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 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the Commission only
(as permitted by Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
ARI Network Services, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated
and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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ARI NETWORK SERVICES, INC.
11425 West Lake Park Drive, Suite 900
Milwaukee, Wisconsin 53224
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
December 12, 2002
To the Shareholders of ARI Network Services, Inc.:
The 2002 Annual Meeting of Shareholders of ARI Network Services, Inc.
will be held at the headquarters of ARI Network Services, Inc., 11425 West Lake
Park Drive, Suite 900, Milwaukee, Wisconsin, on Thursday, December 12, 2002 at
9:00 a.m., local time, for the following purposes:
1. To elect one director to serve until 2005.
2. To approve amendments to the Company's 2000 Stock Option Plan.
3. To approve an amendment to the Company's 2000 Employee Stock
Purchase Plan.
4. To ratify the appointment of Ernst & Young LLP as independent
auditors.
5. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on October 25, 2002 are
entitled to notice of and to vote at the meeting and at all adjournments
thereof.
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES MUST BE PRESENT IN
PERSON OR BY PROXY IN ORDER FOR THE MEETING TO BE HELD. SHAREHOLDERS ARE URGED
TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE WHETHER
OR NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU ATTEND THE
MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO BY REVOKING YOUR
PROXY AT ANY TIME PRIOR TO THE VOTING THEREOF.
By order of the Board of Directors,
Timothy Sherlock, Secretary
November 19, 2002
ARI NETWORK SERVICES, INC.
11425 West Lake Park Drive, Suite 900
Milwaukee, Wisconsin 53224
(414) 973-4300
PROXY STATEMENT
The Board of Directors of ARI Network Services, Inc. (the "Company")
submits the enclosed proxy for the annual meeting to be held on the date, at the
time and place and for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders. Each shareholder of record at the close of
business on October 25, 2002 will be entitled to one vote for each share of
Common Stock registered in such shareholder's name. As of October 25, 2002, the
Company had outstanding 6,329,301 shares of Common Stock. The presence, in
person or by proxy, of a majority of the shares of Common Stock outstanding on
the record date is required for a quorum at the meeting. This proxy statement
and the accompanying proxy and Annual Report to Shareholders are being sent to
the Company's shareholders commencing on or about November 19, 2002.
Any shareholder executing and delivering the enclosed proxy may revoke
the same at any time prior to the voting thereof by written notice of revocation
given to the Secretary of the Company.
UNLESS OTHERWISE DIRECTED, ALL PROXIES WILL BE VOTED FOR THE ELECTION OF
THE INDIVIDUAL NOMINATED TO SERVE AS DIRECTOR AND FOR THE OTHER PROPOSALS. THE
DIRECTOR WILL BE ELECTED BY A PLURALITY OF VOTES CAST AT THE MEETING (ASSUMING A
QUORUM IS PRESENT). IN OTHER WORDS, THE NOMINEE RECEIVING THE LARGEST NUMBER OF
VOTES WILL BE ELECTED. ANY SHARES NOT VOTED, WHETHER BY WITHHELD AUTHORITY,
BROKER NON-VOTE OR OTHERWISE, WILL HAVE NO EFFECT ON THE ELECTION OF DIRECTORS
EXCEPT TO THE EXTENT THAT A FAILURE TO VOTE FOR AN INDIVIDUAL RESULTS IN ANOTHER
INDIVIDUAL RECEIVING A LARGER NUMBER OF VOTES. ANY VOTES ATTEMPTED TO BE CAST
"AGAINST" A CANDIDATE ARE NOT GIVEN LEGAL EFFECT AND ARE NOT COUNTED AS VOTES
CAST IN AN ELECTION OF DIRECTORS. THE OTHER PROPOSALS WILL BE APPROVED IF THE
AFFIRMATIVE VOTES EXCEED THE VOTES CAST AGAINST. BROKER NON-VOTES AND
ABSTENTIONS ARE COUNTED FOR PURPOSES OF DETERMINING WHETHER A QUORUM IS PRESENT
AT THE MEETING BUT ARE NOT AFFIRMATIVE VOTES OR VOTES AGAINST AND, THEREFORE,
WILL HAVE NO EFFECT ON THE OUTCOME OF THE VOTING.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock by each person known by the
Company to beneficially own 5% or more of the Common Stock, by each director or
nominee of the Company, by certain executive officers of the Company, and by all
directors and executive officers of the Company as a group as of October 15,
2002.
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNERS BENEFICIAL OWNERSHIP (1) PERCENT
----------------- ------------------------ -------
WITECH Corporation (2) 1,130,308 17.8%
N16 W23217 Stone Ridge Drive
Waukesha, WI 53188
Briggs & Stratton Corporation 840,000 13.3%
12301 West Wirth Street
Milwaukee, WI 53201
John C. Bray 95,624 1.5%
Gordon J. Bridge 72,916 1.1%
Brian E. Dearing 190,509 3.0%
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNERS BENEFICIAL OWNERSHIP (1) PERCENT
----------------- ------------------------ -------
Ted C. Feierstein 15,639 *
Michael E. McGurk 80,596 1.3%
Timothy Sherlock 21,250 *
Frederic G. Tillman 47,665 *
Richard W. Weening (3) 157,542 2.5%
All executive officers and directors as a group 600,001 8.9%
(9 persons)
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* Less than 1%
(1) Except as otherwise noted, the persons named in the above table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them. Includes options and warrants exercisable within 60 days of
October 15, 2002 as follows: Mr. Bray (92,750 shares), Mr. Bridge (58,416
shares), Mr. Dearing (82,000 shares), Mr. Feierstein (15,639 shares), Mr.
McGurk (71,750 shares), Mr. Sherlock (21,250 shares), Mr. Tillman (41,875
shares), Mr. Weening (21,205 shares), and all other executive officers and
directors as a group (417,385 shares).
(2) WITECH's shares include 30,000 shares subject to warrants. Excludes 20,350
shares of non-voting, non-convertible Series A Preferred Stock (the entire
series) also owned by WITECH.
(3) Includes options for 21,205 shares. Mr. Weening's total also includes 40,677
shares held by Quaestus Limited Partnership ("QLP"), 10,000 shares held by
Quaestus Management Corp. ("QMC"), 85,000 shares held by RPI Holdings, Inc.
("RPI"), 535 shares held by Tenancy in Common with a third party and 125
shares held by his spouse. Mr. Weening disclaims any beneficial ownership in
the shares held by third parties in excess of his pecuniary interest.
On April 27, 2000, the Company issued and sold, (i) a convertible
subordinated debenture in the amount of $4,000,000 due on April 27, 2003 (the
"Debenture"), convertible into shares of the Company's Common Stock, (ii)
warrants to purchase 600,000 shares of Common Stock (the "Warrants"), and (iii)
an investment option to purchase 800,000 shares of Common Stock (the "Investment
Option"). The Investment Option expired on October 27, 2001 and the Warrants
expire on April 27, 2005. The Debenture is convertible into Common Stock at $4
per share and the Warrants are exercisable at $6 per share, subject in each case
to certain anti-dilution adjustments. Under the terms of the Debenture and the
Warrants, the Debenture is convertible and the Warrants are exercisable by the
holder only to the extent that the number of shares of Common Stock issuable,
together with the number of shares of Common Stock owned by the holder and its
affiliates, would not exceed 4.9% of the Company's outstanding Common Stock at
the time of conversion or exercise. In certain circumstances where the Company
has the right to force conversion of the Debenture, the holder's percentage
ownership may exceed 4.9% but cannot exceed 9.9%. Except as described above, the
holder cannot acquire more than 4.9% of the Company's Common Stock at one time,
and is not included in the table above or in "Certain Transactions," below. As
described in more detail in the Company's annual report on Form 10-K for the
fiscal year ended July 31, 2002 under "Item 3 -- Legal Proceedings," the Company
has filed a lawsuit to enforce an agreement relating to the buy-back of the
debenture and warrants. The Company has received a purported demand for
immediate payment of the Debenture, but intends to vigorously contest the
validity of this demand.
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ELECTION OF DIRECTORS
The Company's directors are divided into three classes, with staggered
terms of three years each. At the meeting, shareholders will elect one director
to serve until 2005.
NOMINEES FOR ELECTION TO SERVE
UNTIL THE ANNUAL MEETING IN 2005
BRIAN E. DEARING, 47; Mr. Dearing, is the Chairman of the Board,
President and Chief Executive Officer of the Company. He has been a director
since 1995 and was elected Chairman of the Board of Directors in 1997. Prior to
joining ARI in 1995, Mr. Dearing held a series of electronic commerce executive
positions at Sterling Software, Inc. in the U.S. and in Europe. Prior to joining
Sterling in 1990, Mr. Dearing held a number of marketing management positions in
the EDI business of General Electric Information Services since 1986. Mr.
Dearing holds a Masters Degree in Industrial Administration from Krannert School
of Management at Purdue University and a BA in Political Science from Union
College.
DIRECTORS WHOSE TERMS
EXPIRES AT THE ANNUAL MEETING IN 2003
GORDON J. BRIDGE, 60; Mr. Bridge, a director since December 1995, owns
and operates a consulting firm in New Jersey. From December 1999 to August 2001,
Mr. Bridge was Chairman of the Board and CEO of SurferNETWORK and from November
1995 to January 2000, Mr. Bridge was Chairman of the Board of ConnectInc.com
Company. Mr. Bridge held various executive management positions with AT&T from
1988 to 1995, culminating in his appointment as Vice President, Corporate
Strategy for Emerging Services and Products for AT&T. He previously managed
three business units for AT&T, including Consumer Interactive Services, EasyLink
Services and Computer Systems. Prior to joining AT&T, Mr. Bridge was with the
IBM Corporation for nearly 23 years. Mr. Bridge holds a B.A. in Mathematics from
Bradley University.
TED C. FEIERSTEIN, 44; Mr. Feierstein, a director since January 2000, is
a partner in Ascent Partners ("Ascent"), a merchant bank specializing in
investments, mergers and acquisitions, and strategic assistance for Internet,
software and information technology-focused professional service companies. Mr.
Feierstein is also a founding partner of Prism Capital, a private equity fund.
Prior to co-founding Ascent, Mr. Feierstein was a senior vice-president with the
Corum Group, a firm specializing in merger and acquisition advisory services to
the software industry, and was a venture capitalist with Wind Point Partners, a
private equity fund. Mr. Feierstein received an MBA from the Harvard Business
School in 1989 and a BBA from the University of Wisconsin-Madison in 1979.
DIRECTORS WHOSE TERMS
EXPIRE AT THE ANNUAL MEETING IN 2004
RICHARD W. WEENING, 56; Mr. Weening, a director since 1981, organized
the Company in 1981 as a business information publishing subsidiary of Raintree
Publishers, Inc., now known as RPI Holdings, Inc. ("RPI"). He served as
President and Chief Executive Officer of the Company until October 1987,
Chairman and Chief Executive Officer of the Company until October 1990, and
Chairman of the Board of Directors until 1997. Mr. Weening is also the Chief
Executive Officer of QUAESTUS Management Corporation, an asset management and
merchant banking firm. Mr. Weening has served as President of RPI from 1972 to
the present.
The Board of Directors held twenty meetings in fiscal 2002. Each
incumbent director attended 75 percent or more of the combined number of
meetings of the Board and Committees on which such director served, during the
period for which he has been a director or served on the Committee.
The Company's Board of Directors has established an Audit Committee
which is currently comprised of Mr. Bridge and Mr. Weening. The Board of
Directors has adopted a written charter which was included in the annual proxy
statement for fiscal year 2000. Information regarding the functions performed by
the Audit Committee, its membership, and the number of meetings held during
fiscal 2002 is set forth in the "Report of the
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Audit Committee," included in this annual proxy statement. The members of the
Audit Committee are independent under the rules adopted by the NASD regarding
the independence of audit committee members.
The Company's Board of Directors has established a Compensation
Committee that currently is composed of Mr. Bridge and Mr. Feierstein. The
duties of the Compensation Committee are to approve all executive compensation
and to administer the Company's 1991 Incentive Stock Option Plan, the 1992
Employee Stock Purchase Plan, the 1993 Director Stock Option Plan and the 2000
Stock Option Plan. The Compensation Committee met three times during fiscal
2002.
The Board of Directors does not have a nominating committee, as
decisions regarding Board membership are made by the full Board.
During fiscal 2002, non-employee directors received options for 800
shares of the Company's Common Stock on the first business day of the calendar
year and options for an additional 800 shares for each meeting of the Board and
400 shares for each meeting of a Committee attended by the director. The options
had a 10-year term, were exercisable one year after issuance and had an exercise
price equal to the fair market value of the stock on the date of grant. In
addition, in fiscal 2002, directors were compensated for Special Committee work
as follows: Mr. Bridge - $8,700 and Mr. Feierstein - $33,325.
4
EXECUTIVE COMPENSATION
The following table sets forth compensation for the last three fiscal
years for each of the Company's executive officers whose salary and bonus during
fiscal 2002 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
----------------------------------------- --------------------------------
Awards Payouts
------ -------
Securities
Name and Other Annual Underlying LTIP
Principal Position Year Salary Bonus Compensation Options/SARs (#) Payouts($)
------------------------------------ ----- ---------- ---------- ------------- ---------------- -----------
Brian E. Dearing, 2002 $ 171,612 $ 56,958 $ -- 15,000 $ 26,097
President and Chief Executive 2001 $ 170,000 $ 41,621 $ -- 30,000 $ 22,913
Officer 2000 $ 161,538 $ 20,625 $ -- 25,000 $ 8,756
Timothy Sherlock 2002 $ 161,590 $ 25,679 $ -- 5,000 $ 3,433
Chief Financial Officer, Secretary, 2001 $ 49,231 $ 1,211 $ -- 40,000 $ --
Treasurer and VP of Finance (1)
John C. Bray, 2002 $ 141,637 $ 17,814 $ -- 10,000 $ 9,098
Vice President of New Market 2001 $ 140,000 $ 8,498 $ 42,600 20,000 $ 10,183
Development (2) 2000 $ 135,769 $ 9,167 $ 10,000 15,000 $ 3,891
Michael E. McGurk, 2002 $ 119,353 $ 35,371 $ -- 10,000 $ 13,456
Vice President of Technology 2001 $ 110,000 $ 27,289 $ -- 13,000 $ 10,646
Operations 2000 $ 105,769 $ 11,458 $ -- 7,500 $ 2,781
Frederic G. Tillman, 2002 $ 116,939 $ 34,768 $ -- 17,500 $ 10,675
Vice President of Technology 2001 $ 115,600 $ 27,289 $ -- 15,000 $ 7,865
Development 2000 $ 110,769 $ 11,458 $ -- 30,000 $ --
---------------------------------
(1) Mr. Sherlock joined the company in April 2001.
(2) Mr. Bray's other annual compensation consists of commission paid on new
sales.
The table below provides information regarding option grants in the year
ended July 31, 2002 to the persons named in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS GRANTED
UNDERLYING TO EMPLOYEES IN
OPTIONS/SARS FISCAL YEAR (1) EXERCISE OR BASE
NAME GRANTED # (1) PRICE ($/SHARE) EXPIRATION
------------------------- ------------------ ----------------------- ---------------------- ---------------
Brian E. Dearing 15,000 18.0% $0.2700 10/30/11
Timothy Sherlock 5,000 6.0% $0.2700 10/30/11
John C. Bray 10,000 12.0% $0.2700 10/30/11
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Michael E. McGurk 10,000 12.0% $0.2700 10/30/11
Frederic G. Tillman 7,500 9.0% $0.2800 09/07/11
10,000 12.0% $0.2700 10/30/11
(1) All options granted in the fiscal year were awarded with an exercise price
equal to the fair market value of the Common Stock on the date of grant. The
options vest in four equal annual increments beginning on the last day of
the fiscal year (July 31) during which the options were granted. Under the
terms of the Plan, the Compensation Committee retains discretion to, among
other things, accelerate the exercise of an option, modify the terms of
outstanding options (including decreasing the exercise price), and permit
the exercise price and tax withholding obligations related to exercise to be
paid by delivery of already owned shares or by offset of the underlying
shares. To date, the Company has never repriced any stock options.
The table below provides information regarding the exercises of stock
options during fiscal 2002 and the value of stock options held at July 31, 2002
by the persons named in the Summary Compensation Table.
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTION/SARS AT FISCAL YEAR END
NAME EXERCISE (#) REALIZED ($) FISCAL YEAR END (#) EXERCISABLE/UNEXERCISABLE
EXERCISABLE/UNEXERCISABLE (1)
------------------------- ------------- --------------- ------------------------------- --------------------------
Brian E. Dearing -- $ -- 82,000/32,500 $ --
Timothy Sherlock -- $ -- 21,250/23,750 $ --
John C. Bray -- $ -- 92,750/21,250 $ --
Michael E. McGurk -- $ -- 71,750/15,875 $ --
Frederic G. Tillman -- $ -- 41,875/28,125 $ --
--------------------
(1) All outstanding options held by the named executive officers had exercise
prices greater than the closing sales price of the Common Stock at July 31,
2002.
The table below provides information regarding long-term incentive plan
awards in fiscal 2002 to the persons named in the Summary Compensation Table.
LONG-TERM INCENTIVE PLAN AWARDS
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
--------------------------------------------
NUMBER PERIOD
NAME OF UNITS UNTIL PAYMENT THRESHOLD TARGET MAXIMUM
------------------------------- ------------- ---------------- ------------ ----------- ------------
Brian E. Dearing (1) (2) $ 20,000 $ 20,000 $ 20,000
(1) (3) $ 33,670 $ 44,893 $ 89,786
Timothy Sherlock (1) (3) $ 17,600 $ 23,467 $ 46,934
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ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
--------------------------------------------
NUMBER PERIOD
NAME OF UNITS UNTIL PAYMENT THRESHOLD TARGET MAXIMUM
------------------------------- ------------- ---------------- ------------ ----------- ------------
John C. Bray (1) (2) $ 15,000 $ 15,000 $ 15,000
(1) (3) $ 12,018 $ 16,024 $ 32,048
Michael E. McGurk (1) (2) $ 15,000 $ 15,000 $ 15,000
(1) (3) $ 19,577 $ 26,102 $ 52,204
Frederic G. Tillman (1) (3) $ 20,179 $ 26,905 $ 53,810
---------------------
(1) Consists of contingent, deferred cash awards.
(2) Paid out at such time as the Company, in the judgment of the Board,
generates sufficient cash resources from operations regardless of whether
the participant is then employed by the Company.
(3) Vesting in three equal annual installments starting August 1, 2003 provided
the participant is then employed by the Company.
The Company has entered into Change of Control Agreements ("Change of
Control Agreements") with each of its executive officers. The Change of Control
Agreements are intended to retain the services of these officers and provide for
continuity of management in the event of any "Change of Control," as defined
below. These Change of Control Agreements provide that each officer shall
receive severance benefits equal to two times the sum of salary and targeted
bonuses and medical and dental plan continuation for two years if, within two
years following a "Change of Control," as defined below, the officer's
employment is terminated without cause. For this purpose, "without cause" is
defined to include: (i) a significant reduction in the executive's compensation,
duties, title or reporting responsibilities; (ii) a change in the executive's
job location; or (iii) the termination by the officer of his employment for
certain enumerated reasons. In addition, the officer will receive a prorated
portion of the officer's average annual bonus for the preceding three fiscal
years. If the officer leaves ARI for any other reason, within two years
following a Change of Control, the officer will receive a prorated portion of
the officer's average annual bonus for the preceding three fiscal years. The
officer is under no obligation to mitigate amounts payable under the Change of
Control Agreements. In addition, upon a Change of Control, all stock options and
similar awards become immediately vested and all deferred compensation becomes
payable.
For purposes of the Change of Control Agreements, a "Change of Control"
means any of the following events: the acquisition (other than from ARI) by any
individual, entity or group, subject to certain exceptions, of beneficial
ownership, directly or indirectly, of 50% or more of the combined voting power
of ARI's then outstanding voting securities; (ii) a merger, consolidation, share
exchange, or sale or disposition of substantially all of the assets of the
Company; or (iii) approval by the Company's shareholders of a complete
liquidation or dissolution of the Company.
CERTAIN TRANSACTIONS
During fiscal 2002, the Company had a term loan and a revolving line of
credit with WITECH Corporation. The term loan was initially for $1.0 million,
payable in equal monthly installments over three years, and the revolving line
of credit was for a maximum of $1.0 million. The interest rate on the term loan
was at prime plus 4.0% and on the revolving line of credit was prime plus 3.25%.
The revolving line of credit terminated on December 31, 2001 and the term loan
was repaid in full on October 1, 2002. During fiscal 2002, the Company incurred
approximately $29,832 of interest with respect to its borrowings from WITECH.
On July 8, 1999, Briggs & Stratton Corporation ("Briggs") executed a
Master Agreement with the Company (the "Customer Contract"). The Customer
Contract provides for the Company to license its electronic commerce and
electronic cataloging software to Briggs and its dealers and distributors and to
provide certain related professional services. The Customer Contract has an
initial term of one year and automatically renews for additional terms of one
year each unless either party gives written notice of termination to the other
party. On
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March 30, 2000 and July 31, 2000, ARI and Briggs signed additional contracts for
the license of the Company's Web-based communications and catalog software. The
Company invoiced Briggs $232,015 for products and services provided during
fiscal 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon its review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company pursuant to Section 16 of the Securities Exchange Act
of 1934, as amended, all of such forms were filed on a timely basis by reporting
persons, except Mr. Merrifield filed two late Form 4's related to two
transactions.
PROPOSAL TO AMEND THE
2000 STOCK OPTION PLAN
At the annual meeting, shareholders are being asked to approve
amendments to the Company's 2000 Stock Option Plan (the "SOP") to increase the
number of shares of Common Stock reserved for issuance under the Plan by
1,000,000 shares and to increase the number of shares that may be granted to any
one Participant in any one-year period by 400,000 shares. The Board of Directors
adopted the amendments on November 7, 2002.
As of October 15, 2002, there were outstanding options to purchase
402,850 shares of Common Stock which have been granted under the SOP but remain
unexercised. These outstanding options have a weighted average exercise price of
$0.8873. Of these shares, 197,925 were exercisable as of October 15, 2002. As of
October 15, 2002, there were 47,150 shares available for future grants under the
SOP.
The Board believes that the number of shares currently available under
the SOP is insufficient in light of the Company's need to use options to attract
and retain employees and directors. Given the importance of the SOP in the past
in attracting and retaining key personnel, and the importance that will be
placed on the SOP in the future, the Board believes that the number of shares
available for issuance under the SOP must be increased to allow future option
grants to be made. The Board believes that options are an exceptionally
important component of compensation, and not having options available would
seriously harm the Company.
The Board believes that the grant of options to employees, directors and
certain contractors under the SOP is an attractive way for the Company to be
able to retain these personnel while conserving the Company's limited cash
resources. In addition, the Board believes that granting stock options which
vest over an extended period of time provides the optionee with an incentive to
remain with the Company and actively contribute towards improving the Company's
performance. The Board further believes that employee and director ownership
provides a stronger incentive for these personnel to put forth maximum effort
for the long term success and growth of the Company in order to see the value of
their ownership grow.
In addition, management and the Board have reviewed the increased time
provided by the non-employee directors of the Company as well as the Company's
limited ability to provide cash payments to the directors as compensation for
their services. The Company's non-employee directors have been significantly
under-compensated for their service for an extended period of time. The Board is
considering increasing the number of options granted to non-employee directors
due to the significant commitment of time they make to the Company in this
challenging environment and due to their prolonged compensation reductions
asserted with the Company's stock price decline. To consider an increase in
option compensation for the Company's non-employee directors, the number of
shares available to be granted under the SOP must be increased.
Moreover, many of the Company's employees and directors have options
that are "underwater" -- that is, the exercise price is higher than the current
trading price. The Board believes that underwater options do not provide the
proper incentives to employees and directors, and is therefore considering
issuing new options to options holders that voluntarily surrender underwater
options. Many of the old options were granted under plans that have been
terminated and, therefore, greater share availability is needed in the SOP to
accomplish the exchange. If an exchange plan were implemented, it is anticipated
that the total number of outstanding options would decrease, because options
granted under old plans would be replaced with fewer options granted under the
SOP. An increase in the number of shares available to an individual will
accommodate persons that may have accumulated option grants in excess of 100,000
shares.
8
Set forth below for your reference is a summary of the principal
features of the SOP. The following summary, however, does not purport to be a
complete description of all the provisions of the SOP. Any shareholder who
wishes to obtain a copy of the actual plan document may do so upon written
request to the Secretary at the Company's principal offices at 11425 West Lake
Park Drive, Suite 900, Milwaukee, Wisconsin 53224.
DESCRIPTION OF THE STOCK OPTION PLAN
All directors, employees, or consultants who provide services to the
Company (the "Participants") are eligible to receive options to purchase Common
Stock under the SOP. At October 15, 2002, approximately 97 persons were
eligible. The SOP is designed to provide additional incentive compensation to
Participants and provide them with an opportunity to acquire an equity interest
in the Company. The SOP is also designed to attract and retain the Company's
non-employee directors.
The SOP is administered by a Compensation Committee appointed by the
Board of Directors. Messrs. Gordon Bridge and Ted Feierstein are the current
members of the Compensation Committee. Subject to the provisions of the SOP, the
Compensation Committee has the authority to determine the exercise prices
applicable to the options, the eligible participants to whom and the time or
times at which options shall be granted, the number of shares of Common Stock
subject to each option, and the extent to which options may be exercisable in
installments. The Compensation Committee also has authority to interpret the
SOP, and to prescribe, amend and rescind the rules and regulations pertaining to
the SOP.
Options granted under the SOP may be either (i) options granted to
qualifying employees which are intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or (ii) non-qualified stock options which may be granted to all Participants.
Under the SOP, no Participant may be granted options for more than
100,000 shares (500,000 shares if the proposal is approved) during any one-year
period. If the proposal is approved by shareholders, the aggregate number of
shares of Common Stock that may be issued under the SOP may not exceed
1,450,000. The number of shares reserved under the plan and for which awards may
be granted to a Participant may be adjusted, as determined by the Compensation
Committee, in the event of certain changes due to a recapitalization,
reclassification, merger, spin-off, stock split, stock dividend, or other
increase or decrease. No stock options may be granted under the SOP after
December 13, 2010.
Any incentive stock option that is granted under the SOP must be granted
at a price no less than the fair market value of the Common Stock on the date of
grant (or no less than 110% of the fair market value in the case of holders of
10% or more of the total combined voting power of all classes of stock of the
Company or of a subsidiary or parent of the Company). Non-qualified stock
options may be granted at the exercise price established by the Compensation
Committee, which may be less than the fair market value of the Common Stock on
the date of grant. At October 15, 2002, the closing price of the Company's
Common Stock was $0.23 per share.
Each incentive stock option granted under the SOP is exercisable for a
period not to exceed 10 years from the date of grant (or five years in the case
of a holder of more than 10% of the total combined power of all classes of stock
of the Company or of a subsidiary or parent of the Company) and shall lapse upon
the expiration of the period, or earlier upon termination of the recipient's
employment or service with the Company or as determined by the Compensation
Committee. These limitations do not apply to non-qualified stock options. The
Compensation Committee shall determine the period of time during which an option
may be exercised following termination of employment or service due to death or
disability, or following termination of employment or service due to retirement.
The Board of Directors of the Company may amend the SOP at any time,
except if shareholder approval is required under tax, securities or any other
applicable law. However, the Board may not make an amendment that has an adverse
effect on the rights of any Participant or beneficiary of any award granted
under the Plan without written consent to the amendment by the affected
Participant.
9
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The grant and exercise of options issued pursuant to the SOP should
cause the federal income tax consequences to the Participant and the Company
described below.
Incentive Stock Options. Incentive stock options under the SOP are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under Section 422 of the Code. Incentive stock options
generally have the following tax consequences.
- There are generally no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the
optionee's alternative minimum tax liability if any and, to the extent that
any incentive stock option is exercisable during any calendar year with
respect to shares having, as of the grant date, a fair market value
exceeding $100,000, such excess will be treated as a non-qualified stock
option.
- If an optionee holds stock through exercise of an incentive stock option for
more than two years from the date on which the option is granted and more
than one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of
such stock will be long-term capital gain or loss. Generally, if the
optionee disposes of the stock before the expiration of either of these
holding periods (a "disqualifying disposition"), at the time of disposition
of the option, the optionee will realize taxable ordinary income equal to
the lesser of (i) the excess of the fair market value on the date of
exercise over the exercise price, or (ii) the optionee's actual gain, if
any, on the purchase and sale. The optionee's additional gain or any loss
upon the disqualifying disposition will be a capital gain or loss which will
be long-term or short-term, depending on whether the stock was held more
than one year.
- Upon exercise of an incentive stock option, the excess of the stock's fair
market value on the date of exercise over the option exercise price will
constitute an adjustment in calculating the optionee's alternative minimum
tax, if any.
- To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will be entitled to a corresponding
compensation expense deduction in the tax year in which the disposition
occurs.
Non-Qualified Stock Options. At the time any non-qualified option is
granted, the optionee will not recognize any taxable income and the Company will
not be entitled to any deduction. When an optionee exercises a non-qualified
option, the optionee will generally recognize ordinary income in an amount equal
to the excess of the fair market value of the Common Stock received on the date
of exercise over the option exercise price. The Company will be entitled to a
deduction in an amount equal to the income recognized by the optionee. The basis
of the Common Stock received upon the exercise of a non-qualified option will be
the exercise price paid plus the amount recognized by the optionee as taxable
income attributable to such shares as a result of the exercise.
When an optionee sells stock acquired by the exercise of a non-qualified
option, the difference between the amount received and the adjusted tax basis of
the stock will be capital gain or loss if such shares constitute a capital asset
in the hands of the optionee. The compensation deduction by the Company upon
exercise of non-qualified options by the CEO or any of the other four most
highly compensated executive officers may be limited by Section 162(m) of the
Code, which limits the deductibility of compensation in any one year to
$1,000,000 unless the excess compensation is "performance-based."
PLAN BENEFITS
As of the date of this Proxy Statement, none of the 1,000,000 shares
that are subject to shareholder approval have been granted. It is not
determinable what options will be received by Participants under the SOP in
fiscal 2003. However, the following table provides information concerning
options awarded to employees and directors in fiscal 2002 under the SOP.
10
NUMBER
NAME OF OPTIONS(1)
------------------------------------- --------------------
Brian E. Dearing 15,000
Timothy Sherlock 5,000
John C. Bray 10,000
Michael E. McGurk 10,000
Frederic G. Tillman 17,500
All current executive officers as a 57,500
group
All current non-employee directors 60,600
as a group
All employees who are not executive 33,500
officers as a group
(1) Additional information concerning the terms and conditions of the options is
set forth above under the heading "Options/SAR Grants In Last Fiscal Year."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENTS TO THE STOCK OPTION PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS
WILL BE VOTED FOR APPROVAL OF THE STOCK OPTION PLAN AMENDMENTS UNLESS
SHAREHOLDERS SPECIFY TO THE CONTRARY IN THEIR PROXIES.
PROPOSAL TO AMEND THE
2000 EMPLOYEE STOCK PURCHASE PLAN
At the annual meeting, shareholders are being asked to approve an
amendment to the Company's 2000 Employee Stock Purchase Plan (the "ESPP") to
increase the number of shares of Common Stock reserved for issuance under the
ESPP by 100,000 shares. The Board of Directors adopted the amendment on November
7, 2002.
As of October 15, 2002, 39,061 shares have been purchased under the
ESPP, leaving 35,939 shares, of the 75,000 shares originally authorized,
remaining for purchase under the ESPP.
The ESPP was adopted so that the Company could offer its employees a
convenient way to purchase shares of the Company's stock at a discounted price
through payroll deductions and to provide an incentive for continued employment.
The ESPP is an important part of the Company's compensation program. Competitive
compensation and benefit programs are a critical component of our efforts to
attract and retain qualified employees. Increasing the number of shares
authorized and reserved for issuance under the ESPP will enable the Company to
continue providing this benefit to new and current employees.
Set forth below for your reference is a summary of the principal
features of the ESPP. The following summary, however, does not purport to be a
complete description of all the provisions of the ESPP. Any shareholder who
wishes to obtain a copy of the actual plan document may do so upon written
request to the Secretary at the Company's principal offices at 11425 West Lake
Park Drive, Suite 900, Milwaukee, Wisconsin 53224.
11
DESCRIPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
The ESPP is administered by the Compensation Committee of the Board of
Directors. In general, all employees of the Company, other than executive
officers, are eligible to participate in the ESPP, provided they have a minimum
period of continuous service with the Company of at least six months and meet
certain limitations provided in the tax code. At October 15, 2002, the Company
had approximately 80 employees eligible to participate in the ESPP.
The ESPP is intended to qualify as an "employee stock purchase plan"
under section 423 of the Internal Revenue Code (the "Code"). Eligible employees
that elect to participate may have up to 10% of their compensation from the
Company withheld pursuant to the ESPP. The amount withheld is then used to
purchase shares of Common Stock on the last day of the offering period. An
offering period commences on January 1 and ends on December 31 of each year. The
price of the Common Stock purchased under the ESPP during an offering period is
equal to the lower of either 85% of the fair market value of the Company's
shares on the first day of the offering period or 85% of the fair market value
of the Company's shares on the last day of the offering period. At October 15,
2002, the closing price of the Company's Common Stock was $.23 per share.
An employee may not be granted a purchase right for a purchase period if
immediately after the grant, he or she would own five percent or more of the
total combined voting power or value of all classes of stock of the Company. An
employee cannot receive purchase rights that, in combination with purchase
rights under other plans qualified under Section 423 of the Code, would result
during any calendar year in the purchase of shares having an aggregate fair
market value of more than $25,000. Purchase rights granted under the ESPP are
not transferable except by will or by the laws of descent and distribution and
are exercisable only by the employee during the employee's lifetime.
The Board of Directors of the Company may, from time to time, amend the
ESPP in any respect. However, no amendment may be made without the approval of
the Company's shareholders if shareholder approval is required for such
amendment under applicable tax, securities or other law.
FEDERAL INCOME TAX CONSEQUENCES OF THE ESPP
The following information is a general summary of some of the current
federal income tax consequences of the ESPP to participants and to the Company.
Tax laws may change, and actual tax consequences will depend on an employee's
individual circumstances as well as state and local tax laws. The Company
encourages all participating employees to seek tax advice when they participate
in the ESPP.
Tax Treatment of Participating Employees. Participating employees will
not recognize income when they enroll in the ESPP or when they purchase shares.
All tax consequences are deferred until the participating employee disposes of
the shares. If the participating employee holds the shares for one year or more
after the purchase date and two years or more after the offering date, or if the
participating employee dies while owning the shares, the participating employee
will generally recognize ordinary income when disposing of the shares equal to
the difference between the purchase price and the fair market value of the
shares on the date of disposition, or 15% of the fair market value of the shares
on the offering date, whichever is less. Any additional gain will be taxed as
long-term capital gain. If the shares are sold for less than the purchase price,
there is no ordinary income, but the participating employee will have a
long-term capital loss for the difference between the purchase price and the
sale price. If a participating employee sells or gifts the shares less than one
year after the purchase date or less than two years after the offering date, the
participating employee will generally have ordinary income equal to the
difference between the purchase price and the fair market value on the purchase
date. The difference between the sale price and the fair market value on the
purchase date will be a capital gain or loss, taxable at short-term capital gain
rates if the shares are held 12 months or less and at long-term capital gain
rates if the shares are held longer than 12 months.
Tax Treatment of the Company. When a participating employee recognizes
ordinary income by disposing of shares before the one-year or two-year holding
period ends, the Company will generally be entitled to a tax deduction in the
amount of the ordinary income.
12
PLAN BENEFITS
As of the date of this Proxy Statement, none of the 100,000 shares that
are subject to shareholder approval have been purchased. Because participation
in the ESPP is voluntary, the benefits or amounts that will be received in the
future by any person or group under the ESPP cannot presently be determined.
However, the following table provides information concerning benefit or amounts
received by employees and directors in fiscal 2002 under the ESPP. Executive
officers and directors are not eligible to participate.
NUMBER
NAME OF SHARES
------------------------------------- --------------------
Brian E. Dearing -
Timothy Sherlock -
John C. Bray -
Michael E. McGurk -
Frederic G. Tillman -
All current executive officers as a -
group
All current non-employee directors -
as a group
All employees who are not executive 39,061
officers as a group
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT
TO THE EMPLOYEE STOCK PURCHASE PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS
WILL BE VOTED FOR APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN UNLESS
SHAREHOLDERS SPECIFY TO THE CONTRARY IN THEIR PROXIES.
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of its Audit Committee, has
appointed Ernst & Young LLP to serve as principal accountant to audit the books
and accounts of the Company and its subsidiaries for the fiscal year ending July
31, 2003 and is seeking the ratification of this appointment by the
shareholders. It is intended that the shares represented by the proxy will be
voted (unless the proxy indicates to the contrary) for ratification of the
appointment.
A representative of Ernst & Young LLP is expected to be present at the
meeting with the opportunity to make a statement if he or she desires to do so,
and is expected to be available to respond to appropriate questions.
13
AUDIT FEES
Aggregate fees billed by Ernst & Young LLP for audit related services
were $110,835. Fees for the last annual audit and reviews of the quarterly
statements were $106,550 and fees for audit related services were $4,285. Audit
related services generally include fees for SEC registration statements and
accounting consultations.
FINANCIAL INFORMATION SYSTEMS DESIGN
AND IMPLEMENTATION FEES
Ernst & Young LLP received no fees from the Company for financial
information systems design and implementation.
ALL OTHER FEES
The aggregate fees billed by Ernst & Young LLP for non-audit related and
non-information systems related services were $5,035.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information about shares of the
Company's Common Stock outstanding and available for issuance under the
Company's existing equity compensation plans, the 1991 Incentive Stock Option
Plan, the 1992 Employee Stock Purchase Plan, the 1993 Director Stock Option
Plan, the 2000 Employee Stock Purchase Plan and the 2000 Stock Option Plan. The
table details securities authorized for issuance under the Company's equity
compensation plans as of July 31, 2002, exclusive of the proposed increase in
the number of shares as set forth in the proposal to amend the SOP. The table
below does not include stock option grants, exercises or cancellations since
July 31, 2002 and, in accordance with SEC rules, excludes information concerning
the Company's 401(k) plan. The Company stopped issuing options or other equity
grants under the 1991 Incentive Stock Option Plan, however, there are options
outstanding under the 1991 Incentive Stock Option Plan.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------------------------------------------------------------------------------
PLAN CATEGORY NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE FOR
EXERCISE OF OUTSTANDING OPTIONS, FUTURE ISSUANCE UNDER
OUTSTANDING OPTIONS, WARRANTS AND RIGHTS EQUITY COMPENSATION PLANS
WARRANTS AND RIGHTS [EXCLUDING SECURITIES
REFLECTED IN COLUMN (a)]
(a) (b) (c)
------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION PLANS 962,323 $3.5446 83,089
APPROVED BY SECURITY HOLDERS
------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION PLANS NOT [N/A] [N/A] [N/A]
APPROVED BY SECURITY HOLDERS(1)
------------------------------------------------------------------------------------------------------------
TOTAL 962,323 83,089
------------------------------------------------------------------------------------------------------------
(1) The Company does not maintain equity compensation plans which have not been
approved by shareholders.
14
OTHER MATTERS
OTHER PROPOSED ACTION
The Board of Directors of the Company knows of no other matters which
may come before the meeting. However, if any matters other than those referred
to above should properly come before the meeting, the persons named in the
enclosed proxy will vote such proxy in accordance with their discretion.
SHAREHOLDER PROPOSALS
All proposals of shareholders intended to be presented at the Company's
2003 Annual Meeting must be received by the Company at its executive offices on
or before September 13, 2003, in order to be presented at the meeting (and must
otherwise be in accordance with the requirements of the Bylaws of the Company)
and must be received by July 22, 2003 to be considered for inclusion in the
proxy statement for that meeting.
COSTS OF SOLICITATION
The expenses of printing and mailing proxy materials, including
reasonable expenses involved in forwarding materials to beneficial owners of
Common Stock, will be borne by the Company. The Company has engaged Morrow &
Co., a proxy solicitation firm, to aid in the solicitation of proxies at a cost
of $3,500 plus reimbursement of reasonable and customary expenses. In addition,
officers or employees of the Company may solicit the return of proxies from
certain shareholders by telephone, facsimile or personal solicitation.
SHAREHOLDERS MAY OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AT NO COST BY WRITING
TO THE INVESTOR RELATIONS DEPARTMENT, ARI NETWORK SERVICES, INC., 11425 WEST
LAKE PARK DRIVE, SUITE 900, MILWAUKEE, WISCONSIN 53224.
BY ORDER OF THE BOARD OF DIRECTORS
Timothy Sherlock, Secretary
November 19, 2002
15
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process
on behalf of the Board of Directors. The duties of the Audit Committee are to:
(1) evaluate the independent auditors; (2) make recommendations as to the
selection of independent auditors; (3) review the audit plan and scope with the
independent auditors; (4) review audit results; (5) review transactions between
management and the Company; (6) review reports of the accounting staff of the
Company and its auditors as to the adequacy and quality of its system of
internal controls; and (7) make appropriate inquiries regarding financial
matters to the auditors and others. Management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the United
States, their judgments as to the quality, not just the acceptability, of the
Company's accounting principles and such other matters as are required to be
discussed with the Committee under auditing standards generally accepted in the
United States. In addition, the Committee has discussed with the independent
auditors the auditors' independence from management and the Company including
matters in the written disclosures required by the Independence Standards Board
and considered the compatibility of non-audit services with auditors'
independence.
The Committee discussed with the Company's independent auditors the
overall scope and plans for their audit. The Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examination and their evaluation of the Company's internal
controls, and the overall quality of the Company's financial reporting. The
Committee held six meetings during fiscal 2002.
In reliance on the views and discussions referred to above, the
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended July 31, 2002 for filing with the Securities and
Exchange Commission. The Committee and the Board have also recommended, subject
to shareholder approval, the selection of the Company's independent auditors.
/s/ GORDON J. BRIDGE
----------------------------------------------
Gordon J. Bridge, Audit Committee Member
/s/ RICHARD W. WEENING
----------------------------------------------
Richard W. Weening, Audit Committee Member
EXHIBIT A
ARI NETWORK SERVICES, INC.
2000 STOCK OPTION PLAN
1. Objectives. The ARI Network Services, Inc. 2000 Stock Option Plan is
designed to attract and retain certain selected officers, key employees,
non-employee directors and consultants whose skills and talents are important to
the Company's operations, and reward them for making major contributions to the
success of the Company. These objectives are accomplished by making awards under
the Plan, thereby providing Participants with a proprietary interest in the
growth and performance of the Company.
2. Definitions.
(a) "Award" shall mean the grant of any Stock Option to a Plan
Participant pursuant to such terms, conditions and limitations as the
Board or Committee may establish in order to fulfill the objectives of
the Plan.
(b) "Award Agreement" shall mean the agreement that sets forth
the terms, conditions and limitations applicable to an Award.
(c) "Board" shall mean the Board of Directors of ARI Network
Services, Inc.
(d) "Cause" shall mean (i) the willful and continued failure
by the Employee to substantially perform the Employee's duties with the
Company (other than any such failure resulting from the Employee's
incapacity due to physical or mental illness) for a period of at least
ten days after a written demand for substantial performance is
delivered to the Employee which specifically identifies the manner in
which the Employee has not substantially performed his duties, or (ii)
the willful engaging by the Employee in misconduct which is
demonstrably and materially injurious to the Company, monetarily or
otherwise. For purposes of this Plan, no act or failure to act on the
Employee's part shall be considered "willful" unless done or omitted to
be done by the Employee not in good faith and without reasonable belief
that such action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Employee shall not be deemed to have
been terminated for Cause unless and until there shall have been
delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the Board of the
Company at a meeting of the Board called and held for such purposes
(after reasonable notice to the Employee and an opportunity for the
Employee, together with the Employee's counsel, to be heard before the
Board), stating that in the good faith opinion of the Board the
Employee was guilty of conduct constituting Cause as set forth above
and specifying the particulars thereof in detail.
(e) "Change of Control" shall mean the first to occur of the
following:
(i) the acquisition by an individual, entity or
group, acting individually or in concert (a "Person") of
beneficial ownership of more than 50% of the then outstanding
shares of common stock of the Company (the "Outstanding Common
Stock"); provided, however, that for purposes of this
Subsection 2(e)(i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly
from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company, or (D) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of Subsection 2(e)(ii) below; or
(ii) consummation of a reorganization, merger or
consolidation, share exchange, or sale or other disposition of
all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, immediately
following such Business Combination, (A) all or substantially
all of the individuals and entities who were the beneficial
owners of the Outstanding Common Stock immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Common Stock, (B) no
Person (excluding any employee benefit plan (or related trust)
of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, more than 50% of, respectively, the then
outstanding common stock of the corporation resulting from
such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the
Business Combination, and (C) at least a majority of the
members of the Board of the corporation resulting from such
Business Combination were members of the Board of the Company
at the time of the execution of the initial agreement
providing for such Business Combination; or
(iii) approval by the shareholders of the Company of
a complete liquidation or dissolution of the Company.
(f) "Common Stock" or "stock" shall mean the $.001 par value
common stock of ARI Network Services, Inc.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
2
(h) "Committee" shall mean the Compensation Committee of the
Board of the Company.
(i) "Company" shall mean ARI Network Services, Inc.
(j) "Fair Market Value" shall mean the closing sale price of
Common Stock on the Nasdaq National Market as reported in the Midwest
Edition of The Wall Street Journal for the date of grant provided that,
if no sales of Common Stock were made on such exchange on that date,
"Fair Market Value" shall mean the closing sale price of Common Stock
as reported for the most recent preceding day on which sales of Common
Stock were made on such exchange, or, failing any such sales, such
other price as the Committee may determine in conformity with pertinent
law and regulations of the Treasury Department. Notwithstanding the
foregoing, in the case of Awards which are effective on the date the
Company sells shares of Common Stock in an underwritten public
offering, Fair Market Value shall mean the price per share at which the
Common Stock is initially sold to the public pursuant to the offering.
(k) "Participant" shall mean a current or prospective
employee, non-employee director, consultant or other person who
provides services to the Company to whom an Award has been made under
the Plan.
(l) "Plan" shall mean this ARI Network Services, Inc. 2000
Stock Option Plan.
(m) "Stock Option" shall mean a grant of a right to purchase a
specified number of shares of Common Stock the purchase price of which
shall be not less than 100% of Fair Market Value on the date of grant,
as determined by the Committee. A Stock Option may be in the form of a
nonqualified stock option for all Participants or an incentive stock
option ("ISO") for Participants who are qualifying employees. An ISO,
in addition to being subject to applicable terms, conditions and
limitations established by the Committee, complies with Section 422 of
the Code which, among other limitations, provides that the aggregate
Fair Market Value (determined at the time the option is granted) of
Common Stock for which ISOs are exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000; that
ISOs shall be priced at not less than 100% of the Fair Market Value on
the date of the grant (110% in the case of a Participant who is a 10%
shareholder of the Company within the meaning of Section 422 of the
Code); and that ISOs shall be exercisable for a period of not more than
ten years (five years in the case of a Participant who is a 10%
shareholder of the Company).
3. Eligibility. Current and prospective employees, non-employee
directors, consultants or other persons who provide services to the Company
eligible for an Award under the Plan are those who hold, or will hold, positions
of responsibility and whose performance, in the judgment of the Committee or the
management of the Company (if such responsibility is delegated pursuant to
Section 6 hereof), can have a significant effect on the success of the Company.
However, incentive stock options within the meaning of Section 422 of the Code
may only be
3
issued to employees of the Company and its subsidiary corporations within the
meaning of Section 424(f) of the Code.
4. Common Stock Available for Awards. Subject to adjustment as provided
in Section 13 hereof, the number of shares that may be issued under the Plan for
Awards during the term of the Plan is 1,450,000 shares of Common Stock, all of
which may be in the form of incentive stock options within the meaning of
Section 422 of the Code. Any shares subject to an Award which are used in
settlement of tax withholding obligations shall be deemed not to have been
issued for purposes of determining the maximum number of shares available for
issuance under the Plan. Likewise, if any Stock Option is exercised by tendering
shares, either directly or by attestation, to the Company as full or partial
payment for such exercise under this Plan, only the number of shares issued net
of the shares tendered shall be deemed issued for purposes of determining the
maximum number of shares available for issuance under the Plan. Subject to
adjustment as provided in Section 13 hereof, no individual shall be eligible to
receive Awards aggregating more than 500,000 shares of Common Stock reserved
under the Plan in any one calendar year. The Company shall take whatever actions
are necessary to file required documents with the U.S. Securities and Exchange
Commission and any other appropriate governmental authorities and stock
exchanges to make shares of Common Stock available for issuance pursuant to
Awards.
5. Administration. The Plan shall be administered by the Committee,
which shall have full and exclusive power to interpret the Plan, to determine
which persons are Participants, to grant waivers of Award restrictions, and to
adopt such rules, regulations and guidelines for carrying out the Plan as it may
deem necessary or proper. All decisions of the Committee shall be final,
conclusive and binding on all persons, including the Company, Participants, and
their estates and beneficiaries.
6. Delegation of Authority. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
delegate to the chief executive officer and to other senior officers of the
Company its duties under the Plan pursuant to such conditions or limitations as
the Committee may establish. Any such delegation may be revoked by the Committee
at any time.
7. Awards. The Committee shall set forth in the related Award Agreement
the terms, conditions, performance requirements, and limitations applicable to
each Award including, but not limited to, continuous service with the Company,
forfeiture of Awards and proceeds from Awards in the event the Participant
competes with the Company or violates any confidentiality or nonsolicitation
obligations owed to the Company, conditions under which acceleration of vesting
will occur, and achievement of specific business objectives. In all events, all
Awards will become fully vested and immediately exercisable if the Participant
is in the service of the Company upon the occurrence of a Change of Control.
8. Stock Option Exercise. The price at which shares of Common Stock
may be purchased under a Stock Option shall be paid in full at the time of the
exercise in cash or, if permitted by the Committee, by means of tendering shares
of Common Stock either directly or by
4
attestation, which have been held by the Participant for more than six months
and have not been used within the prior six-month period to exercise an option,
valued at Fair Market Value on the date of exercise, or any combination thereof.
9. Tax Withholding. The Company shall have the right to deduct
applicable taxes from any Award payment and withhold, at the time of delivery or
vesting of shares under the Plan, an appropriate number of shares for payment of
taxes (but only the minimum amount required by law) or to take such other action
as may be necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes. The Company may defer making delivery with respect to
Common Stock obtained pursuant to an Award hereunder until arrangements
satisfactory to it have been made with respect to any such withholding
obligation. If Common Stock is used to satisfy tax withholding, such stock shall
be valued based on the Fair Market Value when the tax withholding is required to
be made.
10. Amendment or Termination of the Plan. The Board may, at any time,
amend or terminate the Plan; provided, however, that
(a) subject to Section 13 hereof, no amendment or termination
may, in the absence of written consent to the change by the affected
Participant (or, if the Participant is not then living, the affected
beneficiary), adversely affect the rights of any Participant or
beneficiary under any Award granted under the Plan prior to the date
such amendment is adopted by the Board; and
(b) without further approval of the shareholders of the
Company, no amendment shall increase the number of shares of Common
Stock which may be issued pursuant to Awards hereunder, except for
increases resulting from Section 13 hereof.
11. Termination of Service. If the service-providing relationship of a
Participant terminates, or a non-employee director no longer serves on the
Board, other than pursuant to paragraphs (a) through (c) of this Section 11, all
Awards shall immediately terminate, unless the Award Agreement provides
otherwise. If the status of a Participant's relationship with the Company
changes, e.g., from a consultant to an employee or vice versa, it will not be a
termination of the service-providing relationship. Notwithstanding the
foregoing, if a Participant's service is terminated for Cause, to the extent the
Award is not effectively exercised or has not vested prior to such termination,
it shall lapse or be forfeited to the Company immediately upon termination. In
all events, an Award will not be exercisable after the end of its term as set
forth in the Award Agreement.
(a) Retirement. When a Participant's employment or service
terminates as a result of retirement, or early retirement with the
consent of the Committee, the Committee (in the form of an Award
Agreement or otherwise) may permit Awards to continue in effect beyond
the date of retirement, or early retirement, and the exercisability and
vesting of any Award may be accelerated.
5
(b) Resignation in the Best Interests of the Company. When a
Participant resigns from the Company or the Board and, in the judgment
of the chief executive officer or other senior officer designated by
the Committee, the acceleration and/or continuation of outstanding
Awards would be in the best interests of the Company, the Committee may
authorize, where appropriate taking into account any regulatory or
accounting implications of such action, the acceleration and/or
continuation of all or any part of Awards granted prior to such
termination.
(c) Death or Disability of a Participant.
(i) In the event of a Participant's death, the
Participant's estate or beneficiaries shall have a period
specified in the Award Agreement within which to receive or
exercise any outstanding Award held by the Participant under
such terms, and to the extent, as may be specified in the
applicable Award Agreement. Rights to any such outstanding
Awards shall pass by will or the laws of descent and
distribution in the following order: (a) to beneficiaries so
designated by the Participant; if none, then (b) to a legal
representative of the Participant; if none, then (c) to the
persons entitled thereto as determined by a court of competent
jurisdiction. Subject to subparagraph (iii) below, Awards so
passing shall be exercised or paid out at such times and in
such manner as if the Participant were living.
(ii) In the event a Participant is deemed by the
Company to be disabled within the meaning of the Company's
long-term disability plan, or, if the Company does not have
such a plan, Section 22(e)(3) of the Code, the Award shall be
exercisable for the period, and to the extent, specified in
the Award Agreement. Awards and rights to any such Awards may
be paid to or exercised by the Participant, if legally
competent, or a legally designated guardian or representative
if the Participant is legally incompetent by virtue of such
disability.
(iii) After the death or disability of a Participant,
the Committee may in its sole discretion at any time (1)
terminate restrictions in Award Agreements; and (2) accelerate
any or all installments and rights.
(iv) In the event of uncertainty as to interpretation
of or controversies concerning this paragraph (c) of Section
11, the Committee's determinations shall be binding and
conclusive.
(d) No Service Rights. The Plan shall not confer upon any
Participant any right with respect to continuation of employment by, or
service with, the Company or service on the Board, nor shall it
interfere in any way with the right of the Company to terminate any
Participant's employment or service with the Company or on the Board at
any time.
12. Nonassignability. Except as provided in subsection (c) of
Section 11 and this Section 12, no Award under the Plan shall be assignable or
transferable, or payable to or exercisable by
6
anyone other than the Participant to whom it was granted. Notwithstanding the
foregoing, the Committee (in the form of an Award Agreement or otherwise) may
permit Awards, other than incentive stock options within the meaning of Section
422 of the Code, to be transferred to members of the Participant's immediate
family, to trusts for the benefit of the Participant and/or such immediate
family members, and to partnerships or other entities in which the Participant
and/or such immediate family members own all the equity interests. For purposes
of the preceding sentence, "immediate family" shall mean a Participant's spouse,
issue and spouses of his issue.
13. Adjustments. In the event of any change in the outstanding Common
Stock of the Company by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, spin-off, or similar
event, the Committee shall equitably adjust (a) the number of shares of Common
Stock (i) reserved under the Plan, (ii) available for ISOs, (iii) for which
Awards may be granted to an individual Participant, and (iv) covered by
outstanding Awards denominated in stock, (b) the stock prices related to
outstanding Awards; and (c) the appropriate Fair Market Value and other price
determinations for such Awards. In the event of any other change affecting the
Common Stock or any distribution (other than normal cash dividends) to holders
of Common Stock, such adjustments as may be deemed equitable by the Committee,
including adjustments to avoid fractional shares, shall be made to give proper
effect to such event. In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation, the
Committee shall be authorized to issue or assume Stock Options, whether or not
in a transaction to which Section 424(a) of the Code applies, by means of
substitution of new Stock Options for previously issued Stock Options or an
assumption of previously issued Stock Options.
14. Notice. Any notice to the Company required by any of the
provisions of the Plan shall be addressed to the director of human resources or
to the chief executive officer of the Company in writing, and shall become
effective when it is received by the office of either of them.
15. Governing Law. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of Wisconsin
without giving effect to its conflicts of law provisions.
16. Effective and Termination Dates. The effective date of the Plan is
December 14, 2000. The Plan shall terminate on December 13, 2010, subject to
earlier termination by the Board pursuant to Section 10, after which no Awards
may be made under the Plan, but any such termination shall not affect Awards
then outstanding or the authority of the Committee to continue to administer the
Plan.
17. Other Benefit and Compensation Programs. Payments and other
benefits received by a Participant pursuant to an Award shall not be deemed a
part of such Participant's regular, recurring compensation for purposes of the
termination or severance plans of the Company and shall not be included in, nor
have any effect on, the determination of benefits under any other
7
employee benefit plan, contract or similar arrangement, unless the Committee
expressly determines otherwise.
8
EXHIBIT B
ARI NETWORK SERVICES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide eligible employees of
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Code. The provisions of the Plan, accordingly,
shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change of Control" shall mean the first to occur of the
following:
(i) the acquisition by an individual, entity or group, acting
individually or in concert (a "Person") of beneficial ownership of more
than 50% of the then outstanding shares of common stock of the Company
(the "Outstanding Common Stock"); provided, however, that for purposes
of this Subsection 2(e)(i), the following acquisitions shall not
constitute a Change in Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (D) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (A), (B) and (C) of Subsection 2(e)(ii) below; or
(ii) consummation of a reorganization, merger or
consolidation, share exchange, or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, immediately following such
Business Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners of the Outstanding Common
Stock immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Common Stock, (B) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, more than 50% of, respectively, the then outstanding
common stock of the corporation resulting from such Business
Combination or the combined voting power of
1
the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination, and (C) at least a majority of the members of the Board of
the corporation resulting from such Business Combination were members
of the Board of the Company at the time of the execution of the initial
agreement providing for such Business Combination; or
(iii) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the Compensation Committee of the Board
or such other persons or committee as the Board shall designate to administer
the Plan.
(e) "Common Stock" shall mean the $.001 par value common stock of
the Company.
(f) "Company" shall mean ARI Network Services, Inc., a Wisconsin
corporation.
(g) "Designated Subsidiary" shall mean a corporation of which not
less than 50% of the voting power is held by the Company, directly or
indirectly, whether such corporation now exists or is hereafter organized or
acquired by the Company, directly or indirectly, other than an otherwise
eligible corporation which has been designated by the Board or Committee from
time to time as not eligible to participate in the Plan.
(h) "Employee" shall mean any regular full time or part-time
employee of the Company or a Designated Subsidiary customarily employed to work
at least (a) 20 hours per week or (b) five months in any calendar year.
(i) "Employer Corporation" shall mean the corporation which
employs the Employee.
(j) "Enrollment Date" shall mean the first day of each Offering
Period.
(k) "Enrollment Period" shall mean the period specified by the
Committee during which eligible Employees may elect to participate in the Plan
for the upcoming Offering Period.
(l) "Exercise Date" shall mean the last day of each Offering
Period.
(m) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on the Nasdaq National
Market (the "Nasdaq"), its Fair Market Value shall be the closing sales
price for such stock as quoted on the Nasdaq for the date of such
determination (or if no sale of Common Stock of the Company is made on
the Nasdaq on any such date, then the closing price of the Common Stock
of the Company on the next preceding day on which a sale was made on
said Nasdaq), as reported in the Midwest Edition of The Wall Street
Journal or such other source as the Board deems reliable; or
(2) If the Common Stock is not so listed, the Fair Market
Value thereof shall be determined in good faith by the Committee.
(n) "Offering Period" shall mean a period of approximately
twelve (12) months at the end of which an option granted pursuant to the Plan
may be exercised, commencing on January 1
2
and ending on December 31. The duration of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(o) "Parent Corporation" shall have the same meaning as contained
in Section 424(e) of the Code.
(p) "Plan" shall mean this ARI Network Services, Inc. 2000
Employee Stock Purchase Plan.
(q) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(r) "Subsidiary Corporation" shall have the same meaning as
contained in Section 424(f) of the Code.
3. Eligibility.
(a) Any person who is an Employee, other than executive officers,
will be eligible to participate in the Plan provided he or she has a minimum
period of continuous service with the Company of six (6) months as of the first
day of an Offering Period.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase such stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Employer Corporation or of its Parent Corporation
or Subsidiary Corporation or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Employer
Corporation and its Parent Corporation(s) and Subsidiary Corporation(s) accrues
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
These limitations are in addition to any other limitations set forth herein,
including any limits that the Committee establishes in accordance with Section
6(a).
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first business day
on or after January 1 each year, or on such other date as the Committee shall
determine. The Committee shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) without shareholder approval.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
approved by the Committee and filing it with the Company's payroll department
during the applicable Enrollment Period. A participant must file a new
subscription agreement for each Offering Period.
(b) Payroll deductions for a participant shall begin on the first
payroll date following the Enrollment Date and shall end on the last payroll
date in the Offering Period to which such authorization is applicable, unless
sooner discontinued or terminated by the participant as provided in Section 6(c)
or Section 10 hereof.
3
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount set forth in the subscription agreement,
stated in terms of whole dollars not less than $5 for each pay period or in
whole number percentages, up to a maximum of 10% of the compensation to be
received during the Offering Period (or during such portion thereof in which an
Employee may elect to participate). Notwithstanding the foregoing, the Committee
annually may determine, in its sole discretion, to establish any maximum dollar
amount or percentage of compensation that an eligible Employee is entitled to
authorize for payroll deductions during a calendar year, which limitations shall
apply to all eligible Employees. Any such limit established by the Committee
shall fall within the parameters of Section 423 of the Code.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional payments into such account.
(c) A participant may withdraw from the Plan as provided in
Section 10 hereof. Alternatively, a participant may elect to discontinue making
additional payroll deductions during the Offering Period by completing and
filing with the Company's payroll department a written notice in such form
approved by the Committee. The election shall be effective no later than the
first payroll date following ten (10) business days after the Company's receipt
of the notice. If a participant elects to discontinue making additional payroll
deductions, all payroll deductions previously credited to his or her account
will purchase Common Stock at the end of the Offering Period subject to the
other terms of the Plan. A participant may increase or decrease his or her
payroll deduction rate by filing a new subscription agreement at least ten (10)
business days before the beginning of the pay period during which such increase
or decrease is to take effect. A participant's payroll deduction rate may be
increased only once and reduced only once during any Offering Period.
(d) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock and the
Company is authorized to take any action reasonably necessary to enforce the
withholding requirements including without limitation withholding the
appropriate amount from the proceeds of any stock sale by the participant. At
any time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date of such Offering Period (at
the applicable Purchase Price) a number of shares of the Company's Common Stock
determined by dividing such Employee's payroll deductions accumulated on or
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price, but in no event more than 5,000
shares (subject to adjustment as provided in Section 18 hereof), provided that
such purchase shall be subject to
4
the limitations set forth in Sections 3(b), 6(a) and 13 hereof. Exercise of the
option shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The Option shall expire immediately
following the Exercise Date.
8. Exercise of Option. Unless a participant withdraws from the
Plan as provided in Section 10 hereof, his or her option for the purchase of
shares shall be exercised automatically on the Exercise Date, and the maximum
number of whole shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account, but in no event more than 5,000 shares (subject to adjustment as
provided in Section 18 hereof). A participant in the Plan will be issued a stock
certificate as of the Exercise Date, and the balance of any payroll deductions
credited to a participant's account during the Offering Period shall be
delivered to the participant. During a participant's lifetime, a participant's
option to purchase shares hereunder is exercisable only by him or her.
9. Registration of Certificates. Certificates will be registered
only in the name of the participant. If a participant submits a written request
to the Committee, the Committee may cause the certificates to be issued in the
participant's name jointly with a member of his or her family with right of
survivorship.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in such form approved by the Committee. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
after receipt of notice of withdrawal as soon as administratively practicable
and such participant's option for the Offering Period shall be automatically
terminated. Payroll deductions for the purchase of shares during the Offering
Period shall cease as soon as administratively practicable. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
5
11. Termination of Employment. Upon a participant's ceasing to be
an Employee of the Company for any reason (including without limitation upon
death, disability or retirement), he or she shall be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant's
account during the Offering Period but not yet used to exercise the option shall
be returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 15 hereof, and such
participant's option shall be automatically terminated.
12. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 18 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 175,000 shares. If, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of shares then
available under the Plan, the Committee shall make a pro rata allocation of the
shares remaining available for purchase among the participants in such manner as
it may determine in its sole discretion.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
14. Administration. The Plan shall be administered by the
Committee. The Committee shall have full and exclusive discretionary authority
to construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may designate, on the subscription agreement
filed with the Committee, a beneficiary who is to receive any shares and cash,
if any, from the participant's account under the Plan in the event of such
participant's death subsequent to an Exercise Date but prior to delivery of such
shares and cash to the participant. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the estate of the participant.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the
6
Company may treat such act as an election to withdraw funds from an Offering
Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Adjustments Upon Changes in Capitalization, Merger or Asset
Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the shares reserved for issuance under the
Plan, as well as the price per share and the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised 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 shares of Common Stock effected without
receipt of consideration by the Company. Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive.
(b) Change of Control. In the event of a Change of Control, the
Offering Period then in progress shall be shortened by the Committee's setting a
new Exercise Date (the "New Exercise Date"). The New Exercise Date shall be
before the date of the Change of Control. The participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof. Immediately following such New Exercise Date, the Plan shall terminate.
19. Amendment or Termination.
(a) The Board may at any time, or from time to time, amend this
Plan in any respect; provided, however, that no amendment shall be made without
the approval of the shareholders of the Company to increase the aggregate number
of shares which may be issued under this Plan (other than as provided in
Paragraph 13(a) or 18(a) hereof) or for which shareholder approval is required
under applicable tax, securities or other laws.
(b) This Plan and all rights of Employees under any offering
hereunder may terminate at any time, at the discretion of the Board or
Committee. Upon any termination of this Plan, all amounts in the accounts of
participating Employees shall be either (i) promptly refunded in total or (ii)
refunded to the extent not used to purchase Common Stock, in the sole discretion
of the Board or Committee. Such amendments shall be made without the approval of
the shareholders of the Company or the consent of any participating Employees.
20. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
7
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
22. Term of Plan. The Plan shall become effective upon its
adoption by the Board, but shall be subject to its approval by the shareholders
of the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 19 hereof.
23. Indemnification of Committee. In addition to such other rights
of indemnification as they may have as directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding, that such
Committee member is liable for gross negligence or willful misconduct in the
performance of his duties; provided that within 60 days after the institution of
any such action, suit or proceeding, a Committee member shall in writing offer
the Company the opportunity, at its own expense, to handle and defend the same.
8
ARI NETWORK SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a shareholder of ARI Network Services, Inc. (the
"Company"), hereby appoints Brian E. Dearing and Timothy Sherlock, and each of
them, as proxies, each with the power to appoint a substitute, and hereby
authorizes each of them to represent and to vote, as designated below, all of
the shares of stock of the Company held of record by the undersigned on October
25, 2002, at the 2002 Annual Meeting of Shareholders of the Company to be held
on December 12, 2002 at 9:00 a.m. and at any and all adjournments thereof.
1. ELECTION OF DIRECTORS:
[ ] FOR the nominee below to serve [ ] WITHHOLD AUTHORITY to vote
until the Company's 2005 Annual for the nominee listed
Meeting and until his successor below.
is elected and qualified (except as
marked to the contrary below).
BRIAN E. DEARING
2. To approve amendments to the Company's 2000 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an amendment to the Company's 2000 Employee Stock
Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the selection of Ernst & Young LLP as the Company's
Independent Public Accountants for fiscal 2003.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxy holders are authorized to vote
upon such other matters as may properly come before the 2002
Annual Meeting and at any adjournment or postponement thereof.
(Continued and to be signed on the reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" THE ELECTION OF THE NOMINEE FOR DIRECTOR AND "FOR" THE OTHER
PROPOSALS.
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Date: , 2002
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(Signature of Shareholder)
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(Signature of Shareholder - if held jointly)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENVELOPE PROVIDED.
2