,000. Net of salary reductions set by the
management team, Mr. Jepson's base salary is expected to be $168,000 per year.
Mr. Jepson also has the potential to earn a bonus of $24,500 per quarter and an
annual bonus of $42,000 if financial goals are met. We also granted him an
option to acquire 213,333 shares of our common stock with a per share exercise
price equal to the fair market value of our common stock on the date of grant.
Mr. Jepson's option was granted on August 22, 2003 with an exercise price of
$5.00 per share. Mr. Jepson's option vests as to 25% of the shares on the first
anniversary of grant date and as to 1/48th of the shares monthly thereafter. We
also agreed to give Mr. Jepson 14 days notice in the event we terminate him.
In September 2003, we also entered into an amendment to employment agreements
with Karla K. Rosa, our Vice President of Finance, Chief Financial Officer and
Corporate Secretary, Kerrin Pease, our Vice President of Research and
Development, Mark Willnerd, our Vice President of Business Development, and
Nigel Doust, our Vice President - Europe, Middle East and Africa (through our
subsidiary incorporated under the laws of England and Wales, Extended Systems
Bristol Limited).
In the amendments to their respective agreements and Mr. Jepson's employment
agreement, we also agreed with each of Ms. Rosa and Messrs. Doust, Jepson, Pease
and Willnerd (each an "Executive") as follows. We agreed that in the event that
the Executive is terminated without cause or constructively terminated, as such
terms are defined below, he or she will be entitled to receive six months of his
or her then base salary, $3,000 in lieu of fringe benefits ((pound)6,500 for Mr.
Doust), all salary, vacation time and other benefits earned and accrued prior to
the date of termination, and a pro rata bonus for the year in which the
termination without cause or constructive termination occurs, assuming that the
Executive would have received a bonus. The Executive must execute a mutually
agreeable release of claims in order to receive the benefits set forth in the
preceding sentence.
We also agreed with each Executive that if, within 12 months of a change of
control of our company, he or she is terminated without cause or constructively
terminated, the Executive will be entitled to receive 12 months of his or her
then base salary, $6,000 in lieu of fringe benefits ((pound)13,000 for Mr.
Doust), all salary, vacation time and other benefits earned and accrued prior to
the date of termination, and a pro rata bonus for the year in which the
termination without cause or constructive termination occurs, assuming that the
Executive would have received a bonus. The Executive would also be entitled to
vesting in full of all options to purchase our common stock then held by him or
her and the right, no later than 90 days after his or her termination, to extend
the period the Executive has to exercise his or her options to 24 months after
his or her termination date. In order to receive the benefits for which the
Executive would be eligible following termination without cause or constructive
termination after a change in control, the Executive must execute a mutually
agreeable release of claims.
We also agreed to pay any excise tax that the Executive may owe if any of the
benefits he or she is entitled to receive under the Executive's employment
agreement, as amended, are characterized as "excess parachute payments" under
Section 280G of the Internal Revenue Code.
For purposes of the Executive's employment agreements, as amended, constructive
termination would occur if one or more of the following events occurred without
his or her consent:
o the Executive is required to relocate;
o the Executive's overall compensation package is detrimentally changed
or modified other than in connection with a general change or
modification in compensation for all of our employees or all of our
employees in any particular group or classification that includes him
or her, provided that such reduction is temporary, is not more than
20% of base salary and is the result of a decline in our economic
condition; however, for purposes of a change in control, neither
general changes or modifications or temporary changes are excluded; or
26
o the Executive's position, including his or her status as an officer of
our company or its parent, or the duties, responsibilities or
requirements of his or her position are substantially changed or
modified.
For purposes of each Executive's employment agreement, as amended, a change in
control would occur if:
o a person, other than one of our stockholders on the date of the
amendment to the agreement, acquires the right to vote more than 20%
of the shares entitled to vote at an election of our directors and (A)
becomes entitled to vote more than 50% of the votes entitled to be
cast at an election of our directors or (B) is otherwise able to
appoint, designate or control a majority of our directors;
o we merge with or are consolidated into any other corporation or entity
where our stockholders immediately prior to the merger or
consolidation do not hold at least 50% of the voting power of the
resulting corporation immediately after the merger or consolidation;
or
o any sale or transfer in a single transaction or series of related
transaction of 50% of more of the fair market value of our assets.
We also agreed that if we executed a definitive agreement to cause a change in
control and the Executive is terminated prior to the occurrence of the change in
control but as a result thereof, he or she is entitled to the benefits set forth
above.
27
REPORT OF THE COMPENSATION COMMITTEE
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.
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 Named Executive Officers, receive options based on the
Compensation Committee's evaluation of Extended Systems' performance and the
executive's individual performance. Our Compensation Committee evaluates our
performance by reviewing the extent to which we meet our strategic and business
plan goals, 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 our Named Executive Officers in a manner that is
consistent with their peers at comparable companies.
NAMED EXECUTIVE OFFICER COMPENSATION PROGRAM
- --------------------------------------------
SALARY. We set a base salary range for each Named 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 a Named 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.
EQUITY-BASED COMPENSATION. The purpose of our equity-based compensation program
is to provide employees, including Named Executive Officers, additional
incentive to maximize stockholder value. Option grants to Named Executive
Officers under our 1998 Stock Plan and our Scheme are designed to:
28
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 was our President and Chief Executive Officer from February
1996 to August 2003. The Compensation Committee used the same compensation
policy described above to determine Mr. Simpson's fiscal 2003 compensation. In
setting both the cash and equity-based elements of Mr. Simpson's compensation,
the Compensation Committee 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 2003, our Compensation Committee considered the following:
o total cash compensation for chief executive officers at all companies
nationally with revenues of less than $100 million as listed in the RADFORD
EXECUTIVE COMPENSATION REPORT published by the Radford Division of Aon
Consulting in July 2002;
o cash compensation at other comparable computer software companies;
o our financial results as compared to other companies within the
high-technology industry; and
o our financial performance for fiscal 2002.
As a result of this review, our Compensation 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 us. In
January 2001, the Compensation Committee set Mr. Simpson's annual salary at
$300,000. No change was made to Mr. Simpson's annual salary in fiscal 2003. In
fiscal 2003, his actual salary, net of salary reductions set by the Extended
Systems' management team, was $254,375.
EQUITY-BASED COMPENSATION. Our Compensation Committee followed the same policy
described above for other executive officers, to determine Mr. Simpson's
incentive awards.
On January 16, 2003, our Compensation Committee approved the grant to Mr.
Simpson of an option to purchase 75,000 shares of common stock. In determining
the size of the option to grant Mr. Simpson, our Compensation Committee reviewed
Mr. Simpson's performance, including financial, operational and strategic
results for fiscal 2002 as compared with our internal goals and objectives and
determined that he had met the majority of the goals and objectives set out for
him.
QUALIFYING COMPENSATION
- -----------------------
Our Compensation Committee 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). Our policy is, to the extent possible, to qualify
our executive officers' compensation for deductibility under the applicable tax
laws.
Respectfully submitted,
Robert Frankenberg, Chairman
of the Compensation Committee
Archie Clemins
Ralph Godfrey
29
REPORT OF THE AUDIT COMMITTEE
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 fiscal 2003, included in our 2003 Annual Report on Form
10-K, as well as our unaudited quarterly financial statements for fiscal 2003.
The Audit Committee evaluates audit performance, manages relations with our
independent accountants and evaluates policies and procedures relating to
internal accounting functions and controls. The Board of Directors has adopted a
written charter for the audit committee which details the responsibilities of
the Audit Committee, which is attached as Appendix A to this proxy statement.
This report relates to the activities undertaken by the audit committee in
fulfilling such responsibilities.
The Audit Committee members are not professional accountants or auditors, and
their functions are not intended to duplicate or to certify the activities of
management and the independent accountants. The Audit Committee oversees our
financial reporting process on behalf of the Board of Directors. Our management
has the primary responsibility for the financial statements and reporting
process, including our systems of internal controls. In fulfilling its oversight
responsibilities, the Audit Committee reviewed with management the audited
financial statements included in the Annual Report on Form 10-K for fiscal 2003.
This review included a discussion of the quality and the acceptability of our
financial reporting and controls, including the clarity of disclosures in the
financial statements. In addition, the Audit Committee reviewed processes that
already are in place as well as those that will be implemented to comply with
the requirements of the Sarbanes-Oxley Act as they become effective.
The Audit Committee also reviewed with our independent accountants, who are
responsible for expressing an opinion on the conformity of our audited financial
statements with generally accepted accounting principles, their judgments as to
the quality and the acceptability of our financial reporting and such other
matters required to be discussed with the Audit Committee under generally
accepted auditing standards in the United States including Statement on Auditing
Standards No. 61. The Audit Committee has received the written disclosures and
the letter from the independent accountants required by Independence Standards
Board Statement No. 1. The Audit Committee discussed with the independent
accountants their independence from management and our company, including the
matters in their written disclosures required by Independence Standards Board
Statement No. 1.
The Audit Committee further discussed with our independent accountants the
overall scope and plans for their audits. The Audit Committee meets periodically
with the independent accountants, with and without management present, to
discuss the results of the independent accountants' examinations and evaluations
of our internal controls, and the overall quality of our financial reporting.
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 2003, for
filing with the SEC.
AUDIT, AUDIT-RELATED AND NON-AUDIT SERVICES AND FEES
- ----------------------------------------------------
During fiscal 2003, PricewaterhouseCoopers LLP provided Extended Systems with
various audit, audit-related and non-audit services. Aggregate fees of
approximately $159,000 were billed for professional services rendered for the
annual audit and the quarterly reviews of our consolidated financial statements
for fiscal 2003. Aggregate fees of approximately $80,000 were billed for
professional services related to the registration statement filed on Form S-4 in
June 2002 and declared effective in fiscal 2003 and for several registration
statements on Form S-8 filed in fiscal 2003. The Audit Committee believes that
the provision of non-audit services during fiscal 2003 was compatible with
maintaining PricewaterhouseCoopers LLP's independence and determined that such
services did not adversely affect PricewaterhouseCoopers LLP's independence.
Respectfully submitted,
John M. Russell, Chairman of the
Audit Committee
James R. Bean
Jody B. Olson
30
CERTAIN TRANSACTIONS
On January 2, 2001, Extended Systems loaned Ms. Rosa the amount of $21,188. The
loan was collateralized by a pledge of common stock, had an interest rate of
5.87% annually and is due on the earlier of (i) December 31, 2004 or (ii) the
date of Ms. Rosa's termination of employment. Ms. Rosa paid the loan in full on
July 18, 2003. On February 22, 2001, Extended Systems loaned Ms. Rosa the amount
of $23,235. The loan was collateralized by a pledge of common stock, had a
interest rate of 5.07% annually and is due on the earlier of (i) February 28,
2005 or (ii) the date of Ms. Rosa's termination of employment. Ms. Rosa paid the
loan in full on July 18, 2003.
Pursuant to a Separation Agreement dated May 5, 2002, entered into by and
between Mr. McMeekin and ViaFone, Inc., which agreement was assumed by us in
connection with the acquisition of ViaFone, we paid Mr. McMeekin severance
payments totaling approximately $112,500 in equal payments during fiscal 2003.
In January 2003, we entered into a settlement, release and severance agreement
with Donald J. Baumgartner, our former Vice President of Marketing, in which we
agreed to pay Mr. Baumgartner $77,180, less applicable taxes, in lieu of any
other severance payments, and $2,000 in lieu of fringe benefits. Mr. Baumgartner
also agreed not to induce or attempt to induce any of our employees, consultants
or agents to terminate their employment with us for six months from the date of
the agreement.
In March 2003, we entered into a settlement, release and severance agreement
with Bradley J. Surkamer, our former Vice President of Sales, in which we agreed
to pay Mr. Surkamer $69,018, less applicable taxes, in lieu of any other
severance payments, and $1,075 in lieu of fringe benefits. Mr. Surkamer also
agreed not to induce or attempt to induce any of our employees, consultants or
agents to terminate their employment with us for six months from the date of the
agreement.
In April 2003, we entered into a settlement, release and severance agreement
with Fernando Ruarte, our former Vice President of Product Development, in which
we agreed to pay Mr. Ruarte $90,000 less applicable taxes, in lieu of any other
severance payments, and $2,196 in lieu of fringe benefits. Mr. Ruarte agreed
that for a period of six months after his termination, he would not engage in
specified activities with our then customers, including soliciting orders from
them, or accept employment with any such customer. He also agreed not to induce
or attempt to induce any of our employees, consultants or agents to terminate
their employment with us for six months from the date of the agreement.
In June 2003, we entered into a settlement, release and severance agreement with
Raphael Auphan, our former Vice President of European Sales, in which we agreed
to pay Mr. Auphan $70,002 less applicable taxes, in lieu of any other severance
payments, $18,000 in relocation benefits and $7,760 in lieu of fringe benefits.
Mr. Auphan agreed that for a period of six months after his termination, he
would not engage in specified activities with our then customers, including
soliciting orders from them, or accept employment with any such customer. He
also agreed not to induce or attempt to induce any of our employees, consultants
or agents to terminate their employment with us for six months from the date of
the agreement.
In August 2003, we entered into a settlement, release and severance agreement
with Steven D. Simpson, our former President and Chief Executive Officer, in
which we agreed to pay Mr. Simpson $375,000 less applicable taxes, in lieu of
any other severance payments, and $7,500 in lieu of fringe benefits. We also
agreed to vest in full all then unvested options to acquire our common stock
held by Mr. Simpson and to permit Mr. Simpson to exercise any options held by
him for a period of up to 24 months from the date of his termination. Mr.
Simpson agreed that for a period of 15 months after his termination, he would
not engage in specified activities with our then customers, including soliciting
orders from them, or accept employment with any such customer. He also agreed
not to induce or attempt to induce any of our employees, consultants or agents
to terminate their employment with us for 15 months from the date of the
agreement.
31
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 from June
30, 1998 to June 30, 2003. The graph assumes that $100 was invested on June 30,
1998 in our common stock and 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.
[STOCK PERFORMANCE GRAPH OMITTED]
EXTENDED SYSTEMS INC
Cumulative Total Return
------------------------------------------------
6/98 6/99 6/00 6/01 6/02 6/03
EXTENDED SYSTEMS INCORPORATED 100.00 68.52 1422.22 102.52 49.63 57.78
NASDAQ STOCK MARKET (U.S.) 100.00 143.60 212.29 115.34 78.57 87.24
RUSSELL 2000 100.00 101.50 116.04 116.80 106.67 104.92
32
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 reports with the Securities and
Exchange Commission 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 also 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 2003, except for the following: Mr. Winterrowd
filed a Form 4 late; Messrs. Baumgartner, Surkamer, Pease, Willnerd, Smelek,
Russell, Jepson, Katsaros and Wald and Ms. Rosa each filed a Form 4 late; and
Mr. Simpson filed another Form 4 late.
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 2004 Annual Meeting, our Corporate
Secretary must receive your proposals no later than July 8, 2004, 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 for consideration at the 2004 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, 2004. 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 2004 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 2003 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, Idaho 83713
Attn: Investor Relations
208-322-7575
xtnd@extendsys.com
It is important that your shares be represented at the 2003 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: October 28, 2003
33
APPENDIX A
CHARTER OF AUDIT COMMITTEE OF
EXTENDED SYSTEMS, INCORPORATED
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;
34
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.
35
APPENDIX B
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
o to attract and retain the best available personnel for
positions of substantial responsibility,
o to provide additional incentive to Employees, Directors
and Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4 of
the Plan.
(b) "Applicable Laws" means the requirements relating to
the administration of stock option plans under U. S. state corporate laws, U.S.
federal
and state securities laws, the Code, any stock exchange or quotation system on
which the Common Stock is listed or quoted and the applicable laws of any
foreign country or jurisdiction where Options or Stock Purchase Rights are, or
will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors
appointed by the Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Extended Systems Incorporated, a
Delaware corporation.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in THE WALL STREET JOURNAL or such
other source as the Administrator deems reliable; or
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the
Plan.
(s) "Option Agreement" means an agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(t) "Option Exchange Program" means a program whereby
outstanding Options are surrendered in exchange for Options with a lower
exercise price.
(u) "Optioned Stock" means the Common Stock subject to an
Option or Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock
acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the
Plan.
(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange
Act.
(cc) "Service Provider" means an Employee, Director or
Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted
in accordance with Section 13 of the Plan.
3
(ee) "Stock Purchase Right" means the right to purchase
Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of
Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 2,500,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may
be administered by different Committees with respect to different groups of
Service Providers.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to
qualify transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions
of the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the
4
Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom
Options and Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common
Stock to be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under
the Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option
or Stock Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase Right shall
have declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option or Stock
Purchase Right (subject to Section 15(c) of the Plan), including the
discretionary authority to extend the post-termination exercisability period of
Options longer than is otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding
tax obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares
5
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on
behalf of the Company any instrument required to effect the grant of an Option
or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted
only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of
Options:
(i) No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 750,000 Shares.
(ii) In connection with his or her initial
service, a Service Provider may be granted Options to purchase up to an
additional 250,000 Shares which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection
6
with any change in the Company's capitalization as described in Section 13.
(iv) If an Option is cancelled in the same fiscal
year of the Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon the date that the Company's registration statement on Form
S-1 for the purpose of effecting the initial public offering of the Common Stock
becomes effective under the Securities Act of 1933, as amended. It shall
continue in effect for a term of ten (10) years unless terminated earlier under
Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the
time the Incentive Stock Option is granted, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than
an Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option,
the per Share exercise price shall be determined by the Administrator. In the
case of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
7
(iii) Notwithstanding the foregoing, Options may
be granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator shall fix the period within which the
Option may be exercised and shall determine any conditions which must be
satisfied before the Option may be exercised.
(c) Form of Consideration. The Administrator shall
determine the acceptable form of consideration for exercising an Option,
including the method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the time
of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
8
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence.
An Option may not be exercised for a fraction of
a Share. An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease
the number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If
an Optionee ceases to be a Service Provider, other than upon the Optionee's
death or Disability, the Optionee may exercise his or her Option within such
period of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement). In
the absence of a specified time in the Option Agreement, the Option shall remain
exercisable for three (3) months following the Optionee's termination. If, on
the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
9
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares an Option previously granted
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase
Agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its sole
discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right
is exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company.
10
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 13 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option and Stock Purchase Right, and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but as to which no Options or Stock Purchase Rights have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option or Stock Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable. In
addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option or Stock Purchase
Right shall lapse as to all such Shares, provided the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, an Option or Stock Purchase Right
will terminate immediately prior to the consummation of such proposed action.
11
(c) Merger or Asset Sale. 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 and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain
stockholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to
12
exercise the powers granted to it hereunder with respect to Options granted
under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant
to the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. The Plan shall be subject to approval by
the stockholders of the Company within twelve (12) months after the date the
Plan is adopted. Such stockholder approval shall be obtained in the manner and
to the degree required under Applicable Laws.
13
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $_________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to the Option shall vest twelve months
after the Vesting Commencement Date, and 1/48 of the Shares subject to the
Option shall vest each month thereafter, subject to the Optionee continuing to
be a Service Provider on such dates.
Termination Period:
This Option may be exercised for three months after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for one year after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Grant
and the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by
delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
completed by the Optionee and delivered to Karla K. Rosa, Chief Financial
Officer of the Company. The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.
2
3. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, AND (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares][; or
(e) with the Administrator's consent, delivery of
Optionee's promissory note (the "Note") in the form attached hereto as Exhibit
C, in the amount of the aggregate Exercise Price of the Exercised Shares
together with the execution and delivery by the Optionee of the Security
Agreement attached hereto as Exhibit B. The Note shall bear interest at the
"applicable federal rate" prescribed under the Code and its regulations at time
of purchase, and shall be secured by a pledge of the Shares purchased by the
Note pursuant to the Security Agreement.
4. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may
incur regular federal income tax liability upon exercise of a NSO. The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from
3
his or her compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(ii) Incentive Stock Option. If this Option
qualifies as an ISO, the Optionee will have no regular federal income tax
liability upon its exercise, although the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee ceases to be
an Employee but remains a Service Provider, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the date three (3) months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at
least one year after exercise and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the lesser of (A) the
difference between the Fair Market Value of the Shares acquired on the date of
exercise and the aggregate Exercise Price, or (B) the difference between the
sale price of such Shares and the aggregate Exercise Price. Any additional gain
will be taxed as capital gain, short-term or long-term depending on the period
that the ISO Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If
the Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (i) two years after the grant date, or (ii)
one year after the exercise date, the Optionee shall immediately notify the
Company in writing of such disposition. The Optionee agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely
4
to the Optionee's interest except by means of a writing signed by the Company
and Optionee. This agreement is governed by the internal substantive laws, but
not the choice of law rules, of Idaho.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: EXTENDED SYSTEMS INCORPORATED
- ----------------------------------- ------------------------------------
Signature By
- ----------------------------------- ------------------------------------
Print Name Title
- -----------------------------------
Residence Address
- -----------------------------------
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned
5
hereby agrees to be irrevocably bound by the terms and conditions of the Plan
and this Option Agreement and further agrees that any community property
interest shall be similarly bound. The undersigned hereby appoints the
undersigned's spouse as attorney-in-fact for the undersigned with respect to any
amendment or exercise of rights under the Plan or this Option Agreement.
------------------------------
Spouse of Optionee
6
EXHIBIT A
---------
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
EXERCISE NOTICE
Extended Systems Incorporated
5777 Meeker Avenue
Boise, Idaho 83713
Attention: [ ]
1. Exercise of Option. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of Extended Systems Incorporated (the
"Company") under and pursuant to the 1998 Stock Plan (the "Plan") and the Stock
Option Agreement dated , 19___ (the "Option Agreement"). The purchase price for
the Shares shall be $ , as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in [Section 13] of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of Idaho.
Submitted by: Accepted by:
PURCHASER: EXTENDED SYSTEMS INCORPORATED
- ---------------------------------- --------------------------------
Signature By
- ---------------------------------- --------------------------------
Print Name Its
Address: Address:
- ------- -------
_________________________________ Extended Systems Incorporated
_________________________________ 5777 Meeker Avenue
_________________________________ Boise, Idaho 83713
--------------------------------
Date Received
2
EXHIBIT B
---------
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between
Extended Systems Incorporated, a Delaware corporation ("Pledgee"), and
_________________________ ("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1998 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the Idaho Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number
______, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment
for use in transferring all or a portion of the Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the Option,
and the Pledgeholder shall not encumber or dispose of such Shares except in
accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to
enter into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal
sum of the Note secured hereby, together with interest thereon, at the time and
in the manner provided in the Note.
b. Encumbrances. The Shares are free of all other
encumbrances, defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
c. Margin Regulations. In the event that Pledgee's Common
Stock is now or later
becomes margin-listed by the Federal Reserve Board and Pledgee is classified as
a "lender" within the meaning of the regulations under Part 207 of Title 12 of
the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate
with Pledgee in making any amendments to the Note or providing any additional
collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and
of this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth
in the Option or contained in this Security Agreement for a period of 10 days
after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the Idaho
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number
2
of Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the
payment of all indebtedness secured hereby, at which time the remaining pledged
stock shall be promptly delivered to Pledgor, subject to the provisions for
prior release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree
that the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of Idaho.
3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
"PLEDGOR" _________________________________
Signature
_________________________________
Print Name
Address: _________________________________
_________________________________
"PLEDGEE" Extended Systems Incorporated, a Delaware
corporation
_________________________________
Signature
_________________________________
Print Name
_________________________________
Title
"PLEDGEHOLDER" _________________________________
Secretary of Extended Systems Incorporated
4
EXHIBIT C
---------
NOTE
$_______________ Boise, Idaho
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to Extended
Systems Incorporated, a Delaware corporation (the "Company"), or order, the
principal sum of _______________________ ($_____________), together with
interest on the unpaid principal hereof from the date hereof at the rate of
_______________ percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee, director
or consultant of the Company for any reason, this Note shall, at the option of
the Company, be accelerated, and the whole unpaid balance on this Note of
principal and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
------------------------------------
------------------------------------
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the
Company, subject to the Company's Repurchase Option and your ongoing status as a
Service Provider (as described in the Plan and the attached Restricted Stock
Purchase Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $_________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION
DATE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE
SHARES. By your signature and the signature of the Company's representative
below, you and the Company agree that this Stock Purchase Right is granted under
and governed by the terms and conditions of the 1998 Stock Plan and the
Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of
which are made a part of this document. You further agree to execute the
attached Restricted Stock Purchase Agreement as a condition to purchasing any
shares under this Stock Purchase Right.
GRANTEE: EXTENDED SYSTEMS INCORPORATED
- --------------------------- --------------------------------
Signature By
- --------------------------- --------------------------------
Print Name Title
EXHIBIT A-1
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser")
is an Service Provider, and the Purchaser's continued participation is
considered by the Company to be important for the Company's continued growth;
and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may
be paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service
Provider for any or no reason (including death or disability) before all of the
Shares are released from the Company's Repurchase Option (see Section 4), the
Company shall, upon the date of such termination (as reasonably fixed and
determined by the Company) have an irrevocable, exclusive option (the
"Repurchase Option") for a period of sixty (60) days from such date to
repurchase up to that number of shares which constitute the Unreleased Shares
(as defined in Section 4) at the original purchase price per share (the
"Repurchase Price"). The Repurchase Option shall be exercised by the Company by
delivering written notice to the Purchaser or the Purchaser's executor (with a
copy to the Escrow Holder) AND, at the Company's option, (i) by delivering to
the Purchaser or the Purchaser's executor a check in the amount of the aggregate
Repurchase Price, or (ii) by cancelling an amount of the Purchaser's
indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by
a combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or stockholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such
Shares, then each such designee or assignee shall pay the Company cash equal to
the difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares
shall be released from the Company's Repurchase Option [one year] after the Date
of Grant and __________________ percent (______%) of the Shares [at the end of
each month thereafter], provided that the Purchaser does not cease to be a
Service Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from
the Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase
Option shall be delivered to the Purchaser at the Purchaser's request (see
Section 6).
5. Restriction on Transfer. Except for the escrow described in
Section 6 or the transfer of the Shares to the Company or its assignees
contemplated by this Agreement, none of the Shares or any beneficial interest
therein shall be transferred, encumbered or otherwise disposed of in any way
until such Shares are released from the Company's Repurchase Option in
accordance with the provisions of this Agreement, other than by will or the laws
of descent and distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the
Purchaser's Unreleased Shares upon repurchase by the Company pursuant to the
Repurchase Option, the Purchaser shall, upon execution of this Agreement,
deliver and deposit with an escrow holder designated by the Company (the "Escrow
Holder") the share certificates representing the Unreleased Shares, together
with the stock assignment duly endorsed in blank, attached hereto as Exhibit
A-2. The Unreleased Shares and stock assignment shall be held by the Escrow
Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser
attached hereto as Exhibit A-3, until such time as the Company's Repurchase
Option expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
3
(b) The Escrow Holder shall not be liable for any act it
may do or omit to do with respect to holding the Unreleased Shares in escrow
while acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or
expires unexercised or a portion of the Shares has been released from the
Repurchase Option,
upon request the Escrow Holder shall promptly cause a new certificate to be
issued for the released Shares and shall deliver the certificate to the Company
or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have
all the rights of a stockholder with respect to the Shares while they are held
in escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any,
issued hereunder shall be endorsed with the following legend (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of the transactions contemplated by this Agreement.
The Purchaser understands
4
that Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"),
taxes as ordinary income the difference between the purchase price for the
Shares and the Fair Market Value of the Shares as of the date any restrictions
on the Shares lapse. In this context, "restriction" includes the right of the
Company to buy back the Shares pursuant to the Repurchase Option. The Purchaser
understands that the Purchaser may elect to be taxed at the time the Shares are
purchased rather than when and as the Repurchase Option expires by filing an
election under Section 83(b) of the Code with the IRS within 30 days from the
date of purchase. The form for making this election is attached as Exhibit A-5
hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal
substantive laws, but not the choice of law rules of Idaho. This Agreement,
subject to the terms and conditions of the Plan and the Notice of Grant,
represents the entire agreement between the parties with respect to the purchase
of the Shares by the Purchaser. Subject to Section 15(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and the terms
and conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to
be given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the
Company's address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
5
(e) The Purchaser agrees upon request to execute any
further documents or instruments necessary or desirable to carry out the
purposes or intent
of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF
SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING
SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF
CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she
is familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: EXTENDED SYSTEMS INCORPORATED
- ------------------------------ ----------------------------------
Signature By
- ------------------------------ ----------------------------------
Print Name Title
6
EXHIBIT A-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto (__________) shares of the Common Stock of Extended Systems
Incorporated standing in my name of the books of said corporation represented by
Certificate No. _____ herewith and do hereby irrevocably constitute and appoint
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the
Restricted Stock Purchase Agreement (the "Agreement")
between________________________ and the undersigned dated ______________, 19__.
Dated: _______________, 19
Signature:__________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
EXHIBIT A-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
_______, 19
Corporate Secretary
Extended Systems Incorporated
5777 Meeker Avenue
Boise, Idaho 83713
Dear :
-----------------
As Escrow Agent for both Extended Systems Incorporated, a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing hereunder at the principal office of
the Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be
2
an officer or agent of the Company or if you shall resign by written notice to
each party. In the event of any such termination, the Company shall appoint a
successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
COMPANY: Extended Systems Incorporated
5777 Meeker Avenue
Boise, Idaho 83713
PURCHASER:
ESCROW AGENT: Corporate Secretary
Extended Systems Incorporated
5777 Meeker Avenue
Boise, Idaho 83713
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
3
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the internal substantive laws, but
not the choice of law rules, of Idaho.
Very truly yours,
EXTENDED SYSTEMS INCORPORATED
-------------------------------------
By
-------------------------------------
Title
PURCHASER:
-------------------------------------
Signature
-------------------------------------
Print Name
ESCROW AGENT:
- -------------------------------------
Corporate Secretary
4
EXHIBIT A-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of Extended Systems Incorporated, as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, 19
------------------------------
Signature of Spouse
EXHIBIT A-5
-----------
ELECTION UNDER SECTION 83(B)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described
as follows: __________ shares (the "Shares") of the Common Stock of
Extended Systems Incorporated (the "Company").
3. The date on which the property was transferred is: _______, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the
Shares based on the continued performance of services by the taxpayer
over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ _________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ _________________________________
Spouse of Taxpayer
APPENDIX C
AMENDMENT NUMBER 1
EXTENDED SYSTEMS INCORPORATED 1998 STOCK PLAN
Extended Systems Incorporated, pursuant to and in accordance with the provisions
of Section 15 of the Extended Systems Incorporated 1998 Stock Plan, does hereby
amend said Plan, effective as of January 23, 2001, as follows:
Section 2, paragraph (m), titled "Fair Market Value", subparagraph (i), is
replaced in its entirety with the following sentence:
"If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation The Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such
exchange or system on the date of determination, as reported in THE
WALL STREET JOURNAL or such other source as the Administrator deems
reliable;"
APPENDIX D
EXTENDED SYSTEMS INCORPORATED
1998 DIRECTOR OPTION PLAN
(adopted December, 1997)
(approved by stockholders January, 1998)
(amended and restated January 23, 2001)
(amended and restated October 15, 2003)
1. Purposes of the Plan. The purposes of this 1998 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Annual Meeting of Stockholders" means the annual meeting
of stockholders held each year on a date and at a time designated by
the Board and as defined in the Company's bylaws.
(b) "Audit Committee" means the audit committee of the Board
or any successor committee of the Board performing similar functions.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Common Stock" means the Common Stock of the Company, par
value $0.001 per share.
(f) "Company" means Extended Systems Incorporated, a Delaware
corporation.
(g) "Compensation Committee" means the compensation committee
of the Board of any successor committee of the Board performing similar
functions.
(h) "Director" means a member of the Board.
(i) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a Director's fee by the Company shall not be
sufficient in and of itself to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(k) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq Small Cap
Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on
such exchange or system on the date of determination, as
reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not
reported, the Fair Market Value of a Share of Common Stock
shall be the mean between the high bid and low asked prices
for the Common Stock on the date of determination, as reported
in The Wall Street Journal or such other source as the Board
deems reliable, or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be
determined in good faith by the Board.
(l) "Inside Director" means a Director who is an Employee.
(m) "Option" means a stock option granted pursuant to the
Plan.
(n) "Optioned Stock" means the Common Stock subject to an
Option or Restricted Stock award.
(o) "Optionee" means a Director who holds an Option.
(p) "Outside Director" means a Director who is not an
Employee.
(q) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1998 Director Option Plan.
(s) "Restricted Stock" means a grant of Shares subject to a
forfeiture restriction that lapses over time.
(t) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan,
(u) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Internal
Revenue Code of 1986.
3. Stock Subject to the Plan.
(a) Plan Pool. Subject to the provisions of Section 10 of the
Plan, the maximum aggregate number of Shares which may be granted as
Restricted Stock or optioned and sold pursuant to an Option under the
Plan is 250,000 Shares of Common Stock (the "Pool"). The Shares may be
authorized, but unissued, or reacquired Common Stock.
(b) Shares Returned to Pool. Unless the Plan has previously
been terminated, the following events will result in Shares being
returned to the Pool to be available for future grant under the Plan:
2
(i) An Option expires or becomes unexercisable
without having been exercised in full;
(ii) Unvested Restricted Stock is forfeited; and
(iii) Shares tendered to the Company to exercise an
Option.
Shares that have actually been issued under the Plan
shall not be returned to the Plan and shall not become
available for future distribution under the Plan.
4. Administration of Options under the Plan.
(a) Procedures for Grant. The provisions set forth in this
Section 4(a) shall not be amended more than once every six months,
other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. All
grants of Options to Outside Directors under this Plan shall be
automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to
determine the number of Shares to be covered by Options
granted to Outside Directors.
(ii) Initial Board Grant. Each Outside Director shall
be automatically granted an Option to purchase 20,000 Shares
(the "First Option") on the date on which the later of the
following events occurs:
(A) the effective date of this Plan, as
determined in accordance with Section 6 hereof, or
(B) the date on which such person first
becomes an Outside Director, whether through election
by the stockholders of the Company or appointment by
the Board to fill a vacancy; provided, however, that
an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive
a First Option.
(iii) Annual Board Option Grant. Each Outside
Director shall be automatically granted an Option to purchase
10,000 Shares (a "Subsequent Option") on the date of the
Company's Annual Meeting of Stockholders of each year provided
he or she is then an Outside Director and if as of such date,
he or she shall have served on the Board for at least the
preceding six (6) months.
(iv) 2003 Transition Option Grant. Each Outside
Director appointed by the Board to fill a vacancy after July
1, 2003 who is also elected by the stockholders of the Company
at the Company's 2003 Annual Meeting of Stockholders shall be
automatically granted an Option to purchase 5,000 Shares (a
"Transition Option") on the date of the Company's 2003 Annual
Meeting of Stockholders provided he or she is then an Outside
Director.
3
(v) Annual Board Restricted Stock Grant. Each Outside
Director shall be automatically granted a number of Shares of
Restricted Stock on the date of the Company's Annual Meeting
of Stockholders, determined by dividing (a) $16,000 by (b) the
Fair Market Value of a Share on the date of the Company's
Annual Meeting of Stockholders of each year provided he or she
is then an Outside Director.
(vi) Annual Chairman of the Board Restricted Stock
Grant. The Chairman of the Board of Directors shall be
automatically granted a number of Shares of Restricted Stock
on the date of the Company's Annual Meeting of Stockholders,
determined by dividing (a) $20,000 by (b) the Fair Market
Value of a Share on the date of the Company's Annual Meeting
of Stockholders of each year provided he or she is then an
Outside Director.
(vii) Annual Chairman of the Audit Committee
Restricted Stock Grant. The Chairman of the Audit Committee
Board of Directors shall be automatically granted a number of
Shares of Restricted Stock on the date of the Company's Annual
Meeting of Stockholders, determined by dividing (a) $12,500 by
(b) the Fair Market Value of a Share on the date of the
Company's Annual Meeting of Stockholders of each year provided
he or she is then an Outside Director.
(viii) Annual Chairman of the Compensation Committee
Restricted Stock Grant. The Chairman of the Audit Committee
Board of Directors shall be automatically granted a number of
Shares of Restricted Stock on the date of the Company's Annual
Meeting of Stockholders, determined by dividing (a) $7,500 by
(b) the Fair Market Value of a Share on the date of the
Company's Annual Meeting of Stockholders of each year provided
he or she is then an Outside Director.
(ix) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, any exercise of an Option granted or
vesting of a Restricted Stock grant before the Company has
obtained stockholder approval of the Plan in accordance with
Section 16 hereof shall be conditioned upon obtaining such
stockholder approval of the Plan in accordance with Section 16
hereof
(x) First Option Terms. The terms of a First Option
granted hereunder shall be as follows:
(A) the term of the First Option shall be
ten (10) years.
(B) the First Option shall be exercisable
only while the Outside Director remains a Director of
the Company, except as set forth in Sections 8 and 10
hereof
(C) the exercise price per Share shall be
100% of the Fair Market Value per Share on the date
of grant of the First Option. In the event that the
date of grant of the First Option is not a trading
day, the exercise price per Share shall be the Fair
Market Value on the next trading day immediately
following the date of grant of the First Option.
4
(D) subject to Section 10 hereto the First
Option shall be exercisable, in whole or in part,
according to the following vesting schedule: 33% of
the total Shares subject to option shall vest twelve
months after the date of grant, and 1/36 of the
Shares subject to the First Option shall vest each
month thereafter subject to the Optionee continuing
to be a Director.
(xi) Subsequent Option Terms. The terms of a
Subsequent Option granted hereunder shall be as follows:
(A) term of the Subsequent Option shall be
ten (10) years.
(B) the Subsequent Option shall be
exercisable only while the Outside Director remains a
Director of the Company, except as set forth in
Sections 8 and 10 hereof
(C) the exercise price per Share shall be
100% of the Fair Market Value per Share on the date
of grant of the Subsequent Option. In the event that
the date of grant of the Subsequent Option is not a
trading day, the exercise price per Share shall be
the Fair Market Value on the next trading day
immediately following the date of grant of the
Subsequent Option.
(D) subject to Section 10 hereto the
Subsequent Option shall become vested and
exercisable, in whole or in part, on the earlier of
the first anniversary of the date of grant of the
Subsequent Option or the date of the next Annual
Meeting of Stockholders, provided that the Optionee
continues to serve as a Director on such dates.
(xii) 2003 Transition Option Terms. The terms of a
2003 Transition Option granted hereunder shall be as follows:
(A) term of the 2003 Transition Option
Option shall be ten (10) years.
(B) the 2003 Transition Option shall be
exercisable only while the Outside Director remains a
Director of the Company, except as set forth in
Sections 8 and 10 hereof
(C) the exercise price per Share shall be
100% of the Fair Market Value per Share on the date
of grant of the 2003 Transition Option. In the event
that the date of grant of the 2003 Transition Option
is not a trading day, the exercise price per Share
shall be the Fair Market Value on the next trading
day immediately following the date of grant of the
Subsequent Option.
(D) subject to Section 10 hereto the 2003
Transition Option shall become vested and
exercisable, in whole or in part, on the earlier of
the first anniversary of the date of grant of the
2003 Transition Option or the date of the next Annual
Meeting of Stockholders, provided that the Optionee
continues to serve as a Director on such dates.
5
(xiii) Vesting of Restricted Stock. Subject
to Section 10 hereto, Restricted Stock granted
hereunder shall vest according to following vesting
schedule: 33% of the total Shares subject to option
shall vest on each of the first three anniversary
dates of the restricted stock grant. In the event
that the Optionee has attended at least 75% of all
Board meetings (for Annual Board Restricted Stock
grant and Annual Chairman of the Board of Directors
Restricted Stock grant), Audit Committee meetings
(for Annual Chairman of the Audit Committee
Restricted Stock Grant) and Compensation Committee
meetings (for Annual Chairman of the Compensation
Committee Restricted Stock grant), held during the
past year, as applicable, the Restricted Stock shall
vest, in whole, on the earlier of the first
anniversary of the date of grant of the Restricted
Stock or the date of the next Annual Meeting of
Stockholders, provided that the Optionee continues to
serve as a Director on such dates.
(xiii) In the event that any Option or Restricted
Stock granted under the Plan would cause the number of Shares
subject to outstanding Options plus the number of Shares
previously purchased under Options and issued under Restricted
Stock grants to exceed the Pool then the remaining Shares
available for grant shall be granted to the Outside Directors
on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for
grant under the Plan through action of the Board or the
stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.
5. Eligibility. Options and Restricted Stock may be granted only to
Outside Directors. All Options and Restricted Stock shall be automatically
granted in accordance with the terms set forth in Section 4 hereof
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the date of the
effectiveness that the Company's registration statement for the purpose of
effecting the initial public offering of the Common Stock becomes effective
under the Securities Act of 1933, as amended (the Securities Act"). It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of:
(i) cash, or
(ii) check, or
6
(iii) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with
the Plan provided that Optionee is eligible to participate in
such cashless exercise program, as determined in the sole
discretion of the Company; or
(iv) other shares which (x) in the case of Shares acquired upon
exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y)
have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option
shall be exercised,
(v) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if
applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds
required to pay the exercise price, or
(vi) any combination of the foregoing methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise: Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times as are set
forth in Section 4 hereof, provided, however, that no Options shall be
exercisable until stockholder approval of the Plan in accordance with
Section 16 hereof has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may consist of
any consideration and method of payment allowable under Section 7 of
the Plan. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to
vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise
of the Option. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise
of the Option. No adjustment shall be made for a dividend or other
right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors must
comply with the applicable provisions of Rule 16b-3 promulgated under
the Exchange Act or any successor thereto and shall contain such
additional conditions or restrictions as may be required thereunder to
qualify Plan transactions, and other transactions by Outside
7
Directors that otherwise could be matched with Plan transactions, for
the maximum exemption from Section 16 of the Exchange Act.
(c) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director
terminates (other than upon the Optionee's death or total and permanent
disability (as defined in Section 22(e)(3) of the Code)), the Optionee
may exercise his or her Option, but only within twelve (12) months
following the date of such termination, and only to the extent that the
Optionee was entitled to exercise it on the date of such termination
(but in no event later than the expiration of its ten (10) year term).
To the extent that the Optionee was not entitled to exercise an Option
on the date of such termination and to the extent that the Optionee
does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate. Unvested
Restricted Stock held by a Director on the date of such termination
shall be forfeited.
(d) Disability of 0ptionee. In the event Optionee's status as
a Director terminates as a result of total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Optionee may exercise his
or her Option, but only within twelve (12) months following the date of
such termination, and only to the extent that the Optionee was entitled
to exercise it on the date of such termination (but in no event later
than the expiration of its ten 10) year term). To the extent that the
Optionee was not entitled to exercise an Option on the date of
termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the
Option shall terminate. Unvested Restricted Stock held by a Director on
the date of such termination shall be forfeited.
(e) Death of Optionee. In the event of an Optionee's death,
the Optionee's estate or a person who acquired the right to exercise
the Option by bequest or inheritance may exercise the Option, but only
within twelve (12) months following the date of death, and only to the
extent that the Optionee was entitled to exercise it on the date of
death (but in no event later than the expiration of its ten (IO) year
term). To the extent that the Optionee was not entitled to exercise an
Option on the date of death, and to the extent that the Optionee's
estate or a person who acquired the right to exercise such Option does
not exercise such Option (to the extent otherwise so entitled) within
the time specified herein, the Option shall terminate. Unvested
Restricted Stock held by a Director on the date of such termination
shall be forfeited.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of Shares covered by
each outstanding Option or Restricted Stock qward, the number of Shares
which have been authorized for issuance under the Plan but as to which
no Options or Restricted Stock awards have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an
Option or Restricted Stock award, as well as the price per Share
covered by each such outstanding Option, and the number of Shares
issuable pursuant to the automatic grant
8
provisions of Section 4 hereof shall be proportionately adjusted for
any increase or decrease in the number.of issued Shares resulting from
a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease
in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an Option or
Restricted Stock award.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option
has not been previously exercised, it shall terminate immediately prior
to the consummation of such proposed action.
(c) Merger or Asset Sale. 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, outstanding Options and Restricted
Stock awards may be assumed or equivalent options and Restricted Stock
awards may be substituted by the successor corporation or a Parent or
Subsidiary thereof (the "Successor Corporation"). If an Option or
Restricted Stock award is assumed or substituted for, the Option or
equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a
director of the Successor Corporation. Following such assumption or
substitution, if the Optionee's status as a Director or director of the
Successor Corporation, as applicable, is terminated other than upon a
voluntary resignation by the Optionee, the Option or option or
Restricted Stock award shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the
Option or option shall remain exercisable in accordance with Sections
8(c) through (e) above.
If the Successor Corporation does not assume an outstanding
Option or Restricted Stock award or substitute for it an equivalent
option or award, the Option or Restricted Stock award shall become
fully vested and exercisable, including as to Shares for which it would
not otherwise be exercisable. In such event the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of
thirty (30) days from the date of such notice, and upon the expiration
of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option or
Restricted Stock award shall be considered assumed if, following the
merger or sale of assets, the Option or Restricted Stock award confers
the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Restricted Stock award immediately prior to
the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of
consideration the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in
the merger or sale of assets is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the
consent of the successor corporation provide for the consideration to
be received upon the exercise or vesting of the Option or Restricted
Stock award, for each Share of Optioned Stock subject to the Option or
Restricted Stock award, to be solely common stock of the
9
successor corporation or its Parent equal in fair market value to the
per share consideration received by holders of Common Stock in the
merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in Section
4, the Board may at any time amend, alter, suspend, or discontinue the
Plan, but no amendment, alteration, suspension, or discontinuation
shall be made which would impair the rights of any Optionee under any
grant theretofore made, without his or her consent. In addition, to the
extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act (or any other applicable law or regulation), the Company
shall obtain stockholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Restricted Stock
already granted and such Options and Restricted Stock shall remain in
full force and effect as if this Plan had not been amended or
terminated,
12. Time of Granting Options and Restricted Stock. The date of grant of
an Option or Restricted Stock grant shall, for all purposes, be the date
determined in accordance with Section 4 hereof
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or grant of Restricted Stock unless the
issuance and delivery of such Shares pursuant thereto, and in the case of an
Option, the exercise of such Option shall comply with all relevant provisions of
law, including, without limitation, the Securities Act, the Exchange Act, the
rules and regulations promulgated thereunder, state securities laws, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option or Restricted Stock Agreement. Options and or Restricted
Stock awards shall be evidenced by written agreements in such form as the Board
shall approve.
16. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held
10
subsequent to the granting of an Option hereunder. Such stockholder approval
shall be obtained in the degree and manner required under applicable state and
federal law.
11
APPENDIX E
RULES OF THE EXTENDED SYSTEMS INCORPORATED
2001 APPROVED SHARE OPTION SCHEME
---------------------------------
1. DEFINITIONS AND INTERPRETATION
1.1 In these Rules the following words and expressions have the following
meanings:
"ADOPTION DATE" the date on which the Scheme is adopted by the Company
in general meeting.
"APPROPRIATE PERIOD" means:
(a) in a case to which rule 7.1 applies, the period of six months
commencing on the date when the person making the offer
referred to in that rule obtains Control of the Company and
any conditions subject to which the offer is made have been
satisfied;
(b) in a case falling within rule 7.2, the period of six months
commencing on the date on which the court sanctions the
compromise or arrangement described in rule 7.2.
"ASSOCIATED COMPANY" the meaning given in Section 416 of ICTA.
"BOARD" the Board of Directors of the Company or, save for the purposes
of rule 11.4, the Committee or any other duly constituted committee of
the said Board of Directors.
"COMPANY" Extended Systems Incorporated is registered in the State of
Delaware in the United States of America and whose head office is
situated at 5777 N. Meeker Avenue, Boise, Idaho 83713, USA.
"COMMITTEE" the remuneration committee from time to time of the Board.
"CONTROL" the meaning given in Section 840 of ICTA 1988.
"DATE OF GRANT" in relation to any Option the date on which that Option
is, was, or is to be granted under the Scheme.
"ELIGIBLE EMPLOYEE" any director of any Participating Company who is
required to devote to his duties not less than 25 hours per week
(excluding meal breaks) or any employee (other than one who is a
director) of any Participating Company, provided that the director or
employee is not precluded by paragraph 8 of Schedule 9 from
participating in the Scheme.
"EXERCISE PRICE" means the price at which each Share subject to an
Option may be acquired, being (subject to Rule 9) not less than the
Market Value of a Share on the Date of Grant, provided that, if Shares
are to be subscribed, the Exercise Price will be not less than the
nominal value of a Share.
"EXTENDED SYSTEMS INCORPORATED GROUP" means Extended Systems
Incorporated and its subsidiaries from time to time.
"INDEMNIFIED PERSONS" the Company or any member of the group of
companies of which the Company is a member (a "Group Company"), any
associated company, any trustee of an employee benefit trust
established in respect of the Company, and/or any Group Company, and/or
associated company.
"INDEMNITY" the indemnification to the extent it is permitted by law
given by the Optionholder (or, as the case may be his personal
representative(s)) to the Indemnified Persons on the exercise of an
Option in whole or in part, to indemnify and keep indemnified the
Indemnified Persons in respect of any charges, tax or liability charged
to suffered or incurred by the Indemnified Persons that relates to the
liability of the Optionholder arising from the grant, exercise or
cancellation of any Option or related rights under this scheme.
"ICTA" the Income and Corporation Taxes Act 1988 which applies to
Optionholders in the United Kingdom.
"MARKET VALUE" in relation to a Share on any day means the market value
of a Share as determined in accordance with Part VIII of the Taxation
of Chargeable Gains Act 1992 and agreed on or before that day with the
Shares Valuation Division of the Inland Revenue.
"MATERIAL INTEREST" the meaning given in section 187(3) ICTA.
"INSIDER DEALING CODE" means any legislation in the United States (US)
or outside the US or agreement, arrangement, condition or contract
adopted or entered into by, or which regulates the Company and its
employees or directors in relation to insider dealing.
"OFFICIALLY LISTED" means admitted to the Official List of the UK
Listing Authority and admitted to trading by the Stock Exchange.
"OPTION" a right to acquire Shares granted (or to be granted) in
accordance with the rules of this Scheme.
"OPTION CERTIFICATE" a certificate issued to an Optionholder in
accordance with rule 2.
"OPTION PERIOD" a period between the first vesting period mentioned in
the Vesting Schedule and tenth anniversary of the Date of Grant.
"OPTIONHOLDER" an individual to whom an Option (including, without
limitation, a New Option as defined in Rule 8) has been granted or to
his Personal Representatives.
"PARTICIPATING COMPANY" the Company and any other company situated in
the United Kingdom of which the Company has Control.
"PERSONAL REPRESENTATIVES" in relation to an Optionholder, the
Optionholder's legal personal representatives (being either the
executors of his will to whom a valid grant of probate has been made or
the duly appointed administrators of his estate) who in either case
have provided the Board with satisfactory evidence of their
appointment.
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"RULES" means the rules of the Scheme as from time to time amended.
"SCHEDULE 9" Schedule 9 ICTA 1988.
"SCHEME" The Extended Systems Incorporated Approved Share Option Scheme
as constituted and governed by these Rules as from time to time
amended.
"SHARE" an ordinary share in the capital of the Company which satisfies
the conditions specified in paragraphs 10-14 inclusive of Schedule 9.
"STOCK EXCHANGE" the Nasdaq National Market or The Nasdaq Small Capital
Market of The Nasdaq Stock Market.
"SUBSISTING OPTION" an Option which has neither lapsed nor been
exercised.
"VESTING SCHEDULE" means a schedule which specifies the percentage of
Shares in respect of which an Option shall become exerciseable at
different times during the Option Period.
1.2 Where the context so admits the singular shall include the plural and
vice versa and the masculine shall include the feminine.
1.3 Any reference in the Scheme to any enactment includes a reference to
that enactment as from time to time modified, extended or re-enacted.
1.4 References to rules are to the rules of this Scheme.
2. GRANT OF OPTIONS
2.1 Subject to earlier termination of the Scheme by the Company and subject
to the Scheme having been approved by the Commissioners of the Inland
Revenue pursuant to Schedule 9, at any time or times and in any case
not earlier than the Adoption Date nor later than the tenth anniversary
thereof the Board may in its absolute discretion select any individual
who is an Eligible Employee and grant that Eligible Employee an Option
by issuing to him an Option Certificate in such manner as shall take
effect as a legally binding agreement and which is signed by the
Corporate Secretary and Chief Executive Officer. The Option Certificate
will form part of the Rules, and shall be in such form as the Board
shall determine from time to time (subject to the approval of the
Inland Revenue and shall state:
2.1.1 the Date of Grant;
2.1.2 the number of Shares subject to the Option;
2.1.3 the Exercise Price in respect of each Share under the Option;
2.1.4 any performance-related conditions or other conditions ("the
Conditions") to which the exercise of the Option is subject;
and
2.1.5 any Vesting Schedule.
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2.2 For the avoidance of doubt the grant of an Option in accordance with
Rule 2.1 can, subject to Rule 2.6, be made at any time to an Eligible
Employee.
2.3 Each Eligible Employee to whom an Option is granted may within 30 days
of the Date of Grant accept the Option by signing and returning one
copy of the Option Certificate to the Company, or such other person as
the Company shall direct. In the absence of such acceptance, the Option
will be deemed never to have been granted under the Scheme.
2.4 The maximum number of Shares over which that individual may be granted
an Option will be determined at the absolute discretion of the Board
subject to Rule 4.
2.5 The exercise of any Option granted pursuant to Rule 2.1 shall be
subject always to the Company achieving the appropriate objective
performance criteria as determined by the Company in accordance with
the Rule 3 (performance related conditions of exercise).
2.6 No Option shall be granted:
2.6.1 to any Optionholder at a time when it would be in breach of
the Insider Dealing Code;
2.6.2 after the earlier of the expiry of the period of ten years
from the Adoption Date and the termination of the Plan by a
resolution of the Board or of the Company in general meeting;
2.7 The maximum period between the determination of the Market Value of the
Shares which is used to calculate the Exercise Price and the date of
grant of an Option is thirty days.
2.8 No Option may be transferred, assigned or charged (save for any
transfer or assignment to the Personal Representatives of an
Optionholder who has died) and any purported transfer, assignment or
charge shall cause the Option to lapse immediately. Each Option
certificate shall carry a statement to this effect.
2.9 Optionholders are not required to pay for the grant of an Option.
3. PERFORMANCE-RELATED CONDITIONS OF EXERCISE
3.1 Subject to the following provisions of this Rule 3, the Board may, at
its discretion, determine that the vesting and/or exercise of any
Option shall be conditional upon the satisfaction of such objective
criteria relating to the performance of the Company and/or any
Associated Company and/or the Optionholder as the Board may decide at
the Date of Grant.
3.2 Any conditions imposed in accordance with Rule 3.1 that relate to the
vesting of an Option may provide for that Option to vest at such times
and in such proportions as the Board may determine.
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3.3 No Conditions shall be determined or amended in relation to any Option
granted to a director of any Participating Company without the consent
of the Committee.
3.4 The Board may amend any Conditions to which a Subsisting Option is
subject if events occur which cause the Board acting fairly and
reasonably to consider that:
3.4.1 the Conditions provide a materially less effective incentive
than they did at the Date of Grant; or
3.4.2 the Conditions are no longer appropriate following the
occurrence of any event involving the Company, any Associated
Company or the Optionholder (including, without limitation any
event described in Rules 7 or 8); and
3.4.3 in either case, the amended Conditions are no more difficult
to satisfy than the original Conditions when first set.
4. INDIVIDUAL LIMITS ON OPTION GRANTS
4.1 Any Option granted to an Eligible Employee shall be limited and take
effect so that the aggregate Market Value of the Shares subject to that
Option, when aggregated with:
4.1.1 the Market Value of Shares subject to Subsisting Options; and
4.1.2 the aggregate market value of any shares which the Eligible
Employee may acquire by exercising options granted under any
other scheme which has been established by the Company or any
Associated Company and approved under Schedule 9 (other than
any savings-related option scheme)
does not exceed (pound)30,000, or such other limit imposed from time to
time under paragraph 28(1) of Schedule 9.
For the purposes of this Rule 4, the market value of shares shall be
calculated as at the time the options in relation to those Shares were
granted or such earlier time as may have been agreed with the Inland
Revenue.
5. SCHEME LIMITS
The Board will decide the maximum number of Shares which may be placed
under Option under this Scheme.
6. EXERCISE OF OPTIONS
6.1 Subject to Rule 7 and Rule 8 but notwithstanding the remaining
provisions of this Rule 6, no Option may be exercised at any time
unless any Conditions to which that Option is subject have been
satisfied.
6.2 If the exercise of Options or the allotment or transfer of Shares to an
Optionholder could be in contravention of the Insider Dealing Code, or
any securities, exchange
-5-
control, tax or other laws which may be applicable to the Extended
Systems Incorporated Group, or any Optionholder, such exercise,
allotment or transfer shall be deferred until such time when such
exercise, allotment or transfer would not be in contravention of the
above. The Option may be exercised and/or the Shares allotted or
transferred to the Optionholder as soon as reasonably practicable
following the first date on which the exercise, allotment or transfer
would not be in such contravention.
6.3 If and so long as the Shares are listed on the Stock Exchange or any
other stock exchange, the Company shall apply for any Shares allotted
under this Scheme to be admitted to the list of such exchange.
6.4 Every exercise of an Option, whether in whole or in part must comply
with the provisions of Rule 10.
6.5 Any Option which has not lapsed may in accordance with any Vesting
Schedule be exercised in whole or in part at any time following the
earliest of the following events:
6.5.1 the commencement of the relevant Option Period;
6.5.2 the death of the Optionholder;
6.5.3 the Optionholder ceasing to be a director or employee of any
Participating Company by reason of injury, disability or ill
health (evidenced to the satisfaction of the Board);
6.5.4 redundancy or retirement on reaching age 65 or any earlier age
at which he is bound to retire in accordance with the terms of
his contract of employment or in the case of a non-executive
director his letter of appointment;
6.5.5 the date of any resolution by the Board to allow the exercise
of an Option by any Optionholder who has ceased to be a
director or employee of any Participating Company for any
reason other than one specified in Rules 6.5.3 and 6.5.4.
6.5.6 the occurrence of the event specified in Rule 7.
6.6 An Option shall lapse on the earliest of the following events:
6.6.1 the day immediately before the tenth anniversary of the Date
of the Grant;
6.6.2 the day immediately before the first anniversary of the
Optionholder's death;
6.6.3 the day immediately before the first anniversary of the date
the Optionholder ceased to be a director or employee of any
participating Company for any reason specified in Rule 6.5.3;
6.6.4 three months after the date on which an Optionholder has
ceased to be a director or employee of any Participating
Company for any reason specified in Rule 6.5.4;
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6.6.5 unless the Board has previously resolved under Rule 6.5.5 that
the Option may be exercised, the date on which an Optionholder
ceases to be a director or employee of any Participating
Company other than by reason referred to in Rules 6.5.3 or
6.5.4 above;
6.6.6 the expiry of the period specified by the Board in a
resolution made pursuant to Rule 6. 5.5 as the period during
which the Option may be exercised;
6.6.7 unless a release has been offered under Rule 8 15 days after
the date any person has obtained control of the Company;
6.6.8 the Optionholder being adjudicated bankrupt;
6.7 An Option which is subject to Conditions will lapse to the extent that
it does not vest or does not become exercisable as a result of any
Conditions not being satisfied. The date on which such Option lapses
whether in whole or in part, shall be the first date on which it is
apparent to the Board that the Conditions cannot be satisfied.
7. MERGER OR ASSET SALE AND LIQUIDATIONS
7.1 If any person obtains Control of the Company as a result of a merger of
the Company with or into another corporation or the sale of
substantially all of the assets of the Company the vested portion of
any unexercised Option may be exercised only if no release is offered
under Rule 8 on the earlier of the end of the Option Period and the
Appropriate Period. If unexercised after this period, the Option will
lapse without further notice. For the purposes of this Rule 7.1 a
person shall be deemed to have obtained Control of the Company if he
and others acting in concert with him have together obtained control of
it.
7.2 In the event the Company passes a resolution for voluntary winding up
the vested portion of his or her Subsisting Option may be exercised on
the earlier of the end of the Option Period and the Appropriate Period
whereupon, if not exercised, the Option will lapse without further
notice.
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8. EXCHANGE OF OPTIONS ON A MERGER OR ASSET SALE
8.1 Notwithstanding the provisions of Rule 7, if any person ("the Acquiring
Company") obtains Control of the Company or becomes bound or entitled
to acquire shares in the Company within the circumstances specified in
Rule 7.1, any Optionholder may at any time within the Appropriate
Period, by agreement with the Acquiring Company, release his Option
("the Old Option") in consideration of the grant to him of a new option
("the New Option") which is equivalent to the Old Option (by virtue of
satisfying the requirements of paragraph 15(3) of Schedule 9) but
relates to shares in a different company (whether the Acquiring Company
itself or some other company which, on the assumption that the
Acquiring Company were the grantor, would be a company falling within
paragraph (b) or (c) of paragraph 10 of Schedule 9). Where any New
Options are granted pursuant to this Rule 8.1 they shall be regarded
for the purposes of the subsequent application of the provisions of
this Scheme as having been granted at the time when the corresponding
Old Options were granted and, with effect from the date on which the
New Options are granted, these Rules shall, in relation to the New
Options, be construed as if references to the Company and to the Shares
were references to the Acquiring Company and to shares in the Acquiring
Company or, as the case may be, to the other company to whose shares
the New Options relate and to the shares in that other company, but
references to Participating Companies shall continue to be construed as
if references to the Company were references to Extended Systems
Incorporated.
8.2 As soon as practicable after having granted the New Option in
accordance with the provisions of Rule 8.1, the Acquiring Company shall
issue an option certificate in respect of such Option or shall procure
that such an option certificate is issued. The option certificate shall
state:
(a) the date on which the Old Option (which has been released in
consideration of the grant of the New Option) was granted;
(b) the number and class of Shares subject to the New Option;
(c) the Exercise Price payable for each Share under the New
Option; and
(d) the last date on which a notice exercising the New Option can
be given,
and subject as aforesaid shall be issued in such form and manner as the
Board may from time to time prescribe.
9. VARIATION OF SHARE CAPITAL
9.1 In the event of any variation of the share capital of the Company by
way of capitalisation or rights issue, consolidation, subdivision or
reduction of capital or otherwise, the number of Shares subject to any
Option and the Exercise Price for each of those Shares shall be
adjusted in such manner as the Board consider fair and reasonable
provided that:
9.1.1 the aggregate amount payable on the exercise of an Option in
full is not increased;
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9.1.2 the Exercise Price for a Share is not reduced below its
nominal value;
9.1.3 no adjustment shall be made without the prior approval of the
Board of Inland Revenue; and
9.1.4 following such adjustment the Shares continue to satisfy the
conditions specified in paragraphs 10 to 14 inclusive of
Schedule 9 ICTA.
9.2 The Company may take such steps as it considers necessary to notify
Optionholders of any adjustment made under Rule 9.1 and to call in,
cancel, endorse, issue or re-issue any Option Certificate consequent
upon such adjustment.
10. MANNER OF EXERCISE OF OPTIONS
10.1 No Option may be exercised by an individual at any time when he is
precluded by paragraph 8 of Schedule 9 from participating in the
Scheme.
10.2 No Option may be exercised at any time when the shares which may be
acquired as a result do not satisfy the conditions specified in
paragraphs 10 to 14 inclusive of Schedule 9.
10.3 The allotment or transfer of Shares subject to an Option shall be
conditional upon the Optionholder complying with arrangements specified
by the Company for the payment of any taxation (including without
limitation the deduction of tax as source) and/or social security
contributions. The Company or any other Participating Company which
employs an Optionholder shall be entitled to make arrangements for the
sale of some of the Shares to be alloted or transferred to an
Optionholder to satisfy such Optionholder's tax liability and/or
liability to social security contributions.
10.4 Each Optionholder agrees to indemnify the Indemnified Persons against
any tax or social security claim of whatever nature or any liability or
obligation incurred by the Indemnified Persons which relates to the
liability of an Optionholder in the Plan to taxation or social security
contributions.
Any liability of the Company or any other of the Indemnified Persons to
make employer social security contributions for its own account in
respect of an Option provided under the Plan, shall not be the
liability of the Optionholder.
10.5 An Option shall be exercised by the Optionholder or his Personal
Representatives serving a written or electronic notice in the form set
out (or in such other form as the Board may reasonably require) on the
Company which:
10.5.1 states the number of Shares in respect of which the Option is
to be exercised;
10.5.2 is accompanied by a payment equal to the product of the number
of Shares stated in the notice and the Exercise Price; and
10.5.3 is accompanied by payment under the Indemnity if and to the
extent that in relation to an Option granted under the Scheme,
any of the Indemnified Persons
-9-
is liable, or is in accordance with current practice believed
by the Board to be liable, to account to any revenue or other
authority for any sum in respect of any tax or social security
charges which may arise on grant, exercise, release or other
disposal of the Option for which the Optionholder is liable.
10.6 The notice of exercise may take effect on the day when the Company,
having received the notice, is satisfied that:
10.6.1 payment has been made by the Optionholder in respect of the
Shares; and
10.6.2. where reasonably required by the Board payment has been made
under the Indemnity to satisfy the Optionholder's libility to
any tax or social security charges for which the Optionholder
is liable.
10.7 The number of Shares specified in any notice served under Rule 10.5
shall be allotted and issued within 30 days of the date on which notice
of exercise on the Company comes into force under Rule 10.4 above. A
definitive share certificate may be issued to the Optionholder as soon
as reasonably practicable after the allotment and issue of the Shares.
Save for any rights determined by reference to a date preceding the
date of allotment, such Shares shall rank pari passu with the other
shares of the same class in issue at the date of allotment.
10.8 When an Option is exercised only in part, the balance shall remain
exercisable on the same terms as originally applied to the whole Option
and a new option certificate may be issued accordingly by the Company
as soon as possible after the partial exercise.
11. ADMINISTRATION AND AMENDMENT
11.1 The Scheme shall be administered by the Board whose decision on all
disputes shall be final.
11.2 The Board may from time to time amend these Rules provided that:
11.2.1 no amendment may affect an Optionholder as regards an Option
granted prior to the amendment being made;
11.2.2 no amendment may be made which would make the terms on which
Options may be granted materially more generous or would
increase the limits specified in rule 5 without the prior
approval of the Company in general meeting, and
11.2.3 no amendment shall have effect until approval by the Board of
the Inland Revenue.
11.3 The cost of establishing and operating the Scheme shall be borne by the
Participating Companies in such proportions as the Board shall
determine.
11.4 The Board may establish a committee consisting of not less than two
Board members to whom any or all of its powers in relation to the
Scheme may be delegated. The Board may at any time dissolve such
committee, alter its constitution or direct the manner in which it
shall act.
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11.5 Any notification or other notice which the Company is required to give
or may desire to give to any Optionholder pursuant to the Scheme must
be sent by fax or delivered in electronic form or sent by ordinary post
in a prepaid envelope addressed to the Optionholder's address last
known to the Company.
11.6 Any notice sent electronically shall be deemed to be properly received
on the same day the notice is sent. Any notice sent by post (by airmail
if overseas) shall be deemed to be properly served four working days
after an envelope containing such notice and properly addressed has
been posted by first class prepaid post (or if sent airmail from or to
overseas on the fifth day following the day of posting). Share
certificates and other communications sent by post will be sent at the
risk of the Optionholder. The Company shall only accept liability in
respect of any notification, document, or other communication so given
or sent to it by an Optionholder, where the sender can prove
postage/electronic or fax transmission.
11.7 Any notice given by an Optionholder to the Company pursuant to the
Scheme must be given in writing or electronic form and signed by the
Optionholder as the case may be and shall be acted upon by the Company
as soon as practicable after receipt. Any such notice shall be properly
given if sent by fax or in electronic form or prepaid registered post
(by airmail if overseas) or delivered to the Company at its registered
offices.
12. GENERAL
12.1 This Scheme shall commence upon the date of its approval by the Inland
Revenue and shall (unless previously terminated by a resolution of the
Board terminate on the tenth anniversary from the date of being adopted
by the Board. Upon termination (however occurring) no further Options
may be granted but such termination shall be without prejudice to any
accrued rights in existence at the date hereof.
12.2 The Company shall at all times keep available sufficient authorised and
unissued Shares to satisfy the exercise to the full extent still
possible of all Options which have neither lapsed nor been fully
exercised, taking account of any other obligations of the Company to
issue unissued Shares.
12.3 All Optionholders agree as a condition of their participation in the
Scheme that any personal data in relation to them may be held by any
company in the Extended Systems Incorporated Group and/or passed to any
third party where necessary for the administration of the Scheme.
12.4 This Scheme and all Options granted under it shall be governed by and
construed in accordance with English law.
13. RELATIONSHIP WITH CONTRACT OF EMPLOYMENT
13.1 The grant of an Option does not form part of the Optionholder's
entitlement to remuneration or benefits pursuant to his contract of
employment.
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13.2 The rights and obligations of an Optionholder under the terms of his
contract of employment with the Company or any current or former
Associated Company shall not be affected by the grant of an Option.
13.3 An Optionholder shall not be entitled to any compensation or damages
for any loss or potential loss which he may suffer by reason of being
or becoming unable to exercise an Option in consequence of the loss or
termination of his office or employment (including, without limitation,
any breach of contract by his employer) or in any other circumstances
whatsoever.
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APPENDIX A
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LETTER OF INVITATION: TO BE TYPED ON THE LETTERHEAD OF EXTENDED SYSTEMS
INCORPORATED
Date
Dear
THE EXTENDED SYSTEMS INCORPORATED APPROVED SHARE OPTION SCHEME ("the Scheme")
Extended Systems has a strong belief in rewarding our employees based
on contribution and has a significant interest in retaining our key personnel.
Therefore, to recognize your efforts and dedication to Extended Systems and to
encourage your continued contributions to our team, you have been awarded an
Extended Systems stock option grant from the Scheme, the details of which are
below.
Number of Shares:
Exercise Price:
Grant Date:
This option has been granted to you in accordance with the Scheme and
provides for a four-year vesting period, the details of which will be defined in
the option certificate, and the exercise price will (subject to the agreement of
the Shares Valuation Division of the Inland Revenue) be equal to the closing
price of Extended Systems stock as listed on the Nasdaq Stock Exchange on the
day prior to the grant.
Three Option Certificate will be distributed to you within the next
three to four weeks. When you receive these Option Certificates, could you
please sign all three Option Certificates in the presence of a witness and
return two of the Option Certificates to [ ] (in the pre-addressed envelope
provided) within 7 days from the date of receiving the Option Certificates. Keep
the third option certificate for your records.
The purpose of the Scheme is to attract and retain the best personnel
possible, to provide additional incentives to our personnel and to promote the
success of Extended Systems by making employees shareholders as well as
employees of Extended Systems.
Thank you very much for your efforts for our team and we look forward
to sharing much success with you in the future.
Sincerely,
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APPENDIX B
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OPTION CERTIFICATE
THIS CERTIFICATE IS IMPORTANT AD SHOULD BE
KEPT IN A SAFE PLACE
THE EXTENDED SYSTEMS INCORPORATED APPROVED SHARE OPTION SCHEME ("THE SCHEME")
Option Certificate
Note: The words in this Option Certificate shall bear the same meaning as the
words defined in the rules of the Scheme (the "Scheme Rules")
This is to certify that
..........................................................
is the holder of an Option to acquire up to a maximum of .......................
ordinary shares of ...................each in Extended Systems Incorporated at a
price of .......................per ordinary share.
This Option was granted on ..........................................under the
Rules of the Scheme.
The Option is exercisable in accordance with the terms of the Rules of the
Scheme, the terms of the letter to you of [date of invitation letter], as they
are amended from time to time and with the Vesting Schedule outlined below and
the conditions of exercise set out in the appendix to the Option Certificate. If
there is to be no charge to income tax on the exercise of an Option then, in
addition to complying with the rules of the Scheme, the exercise must be
o made at a time when the Scheme retains Inland Revenue approval;
o not earlier than 3 or later than 10 years after the Option was granted; and
o not earlier than 3 years following the latest previous exercise by the
participant of an Option (obtained under this or any other Option Plan
(except a savings related Share Option Plan) approved by the Inland Revenue)
which enjoyed relief from income tax.
This Option is not transferable, and will lapse upon the occasion of an
assignment, charge, disposal or other dealing with the rights conveyed by it in
any other circumstances.
Vesting Schedule:
EXECUTED as a Deed by
EXTENDED SYSTEMS INCORPORATED
acting by:
-14-
CORPORATE SECRETARY
CHIEF EXECUTIVE OFFICER
Signed by [Optionholder] )
in the presence of: )
Signature: ......................................
Print in capitals
Name of witness: ......................................
Address: ......................................
......................................
Occupation: ......................................
Date: ......................................
-15-
APPENDIX C
----------
NOTICE OF EXERCISE OF SHARE OPTION
----------------------------------
To: The Corporate Secretary, Extended Systems Incorporated
I hereby exercise the Option referred to in the Option Certificate dated ([ ])
in respect of all/............................* of the shares over which the
Option may be exercised, and:
I enclose a cheque made payable to Extended Systems Incorporated in the sum of
(pound)............... being the aggregate Exercise Price of such shares and any
payment to satisfy any arising tax liability that I have agreed to pay by way of
indemnity.
Name (block letters) Signature
....................................... ..................................
Address
.......................................
.......................................
....................................... Date .............................
NOTES:
1. This form provides that payment of the Exercise Price for the shares in
respect of which the Option is exercised and any additional payment of
such sum as may require to be paid under a duly executed power of
attorney in accordance with the conditions of exercise set out in the
Appendix to the Option Certificate and/or a duly executed agreement
and/or joint election.
2. Where the Option is exercised by personal representatives, an office
copy of the Probate or Letters of Administration should accompany the
form.
3. IMPORTANT: The Plan has been approved by the Inland Revenue under
Schedule 9 to the Income and Corporation Taxes Act 1988. However,
Extended Systems Incorporated does not undertake to advise you on the
tax consequences of exercising your Option. If you are unsure of the
tax liabilities which may arise, you should take appropriate
professional advice before exercising your Option.
* Delete/insert number as appropriate
-16-
APPENDIX D
----------
TO BE TYPED ON THE LETTERHEAD OF EXTENDED SYSTEMS INCORPORATED
I declare that the shares to be issued in the Extended Systems Incorporated
Approved Share Option Scheme satisfy the conditions in paragraphs 10 to 14
(inclusive), Schedule 9, ICTA 1988. Namely that the shares are:
1. part of the ordinary share capital of the grantor;
2. shares in a company not controlled by another company
3. fully paid up and irredeemable;
4. not subject to any restrictions not attaching to all shares of the same
class; and
5. part of the only class of ordinary shares.
Signed ................................................................
Corporate Secretary ..............................................
Date ...................................................................
-17-
APPENDIX E
----------
TO BE TYPED ON THE LETTERHEAD OF EXTENDED SYSTEMS INCORPORATED
We the Directors of Extended Systems Incorporated declare that we will not use
our power to vote for the transfer of shares in any way to discriminate against
the transfer of shares acquired under the Extended Systems Incorporated Approved
Share Option Scheme ("the Scheme"), and that employees participating in the
Scheme will be informed of this declaration.
Signed for and
on behalf of all the Directors
of Extended Systems Incorporated................................................
Chairman ....................................................
(duly authorised to sign on behalf of the Directors of Extended Systems
Incorporated)
Date ..........................................................
ADOPTED BY THE COMPANY ON
APPROVED BY THE INLAND REVENUE ON
-18-
----------------------------------------------
RULES OF THE
EXTENDED SYSTEMS INCORPORATED
APPROVED SHARE OPTION SCHEME
----------------------------------------------
(Established by the Board on 23 January 2001
and approved by the Inland Revenue under
Schedule 9 to the Income and Corporation
Taxes Act 1988 on 19 February 2001
under ref: X21567/DJT)
TAYLOR JOYNSON GARRETT
CARMELITE
50 VICTORIA EMBANKMENT
BLACKFRIARS
LONDON
EC4Y 0DX
TEL: 020 7300 7000
-19-
INDEX
CLAUSE NO. PAGE NO.
1. DEFINITIONS AND INTERPRETATION........................................1
2. GRANT OF OPTIONS......................................................3
3. PERFORMANCE-RELATED CONDITIONS OF EXERCISE............................4
4. INDIVIDUAL LIMITS ON OPTION GRANTS....................................5
5. SCHEME LIMITS.........................................................5
6. EXERCISE OF OPTIONS...................................................5
7. MERGER OR ASSET SALE AND LIQUIDATIONS.................................7
8. EXCHANGE OF OPTIONS ON A MERGER OR ASSET SALE.........................8
9. VARIATION OF SHARE CAPITAL............................................8
10. MANNER OF EXERCISE OF OPTIONS.........................................9
11. ADMINISTRATION AND AMENDMENT.........................................10
12. GENERAL..............................................................11
13. RELATIONSHIP WITH CONTRACT OF EMPLOYMENT.............................11
PROXY
EXTENDED SYSTEMS INCORPORATED
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 11, 2003
The undersigned, having received notice of the meeting and the proxy statement,
and revoking all prior proxies, hereby appoint(s) Charles W. Jepson 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 Stockholders of Extended Systems Incorporated, to be held at
the Extended Systems Executive Offices - Auditorium, 5777 N. Meeker Avenue,
Boise, Idaho on December 11, 2003 at 10:00 a.m., local time, and any adjourned
or postponed sessions thereof, and to vote and act upon the following matters in
respect of all shares of Extended Systems Incorporated stock 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 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 STOCKHOLDER(S). IF NO DIRECTION IS MADE, THE PROXIES SHALL VOTE
"FOR" PROPOSALS 1, 2, 3, 4, 5, 6 and 7.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF EXTENDED SYSTEMS
INCORPORATED.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SEE REVERSE
SIDE SIDE
DETACH HERE
/X/ Please mark votes as in this example.
A VOTE FOR PROPOSALS 1, 2, 3, 4, 5, 6 and 7 ARE RECOMMENDED BY THE BOARD OF
DIRECTORS.
1. Proposal to elect (01) John M. Russell, (02) Robert Frankenberg and (03)
Ralph Godfrey as Class II Directors to serve for a three-year term that
expires upon the annual meeting of stockholders in 2006, or until his
successor is duly elected.
VOTE [_] WITHHOLD AUTHORITY [_]
------------------------------------------------
To withhold authority for an individual nominee,
write the nominee's name on the line above.
2. Proposal to elect (01) James R. Bean and (02) Jody B. Olson as Class II
Directors to serve for two-year term that expires upon the annual meeting
of stockholders in 2005, or until his successor is duly elected.
VOTE [_] WITHHOLD AUTHORITY [_]
------------------------------------------------
To withhold authority for an individual nominee,
write the nominee's name on the line above.
3. Proposal to elect Archie Clemins as a Class III Director to serve for a
one-year term that expires upon the annual meeting of stockholders in 2004,
or until his successor is duly elected.
VOTE [_] WITHHOLD AUTHORITY [_]
------------------------------------------------
To withhold authority for an individual nominee,
write the nominee's name on the line above.
4. Proposal to approve an amendment to the Extended FOR AGAINST ABSTAIN
Systems Incorporated 1998 Stock Plan increasing [_] [_] [_]
the number of shares of common stock reserved
for issuance thereunder by 725,000.
5. Proposal to approve an amendment to the Extended FOR AGAINST ABSTAIN
Systems 1998 Director Option Plan including an [_] [_] [_]
increase in the number of shares of common stock
reserved for issuance thereunder by 125,000.
6. Proposal to approve an amendment to the Extended FOR AGAINST ABSTAIN
Systems Incorporated 2001 Approved Share Option [_] [_] [_]
Scheme increasing the number of shares of common
stock reserved for issuance thereunder by 25,000.
7. Proposal to ratify the appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as Extended Systems' [_] [_] [_]
independent accountants.
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 Extended Systems' books.
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.
Signature: Date: Signature: Date:
------------------ ----- ------------------ -----