SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.
)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF F5 NETWORKS, INC.:
The Annual Meeting of shareholders of F5 Networks, Inc. (the Company) for fiscal year end 2003 will be held on April 29, 2004 at 10:00 am Pacific Standard Time at F5 Networks, Inc., 401 Elliott Avenue West, Seattle, Washington 98119 for the following purposes, as more fully described in the accompanying Proxy Statement:
1. To elect two Class II directors to hold office until the Annual Meeting of Shareholders for fiscal year end 2006 and until their successors are elected and qualified; | |
2. To elect one Class III director to hold office until the Annual Meeting of Shareholders for fiscal year end 2004 and until his successor is elected and qualified; | |
3. To consider and vote upon a proposal to amend the F5 Networks, Inc. Amended and Restated 1998 Equity Incentive Plan to increase the number of shares of common stock issuable under the Plan by an additional 2,000,000 shares; | |
4. To consider and vote upon a proposal to amend the F5 Networks, Inc. 1999 Employee Stock Purchase Plan to increase the number of shares of common stock issuable under the Plan by an additional 1,000,000 shares; and | |
5. To transact such other business as may properly come before the meeting or any adjournments thereof. |
Only shareholders of record at the close of business on February 20, 2004 are entitled to notice of, and to vote at, the Annual Meeting.
By Order of the Board of Directors, | |
JOANN REITER | |
Secretary |
Seattle, Washington
YOUR VOTE IS IMPORTANT!
Whether or not you attend the annual meeting, it is important that your shares be represented and voted at the meeting. Therefore, I urge you to promptly vote and submit your proxy by phone, over the Internet, or by signing, dating, and returning the accompanying proxy card in the enclosed, prepaid, return envelope. If you decide to attend the annual meeting, you will be able to vote in person, even if you have previously submitted your proxy.
The F5 Networks, Inc. annual report is available online at www.f5.com
VOTE BY INTERNET
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VOTE BY TELEPHONE | |
http://www.proxyvote.com
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1-800-690-6903 via touch tone | |
24 hours a day/7 days a week
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24 hours a day/7 days a week | |
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern time on April 28, 2004. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. | Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern time on April 28, 2004. Have your proxy card in hand when you call and then follow the instructions. |
Your cooperation is appreciated, since a majority of the shares of common stock must be represented, either in person or by proxy, to constitute a quorum for the conduct of business.
F5 NETWORKS, INC.
PROXY STATEMENT
F5 Networks, Inc. (the Company) is furnishing this Proxy Statement and the enclosed proxy in connection with the solicitation of proxies by the Board of Directors of the Company for use at the Annual Meeting of Shareholders to be held on April 29, 2004, at 10:00 am, Pacific Standard Time at F5 Networks, Inc., 401 Elliott Avenue West, Seattle, Washington 98119, and at any adjournments thereof (the Annual Meeting). These materials are being mailed to shareholders on or about March 18, 2004.
Only holders of the Companys common stock, no par value (the Common Stock), as of the close of business on February 20, 2004 (the Record Date) are entitled to vote at the meeting. As of the Record Date, there were 34,083,288 shares of Common Stock outstanding.
A majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting must be present in person or by proxy in order for there to be a quorum at the meeting. Shareholders of record who are present at the meeting in person or by proxy and who abstain from voting, including brokers holding customers shares of record who cause abstentions to be recorded at the meeting, will be included in the number of shareholders present at the meeting for purposes of determining whether a quorum is present.
Each shareholder of record is entitled to one vote at the Annual Meeting for each share of Common Stock they hold on the Record Date. Shareholders may vote their shares by using the enclosed proxy card, over the Internet or by phone. If a proxy is received that does not specify a vote or an abstention, the shares represented by that proxy will be voted FOR the nominees to the Board of Directors listed in this Proxy Statement, FOR approval of the increase in authorized shares under the Companys Amended and Restated 1998 Equity Incentive Plan and FOR approval of the increase in authorized shares under the Companys 1999 Employee Stock Purchase Plan. The Company is not aware, as of the date hereof, of any matters to be voted upon at the Annual Meeting other than those stated in this Proxy Statement and the accompanying Notice of Annual Meeting of Shareholders. If any other matters are properly brought before the Annual Meeting, the enclosed proxy card and proxies submitted by telephone or over the Internet give discretionary authority to the person named as proxy to vote the shares represented by the proxy in her discretion.
Under Washington law and the Companys Second Amended and Restated Articles of Incorporation and Bylaws, if a quorum exists at the meeting, the nominees for director who receive the greatest number of votes cast will be elected to the Board of Directors. Under the terms of the Companys 1998 Equity Incentive Plan, the Companys 1999 Employee Stock Purchase Plan and the rules of the Nasdaq Stock Market, if a quorum exists at the meeting, the affirmative vote of a majority of the shares voting on each respective proposal will be required to approve the amendment to the Companys Amended and Restated 1998 Equity Incentive Plan and the Companys 1999 Employee Stock Purchase Plan. Abstentions and broker non-votes will have no impact on the election of members of the Board of Directors since they have not been cast in favor of or against any nominee, nor will they have any impact on the approval of the amendments to the Companys 1998 Equity Incentive Plan and 1999 Employee Stock Purchase Plan.
A shareholder may revoke a proxy at any time before it is voted at the Annual Meeting by (a) delivering a proxy revocation or another proxy bearing a later date to the Corporate Secretary of the Company at 401 Elliott Avenue West, Seattle, Washington 98119 before or at the Annual Meeting or (b) attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not revoke a proxy unless the shareholder actually votes in person at the meeting.
The Board of Directors of the Company is soliciting the proxies accompanying this Proxy Statement. The Company will pay all of the costs of this proxy solicitation. In addition to mail solicitation, officers, directors,
1
BOARD OF DIRECTORS
The Board of Directors of the Company currently consists of seven directors divided into three classes, with two vacancies in class III. Currently, the Class I directors are Karl D. Guelich and Keith D. Grinstein; the Class II directors are Alan J. Higginson and John McAdam; and the Class III director is Rich Malone. Mr. Malone was appointed to fill a vacancy on the Board by the Directors in August 2003. At the annual meeting of shareholders for fiscal 2003 (referred to as the Annual Meeting), the shareholders will vote on the election of two Class II directors to serve for three-year terms until the annual meeting of shareholders for fiscal year end 2006 and until their successors are elected and qualified. Since Mr. Malone was appointed by the existing directors to fill a vacancy and not elected by shareholders, his term will expire at the Annual Meeting, even though he is a Class III director and the term for the Class III directors does not expire this year. Accordingly, at the Annual Meeting, the shareholders will vote on the election of one Class III director to serve for a one-year term until the annual meeting of shareholders for fiscal year end 2004 and until his successor is elected and qualified. At present, the Class I directors will hold office until the Companys annual meeting for fiscal year end 2005 and the Class III directors will hold office until the Companys annual meeting for fiscal year end 2004. All directors will hold office until the annual meeting of shareholders at which their terms expire and the election and qualification of their successors.
Nominees and Continuing Directors
The following individuals have been nominated for election to the Board of Directors or will continue to serve on the Board of Directors after the Annual Meeting:
John McAdam , age 53, has served as our President, Chief Executive Officer and a director since July 2000. Prior to joining us, Mr. McAdam served as General Manager of the Web server sales business at International Business Machines Corporation from September 1999 to July 2000. From January 1995 until August 1999, Mr. McAdam served as the President and Chief Operating Officer of Sequent Computer Systems, Inc., a manufacturer of high-end open systems, which was sold to International Business Machines Corporation in September 1999. Mr. McAdam holds a B.S. in Computer Science from the University of Glasgow, Scotland.
Karl D. Guelich , age 61, has served as Chairman of the Board of Directors since January 2003 and as one of our directors since June 1999. Mr. Guelich has been in private practice as a certified public accountant since his retirement from Ernst & Young LLP in 1993, where he served as the Area Managing Partner for the Pacific Northwest offices headquartered in Seattle from October 1986 to November 1992. Mr. Guelich holds a B.S. in Accounting from Arizona State University.
Alan J. Higginson , age 56, has served as one of our directors since May 1996. Mr. Higginson has been the President and Chief Executive Officer of Hubspan, Inc., an e-business infrastructure provider, since August 2001. From November 1995 to November 1998, Mr. Higginson served as President of Atrieva Corporation, a provider of advanced data backup and retrieval technology. Mr. Higginson holds a B.S. in Commerce and an M.B.A. from the University of Santa Clara.
Keith D. Grinstein , age 43, has served as one of our directors since December 1999. He also serves as board chair for Coinstar, Inc., a coin counting machine company, and as lead outside director for Nextera, Inc. an economics-consulting firm. Mr. Grinstein is a partner of Second Avenue Partners, LLC, a venture capital fund. Mr. Grinsteins past experience includes serving as President, Chief Executive Officer and Vice Chair of Nextel International Inc., and as President and Chief Executive Officer of the Aviation Communications
2
Rich Malone , age 55, was appointed as one of our directors in August 2003. Mr. Malone has been the Chief Information Officer of Edward Jones Investments Inc. since 1979, when he joined Edward Jones Investments as a General Principal. In 1985, he became a member of the management committee of Edward Jones Investments. Mr. Malone is currently a member of the BITS Advisory Group, the Xerox Executive Advisory Forum and serves on the Technology Advisory Committee at Arizona State University.
There are no family relationships among any of the Companys directors or executive officers.
Committees of the Board
The Board has standing Audit, Compensation and Nominating and Governance Committees.
The Board of Directors has adopted a charter governing the duties and responsibilities of the Audit Committee. As described more fully in the charter, the functions of the Audit Committee are to select, evaluate and, if necessary, replace the Companys independent auditors to the Board of Directors, to review and approve the planned scope, proposed fee arrangements and results of the annual audit, approve any proposed non-audit services to be provided by the independent auditors, review the adequacy of accounting and financial controls, review the independence of the auditors, and oversee the Companys financial reporting process on behalf of the Board of Directors. The members of the Audit Committee during fiscal 2003 were Messrs. Guelich, Higginson and Grinstein. From October 2003 to January 2004, the Audit Committee members were Glenn Edens, and Messrs. Guelich and Grinstein. Since January 2004, the composition of the Audit Committee has been Messrs. Guelich, Higginson and Grinstein. The Board of Directors has determined that Mr. Guelich is an audit committee financial expert as defined in Item 401(h) of Regulation S-K. Each current member of the Audit Committee is, and each member of the Audit Committee during fiscal year end 2003 was, independent as defined by the Nasdaq listing standards (as independence is currently defined in Rules 4200(a)(15) and 4350(d) of the Nasdaq listing standards).
The Compensation Committees function is to review and recommend the compensation for the executive officers and directors, including salaries, bonus levels and stock option grants. The members of the Compensation Committee during fiscal 2003 were Messrs. Guelich, Higginson and Grinstein. Since October 2003, the Compensation Committee has been composed of Messrs. Guelich, Higginson, and Malone. Each member of the Compensation Committee is independent as defined by the Nasdaq listing standards. Each current member of the Compensation Committee is, and each member of the Compensation Committee during fiscal 2003 was, independent as defined by the Nasdaq listing standards.
The Nominating and Governance Committees function is to identify new board members, recommend board nominees, evaluate the boards performance, and provide oversight of corporate governance and ethical conduct. During fiscal 2003, the Board had a Governance Committee, but did not have a standing Nominating Committee. The members of the Governance Committee during fiscal 2003 were Messrs. Grinstein, Higginson and Guelich. Beginning in October 2003, the Nominating and Governance Committee members were Messrs. Grinstein, Higginson, and Malone. Since January 2004, the Nominating and Governance Committee has been composed of Messrs. Grinstein, Guelich and Malone. Each current member of the Nominating and Governance Committee is, and each member of the Governance Committee during fiscal year end 2003 was, independent as defined by the Nasdaq listing standards.
Meetings of the Board and Committees
The Companys Board of Directors met or acted by unanimous written consent 21 times during fiscal 2003. The Audit Committee met 15 times and the Compensation Committee met or acted by unanimous written consent 3 times during fiscal 2003. The outside directors met 4 times during fiscal 2003, with no members of management present. Each member of the Board attended 75% or more of the Board meetings, and each member of the Board who served on the Audit, Compensation, or Governance Committees attended
3
Director Nomination
Criteria for Nomination to the Board. The Nominating and Corporate Governance Committee (the Nominating Committee) considers the appropriate balance of experience, skills and characteristics required of the Board of Directors, and seeks to insure that at least a majority of the directors are independent under the rules of the Nasdaq Stock Market, and that members of the Companys audit committee meet the financial literacy requirements under the rules of the Nasdaq Stock Market and at least one of them qualifies as an audit committee financial expert under the rules of the Securities and Exchange Commission. Nominees for director are selected on the basis of their depth and breadth of experience, integrity, the ability to work effectively as part of a team, understanding of the Companys business environment, and willingness to devote adequate time to Board duties.
Stockholders Proposals for Nominees. The Nominating Committee will consider written proposals from stockholders for nominees for director. Any such nominations should be submitted to the Nominating Committee c/o the Secretary of the Company and should include the following information: (a) all information relating to such nominee that is required to be disclosed pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) the name(s) and address(es) of the stockholder(s) making the nomination and the number of shares of the Common Stock which are owned beneficially and of record by such stockholder(s); and (c) appropriate biographical information and a statement as to the qualification of the nominee, and should be submitted in the time frame described in the Bylaws of the Company and under the caption, Shareholder Proposals for the Annual Meeting for Fiscal Year end 2004 below.
Process for Identifying and Evaluating Nominees. The process for identifying and evaluating nominees to fill vacancies on the Board is initiated by conducting an assessment of critical Company and Board needs, based on the present and future strategic objectives of the Company and the specific skills required for the Board as a whole and for each Board Committee. A third-party search firm may be used by the Nominating Committee to identify qualified candidates. These candidates are evaluated by the Nominating Committee by reviewing the candidates biographical information and qualification and checking the candidates references. Serious candidates meet with all members of the Board, and as many of the Companys executive officers as practical. Using the input from such interviews and the information obtained by the Nominating Committee, the full Board determines whether to appoint a candidate to the Board.
The Nominating Committee will evaluate the skills and experience of existing Board members against the critical needs matrix in making recommendations for nomination by the full Board of candidates for election by the shareholders. The Nominating Committee charter is available on the Companys website, www.f5.com. Each current member of the Nominating Committee is independent.
The Nominating Committee expects that a similar process will be used to evaluate nominees recommended by stockholders. However, to date, the Company has not received any stockholders proposal to nominate a director.
Compensation of Directors
Directors of the Company are paid $35,000 annually for their services as members of the Board of Directors. Members of the Audit Committee, Compensation Committee and Nominating and Governance Committee are paid an additional $8,000, $2,000 and $1,000, respectively, annually. The Chairman receives an additional $12,000 paid annually. All Directors are reimbursed for certain expenses in connection with attending board and committee meetings.
Beginning in fiscal year end 2001, all non-employee directors who also serve on a Board committee receive options to purchase 15,000 shares of Common Stock on the day of the Companys annual meeting.
4
Communications with Directors
Shareholders who wish to communicate with our Directors to report complaints or concerns related to accounting, internal accounting controls or auditing may do so by contacting our Corporate Secretary at the Companys main offices. These communications will be forwarded to the Board or individual Board members as appropriate. The Company does not have a policy with regard to Directors attendance at annual meetings. All the Directors attended the Companys fiscal year end 2002 Annual Meeting.
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information
regarding the beneficial ownership of shares of Common Stock as
of February 20, 2004 by (a) each person known to the
Company to own beneficially more than 5% of outstanding shares
of Common Stock on February 20, 2004, (b) each
director and nominee for director of the Company, (c) the
Named Executive Officers and (d) all directors and
executive officers as a group. The information in this table is
based solely on statements in filings with the SEC or other
reliable information.
6
Certain Relationships and Related Party
Transactions
The Company has entered into indemnification
agreements with the Companys directors and certain
officers for the indemnification of and advancement of expenses
to these persons to the fullest extent permitted by law. The
Company also intends to enter into these agreements with the
Companys future directors and certain future officers.
In October 2000, the Company extended a loan to
an executive officer and his wife, in the principal amount of
$350,000, in order to facilitate the purchase of a residence in
the Seattle area. On March 15, 2002, payments due under the
note were extended for a period of one year, as allowed per the
terms of the note. This loan was evidenced by a promissory note,
the principal of which was payable in three equal installments,
together with accrued interest, on March 31, 2002,
March 31, 2003, and March 31, 2004, or immediately
upon the sale of the residence or termination of the
officers employment. Interest accrued on the loan at the
rate of 6% per annum. The balance of the loan totaled $240,354
at September 30, 2003. The residence was sold in October
2003 and the loan was repaid in full on October 20, 2003.
The Company believes that the foregoing
agreements are in the Companys best interest and were made
on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future
transactions between the Company and any of the Companys
officers, directors or principal shareholders will be approved
in advance by our Audit Committee.
7
Equity Compensation Plan Information
The following table provides information as of
September 30, 2003 with respect to the shares of Common
Stock that may be issued under the Companys existing
equity compensation plans.
Description of Plans not Approved by Security
Holders
2000 Employee Equity Incentive
Plan.
In July 2000, the Board of
Directors adopted the 2000 Employee Equity Incentive Plan, or
the 2000 Plan, which provides for discretionary grants of
non-qualified stock options, stock purchase awards and stock
bonuses for employees and other service providers. A total of
3,500,000 shares of Common Stock have been reserved for issuance
under the 2000 Plan. As of September 30, 2003 there were
options to purchase 2,514,142 shares outstanding and 484,616
shares available for awards under the 2000 plan.
All options under the 2000 Plan expire
10 years from the grant date and each option will have an
exercise price of not less than the fair market value of the
Companys stock on the date the option is granted. The
options granted under the 2000 Plan may be exercisable
immediately or may vest and become exercisable in periodic
installments. In the event of the termination of an
optionees employment with the Company, vesting of options
will stop and the optionee may exercise vested options for a
specified period of time after the termination. Upon certain
changes in control of the Company, 50% of all outstanding and
unvested options or stock awards under the 2000 Plan will vest
and become immediately exercisable, unless assumed or
substituted by the acquiring entity.
uRoam Plan.
In July
2003, the Board of Directors adopted the uRoam Acquisition
Equity Incentive Plan, or uRoam Plan, in connection with the
hiring of the former employees of uRoam, Inc. The plan provides
for discretionary grants of non-qualified and incentive stock
options, stock purchase awards and stock bonuses. The Board of
Directors approved 250,000 shares of Common Stock to be reserved
for issuance under the uRoam Plan. As of September 30, 2003
there were options to purchase 240,000 shares outstanding and no
shares were available for awards under the uRoam Plan.
8
All options under the uRoam Plan expire
10 years from the grant date. Incentive stock options will
have an exercise price of not less than the fair market value of
the Companys stock on the date the option is granted and
non-qualified stock options will have an exercise price of not
less than 85% of the fair market value of the Companys
stock on the date the option is granted. Under certain
circumstances and subject to certain limitations, options
granted under the uRoam Plan may also provide for an automatic
additional option grant to an optionee upon exercise. The
options granted under the uRoam Plan may be exercisable
immediately or may vest and become exercisable in periodic
installments. In the event of the termination of an
optionees employment with the Company, vesting of options
will stop and the optionee may exercise vested options for a
specified period of time after the termination. Upon certain
changes in control of the Company, 50% of all outstanding and
unvested options or stock awards under the uRoam Plan will vest
and become immediately exercisable, unless assumed or
substituted by the acquiring entity.
New Hire Grants.
In
October 2000, the Board of Directors adopted a non-qualified
stock option plan, or the Pancottine Plan, in connection with
the hiring of Jeff Pancottine, the Companys Senior Vice
President of Marketing and Business Development. The Pancottine
Plan provides for a grant of 200,000 non-qualified stock options
for Mr. Pancottine. As of September 30, 2003, no
remaining shares are available for grant under this plan. In May
2001, the Board of Directors adopted a non-qualified stock
option plan, or the Coburn Plan, in connection with the hiring
of Steve Coburn, the Companys Vice President of Finance
and Chief Financial Officer. The Coburn Plan provides for a
grant of 200,000 non-qualified stock options for
Mr. Coburn. As of September 30, 2003, no remaining
shares are available for grant under this plan.
All options under these plans expire
10 years from the grant date and each plan specifies the
exercise price of options granted under the plan. The options
granted under the plans vest and become exercisable in periodic
installments over a period of up to 4 years from the grant
date. In the event of the termination of an optionees
employment with the Company, vesting of options will stop and
the optionee may exercise vested options for a specified period
of time after the termination. Upon certain changes in control
of the Company, 100% of all outstanding and unvested options
under the Coburn Plan, and 50% or all outstanding and unvested
options under the Pancottine Plan, will vest and become
immediately exercisable.
Section 16(a) Beneficial Ownership
Reporting Compliance
Under SEC rules, the Companys directors,
executive officers and beneficial owners of more than 10% of any
class of equity security are required to file periodic reports
of their ownership, and changes in that ownership, with the SEC.
Based solely on its review of copies of these reports and
representations of such reporting persons, the Company believes
during fiscal 2003, such SEC filing requirements were satisfied
with the following exceptions: John McAdam, Steve Coburn, Jeff
Pancottine, Julian Eames, Joann Reiter, Steve Goldman, Karl
Guelich, Keith Grinstein and Alan Higginson each filed one late
Form 4 disclosing option grants. In addition, Steve Goldman
and Alan Higginson filed one late Form 4 disclosing sales
transactions.
9
Number of
Shares of
Common Stock
Percent of
Beneficially
Common Stock
Name and Address(1)
Owned(2)
Outstanding(2)
1,865,700
5.5
%
2,152,394
6.3
%
1,851,210
5.4
%
1,860
*
615,610
1.8
%
133,957
*
187,787
*
234,649
*
110,900
*
27,500
*
116,500
*
48,500
*
15,000
*
1,577,673
4.4
%
*
less than 1%.
(1)
Unless otherwise indicated, the address of each
of the named individuals is c/o F5 Networks, Inc.,
401 Elliott Avenue West, Seattle, Washington 98119.
(2)
Beneficial ownership of shares is determined in
accordance with the rules of the SEC and generally includes any
shares over which a person exercises sole or shared voting or
investment power, or of which a person has the right to acquire
ownership within 60 days after February 20, 2004.
Except as otherwise noted, each person or entity has sole voting
and investment power with respect to the shares shown.
(3)
The holding shown is as reported by Franklin
Resources, Inc. in a Schedule 13G filed on
February 13, 2004. Franklin Resources, Inc. has reported
that Franklin Advisors, Inc. has sole voting and dispositive
power over 1,476,800 shares and Fiduciary Trust Company
International has sole voting and dispositive power of
388,900 shares. Franklin Advisors, Inc. and Fiduciary Trust
Company International are direct or indirect investment advisory
subsidiaries of Franklin Resources, Inc.
(4)
Does not include 350,000 shares held by Brian
Dixon as trustee of the Hussey Family Trust fbo
Mr. Husseys minor child. Mr. Hussey disclaims
any beneficial ownership of the shares held by the trust.
Includes 35,000 shares issuable upon exercise of options
exercisable within 60 days of February 20, 2004.
Mr. Hussey resigned from the Companys Board of
Directors on January 16, 2004.
(5)
The holding shown is as reported by Massachusetts
Financial Services Company in a Schedule 13G filed on
February 13, 2004. Massachusetts Financial Services Company
has reported sole voting power over 1,806,550 shares and
sole dispositive power over 1,851,210 shares.
(6)
Mr. Goldman resigned from the Company in
August 2003.
(7)
Includes 559,999 shares issuable upon exercise of
options exercisable within 60 days of February 20,
2004.
(8)
Includes 133,957 shares issuable upon exercise of
options exercisable within 60 days of February 20,
2004.
(9)
Includes 187,124 shares issuable upon exercise of
options exercisable within 60 days of February 20,
2004.
(10)
Includes 233,140 shares issuable upon exercise of
options exercisable within 60 days of February 20,
2004.
(11)
Includes 101,041 shares issuable upon exercise of
options exercisable within 60 days of February 20,
2004.
(12)
Includes 27,500 shares issuable upon exercise of
options exercisable within 60 days of February 20,
2004.
(13)
Includes 116,500 shares issuable upon exercise of
options exercisable within 60 days of February 20,
2004.
(14)
Includes 42,500 shares issuable upon exercise of
options exercisable within 60 days of February 20,
2004.
(15)
Includes 15,000 shares issuable upon exercise of
options exercisable within 60 days of February 20,
2004.
(16)
Includes 1,500,760 shares issuable upon exercise
of options exercisable within 60 days of February 20,
2004.
Column A
Column B
Column C
Number of securities
remaining available for
future issuance under equity
Number of securities
compensation plans (total
to be issued upon
Weighted-average
securities authorized but
exercise of
exercise price of
unissued under the plans,
Plan Category
outstanding options
outstanding options
less Column A)
4,665,019
(2)
$
17.25
(2)
684,117
(2)
3,154,142
$
18.85
484,616
(4)
7,819,191
$
17.92
1,168,733
(1)
Consists of the Amended and Restated 1996 Stock
Option Plan, 1998 Equity Incentive Plan, Non-Employee Director
Stock Option Plan and the 1999 Employee Stock Purchase Plan.
(2)
Does not include a weighted average purchase
price for 1999 Employee Stock Purchase Plan. The number of
shares and the purchase price for shares available for purchase
under the 1999 Employee Stock Purchase Plan in the purchase
period in progress on September 30, 2003 could not be
determined as of September 30, 2003.
(3)
Consists of the 2000 Employee Equity Incentive
Plan, uRoam Acquisition Equity Incentive Plan and executive new
hire grants.
(4)
Does not include 10,000 options from the uRoam
Acquisition Equity Incentive Plan as they are not eligible for
future issuance.
EXECUTIVE COMPENSATION
The following tables and descriptive materials
set forth information concerning compensation earned for
services rendered to the Company by (a) the Chief Executive
Officer of the Company, the CEO, and (b) the Companys
four other most highly compensated executive officers who were
serving as executive officers of the Company at the end of
fiscal year 2003, and (c) one executive officer of the
Company who resigned during fiscal year 2003. We refer to these
executive officers and former executive officer collectively,
together with the CEO, as the Named Executive Officers.
10
Options Grants in Last Fiscal Year
The following table sets forth information
concerning the awards of options to purchase shares of Common
Stock made to the Named Executive Officers during fiscal year
2003:
Aggregate Exercise of Stock Options in Fiscal
Year 2003 and Fiscal Year-End Option Values
The following table sets forth information
concerning the exercise of stock options during fiscal year 2003
by each of the Named Executive Officers and the number and value
of unexercised options held by those officers at the end of
fiscal year 2003:
11
Employment Contracts, Termination of
Employment and Change in Control Arrangements
Each of the Named Executive Officers was party to
an individual compensation plan, which set forth the base salary
and bonus amounts for fiscal year 2003. The bonus amounts were
set as a percentage of base salary for meeting certain
individual and company-wide performance metrics with additional
amounts available for over-achievement of performance goals.
We list below a chart showing these
executives base salaries and bonus percentages for fiscal
year 2003.
Option Grant Change in Control
Provisions
Under the terms of our stock incentive plans,
stock option awards are generally subject to special provisions
upon the occurrence of a defined change in control
transaction. Under the plans, all or a certain portion of
outstanding unvested stock options held by all participants
under the plans, including our executive officers, will become
fully vested upon a change in control of the Company.
Messrs. McAdam, Coburn, Pancottine and Eames
and Ms. Reiter have unvested stock options under our 1998
Equity Incentive Plan, or the 1998 Plan, which provides that
upon certain changes in control of the Company, 50% of all
outstanding and unvested options under the 1998 Plan will
accelerate and vest, unless assumed or substituted by the
acquiring entity.
Mr. Coburn has unvested stock options under
a non-qualified stock option plan, which provides that upon
certain changes in control of the Company, all outstanding and
unvested options under the plan will fully vest.
Mr. Pancottine has unvested stock options
under a non-qualified stock option plan, which provides that
upon certain changes in control of the Company, 50% of all
outstanding and unvested options under the plan will accelerate
and vest.
Mr. Eames has unvested stock options under
our Amended and Restated 1996 Stock Option Plan and under our
2000 Employee Equity Incentive Plan. Mr. Eames
options provide that upon a change in control of the Company,
50% of Mr. Eames outstanding and unvested options will
accelerate and vest.
As of the date of his resignation from the
Company, Mr. Goldman had unvested options under the 1998
Plan, which provides that upon certain changes in control of the
Company, 50% of all outstanding and unvested options under the
1998 Plan will accelerate and vest, unless assumed or
substituted by the acquiring entity. All of
Mr. Goldmans unvested options were canceled on his
resignation.
Compensation Committee Interlocks and Insider
Participation
The Compensation Committee during fiscal 2003 was
comprised of the following three directors:
Messrs. Grinstein, Guelich and Higginson. Since October
2003, the Compensation Committee has been composed of the
following three directors: Messrs. Guelich, Higginson, and
Malone and each member of the Compensation Committee is
independent. None of the Companys executive officers
served as a member of the Board of Directors or Compensation
Committee of any entity that has had one or more executive
officers which served as a member of the Companys Board of
Directors or Compensation Committee.
12
Long Term
Annual Compensation
Compensation
Other Annual
Securities
All Other
Bonus(1)
Compensation
Underlying
Compensation(2)
Name and Principal Position
Year
Salary($)
($)
($)
Options(#)
($)
2003
$
445,200
$
386,911
$
160,000
$
789
2002
$
424,000
$
320,473
$
200,000
$
789
2001
$
400,000
$
196,693
$
1,102,629
(3)
745,000
$
151,860
2003
$
265,000
$
181,093
$
55,000
$
3,189
2002
$
229,455
$
162,525
$
70,000
$
189
2001
$
77,596
$
50,000
$
200,000
$
79
2003
$
301,791
$
137,892
$
55,000
$
3,698
2002
$
222,600
$
243,215
$
70,000
$
3,789
2001
$
211,154
$
185,002
$
107,500
$
3,547
2003
$
292,300
$
202,525
$
55,000
$
3,789
2002
$
212,000
$
235,014
$
70,000
$
3,789
2001
$
188,718
$
249,240
(5)
$
300,000
$
3,526
2003
$
222,600
$
154,426
$
55,000
$
3,789
2002
$
212,000
$
128,189
$
70,000
$
6,695
2001
$
191,250
$
98,677
$
205,000
$
526
2003
$
169,441
$
41,695
$
55,000
$
3,789
2002
$
171,720
$
34,611
$
50,000
$
3,789
2001
$
154,000
$
11,425
$
40,000
$
3,547
(1)
Includes bonus amounts earned during the fiscal
year.
(2)
The amounts in this column for fiscal year 2003
include a $3,000 contribution by us to the 401(k) account of
each of Messrs. Coburn, Goldman, Pancottine, Eames and
Ms. Reiter and a premium payment toward a term life
insurance policy of $189 for each of Messrs. McAdam,
Coburn, Pancottine, Eames and Ms. Reiter, and of $173 for
Mr. Goldman. A stipend of $600 for Internet service
provider fees is also included for Messrs. McAdam, Pancottine,
Eames and Ms. Reiter, and $525 for Mr. Goldman. The
amounts in this column for fiscal year 2002 include a $3,000
contribution by us to the 401(k) account of each of
Messrs. Goldman, Pancottine, Eames and Ms. Reiter and
a premium payment toward a term life insurance policy of $189
for each of the named executive officers. A stipend of $600 for
Internet service provider fees is also included for
Messrs. McAdam, Goldman, Pancottine, Eames and
Ms. Reiter. In addition, the amount shown for
Mr. Eames includes a reimbursement of $2,906 for moving
expenses. The amounts in this column for fiscal year 2001
include a $3,000 contribution by us to the 401(k) account of
each of Messrs. Goldman, Pancottine, and Ms. Reiter
and a premium payment toward a term life insurance policy of
$247 for Messrs. McAdam, Goldman and Ms. Reiter, of
$226 for Mr. Eames and Mr. Pancottine and of $79 for
Mr. Coburn. A stipend of $300 for Internet service provider
fees is also included for Messrs. McAdam, Goldman,
Pancottine, Eames and Ms. Reiter. In addition, the amount
listed for Mr. McAdam includes a reimbursement of $151,313 for
moving expenses.
(3)
Includes a reimbursement of $1,102,629 for taxes
related to the exercise of a non-qualified stock option.
(4)
Mr. Goldman resigned from the Company in
August 2003.
(5)
Includes a $50,000 signing bonus.
Individual Grants
Potential Realizable Value at
Number of
Percent of
Assumed Annual Rates of
Securities
Total Options
Exercise
Stock Price Appreciation for
Underlying
Granted to
or Base
Option Term(2)
Options
Employees in
Price
Expiration
Name
Granted(#)
Fiscal Year(1)
($/Sh)
Date
5%($)
10%($)
160,000(3
)
7.3
%
$
14.64
5/8/2013
$
1,473,600
$
3,732,800
55,000(3
)
2.5
%
$
14.64
5/8/2013
$
506,550
$
1,283,150
55,000(3
)
2.5
%
$
14.64
5/8/2013
$
506,550
$
1,283,150
55,000(3
)
2.5
%
$
14.64
5/8/2013
$
506,550
$
1,283,150
55,000(3
)
2.5
%
$
14.64
5/8/2013
$
506,550
$
1,283,150
55,000(3
)
2.5
%
$
14.64
5/8/2013
$
506,550
$
1,283,150
(1)
A total of 2,195,300 stock options were granted
in fiscal year 2003 by the Company to approximately 500
employees, including options granted to executive officers.
(2)
Potential gains are net of exercise price but
before taxes associated with exercise. These assumed rates of
appreciation are provided in order to comply with requirements
of the SEC, and do not represent the Companys expectation
as to the actual rate of appreciation of shares of Common Stock.
The actual value of the options will depend on the performance
of shares of Common Stock, and may be greater or less than the
amounts shown.
(3)
Options vest in equal monthly increments over the
two years following the date of grant.
(4)
Mr. Goldman resigned from the Company in
August 2003.
Number of Securities
Value of Unexercised
Underlying Unexercised
In-the-Money
Options at
Options at
Shares
September 30, 2003(#)
September 30, 2003($)(2)
Acquired on
Value
Exercise
Realized
Exercisable
Unexercisable
Exercisable
Unexercisable
Name
(#)
($)(1)
(#)
(#)
($)
($)
300,000
$
3,047,454
604,999
200,001
$
6,549,878
$
1,154,672
172,498
152,502
$
1,181,754
$
943,646
100,000
$
734,768
201,665
123,335
$
421,092
$
400,308
27,120
$
276,849
194,752
88,128
$
1,285,378
$
400,308
85,416
62,501
$
785,215
$
346,172
151,063
$
1,797,813
52,395
$
489,600
(1)
Based on the market value of shares of Common
Stock at the exercise date, less the exercise price, multiplied
by the number of shares acquired upon exercise.
(2)
Based on the $19.24 per share market value of
shares of Common Stock at September 30, 2003, less the
exercise price, multiplied by the number of shares underlying
the option.
(3)
Mr. Goldman resigned from the Company in
August 2003.
Executive
Base Salary(1)
Bonus
$
445,200
75% of base salary
$
265,000
60% of base salary
$
292,300
60% of base salary
$
222,600
60% of base salary
$
180,306
20% of base salary
$
310,000
60% of base salary
(1)
Actual base salary earned in fiscal year 2003 is
set forth above in this Item 11.
(2)
Mr. Goldman resigned from the Company in
August 2003.
Report of Compensation Committee
The Compensation Committee is comprised of three
members of the Board of Directors who are not employees of the
Company. It is responsible for setting and monitoring policies
governing compensation of executive officers. The Compensation
Committee reviews the performance and compensation levels for
executive officers and sets salary and bonus levels and option
grants under the Companys stock option plans. The
objectives of the committee are to correlate executive
compensation with the Companys business objectives and
performance, and to enable the Company to attract, retain and
reward executive officers who contribute to its long-term
success.
The Companys philosophy concerning
compensation for executive officers is to directly link their
compensation to continuous improvements in the Companys
financial performance. The key elements of this philosophy are
as follows:
Consistent with this philosophy, the compensation
package offered to executive officers includes: base salary,
cash incentive compensation in the form of bonuses, and
long-term equity incentives in the form of stock options.
The Compensation Committee consists of three
independent directors. Its function is to annually assess the
performance of and recommend to the full board salary and
incentive compensation for the President and Chief Executive
Officer. The Compensation Committee also reviews and approves
annual salary and incentive compensation increases for other
executive officers recommended by the President and Chief
Executive Officer.
In setting Mr. McAdams compensation,
the Committee considers compensation levels for similar
positions at public companies of similar size and revenue
levels, in similar industries, and with similar technological
and marketing challenges, operational complexities and long-term
performance and growth objectives. The Committee reviews salary
surveys and publicly available information on compensation
levels in performing this analysis. Over the past several years,
the Committee also considered the Companys success in
meeting its operational, financial and strategic goals under
extremely difficult economic conditions, Mr. McAdams
success in reworking the Companys business model to focus
on enterprise customers and the strength of the executive team
built by Mr. McAdam. Mr. McAdam began his employment
with the Company in July 2000 with a salary and bonus comparable
to his then-current compensation level with his former employer.
His base salary was increased by 6% for fiscal 2002, and by 5%
for fiscal 2003, consistent with base salary increases for the
rest of the Companys executive officers in those years. At
Mr. McAdams request, no increase was granted for
fiscal 2004.
In determining executive officer salaries, the
Compensation Committee reviews recommendations from
Mr. McAdam, which are based on information from salary
surveys covering technology companies in the Seattle and other
comparable areas, individual performance levels and the
Companys financial condition. The Compensation Committee
also considers incentive compensation based on the
Companys financial performance.
13
To reinforce the attainment of Company goals, the
Committee believes that a significant portion of the annual
compensation of the executive officers should be in the form of
incentive compensation. The Committee believes that incentives
based on attaining or exceeding established financial targets,
properly aligns the interests of the executive officers with the
interests of the stockholders. Bonuses for Mr. McAdam and
the other executive officers are awarded quarterly based on
achievement of the Companys top and bottom line
objectives. Mr. McAdams bonus is set at 75% of his
base salary for meeting these performance targets.
Mr. McAdam and the other executive officers may earn
additional bonuses for over-achievement of these targets.
The Compensation Committee believes that employee
equity ownership provides significant motivation to executive
officers to maximize value for the Companys shareholders
and periodically approves stock option grants under the
Companys employee stock option plans. Stock options are
typically granted at the current market price and will only have
value if the Companys stock price increases over the
exercise price.
The Compensation Committee reviews and approves
recommendations made by the Chief Executive Officer on stock
option grants for other executive officers. These
recommendations for options are based on the relative position
and responsibilities of each executive officer and previous and
expected contributions of each officer to the Companys
success. Generally option grants vest over a two or four-year
period. Upon joining the Company, Mr. McAdam was given
options in an amount comparable to those given to other
non-founder executives hired to perform similar functions in
comparable companies. This initial option grant was subsequently
cancelled at his request. Mr. McAdam has been awarded
several additional option grants in amounts considered by the
Compensation Committee to be appropriate considering
Mr. McAdams performance and market conditions.
Under the Omnibus Budget Reconciliation Act of
1993, the federal income tax deduction for certain types of
compensation paid to the chief executive officer and four other
most highly compensated executive officers of publicly held
companies is limited to $1 million per officer per fiscal
year unless such compensation meets certain requirements. The
Compensation Committee is aware of this limitation and had
decided that it is not appropriate at this time to limit the
Companys discretion to design the cash compensation
packages payable to the Companys executive officers.
Code of Ethics for Senior Financial
Officers
We have adopted a code of ethics that applies to
all of our senior financial officers, including our chief
executive officer, chief financial officer and principal
accounting officer. The code of ethics is posted on the
Companys website. The Internet address for our website is
http://www.f5.com
and the code of ethics may be found
under the investor relations section of our website. A copy of
the code of ethics may be obtained without charge by written
request to the Companys Secretary.
Report of the Audit Committee
The Audit Committee consists of three directors,
each of whom, in the judgment of the Board, is an
independent director as defined in the listing
standards for The Nasdaq Stock Market. The Audit Committee acts
pursuant to a written charter that has been adopted by the Board
of Directors. A copy of this charter is attached to this Proxy
Statement as
Appendix A.
The Audit Committee oversees the Companys
financial reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the financial
statements and the reporting process,
14
In fulfilling its oversight responsibilities, the
Audit Committee reviewed the audited financial statements in the
Annual Report on Form 10-K 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 Audit Committee discussed with the
independent auditors the overall scope and plans for the annual
audit. The Audit Committee meets with the independent auditors,
with and without management present, to discuss the results of
their examinations, their consideration of the Companys
internal controls in connection with their audit, and the
overall quality of the Companys financial reporting.
The Audit Committee reviewed, with the
independent auditors, the judgments of the auditors as to the
quality and acceptability of the Companys accounting
principles and such other matters as are required to be
discussed with the Audit Committee under generally accepted
auditing standards. The Audit Committee has discussed and
reviewed with the auditors all matters required to be discussed
under the Statement on Auditing Standards No. 61
Communication with Audit Committees
.
The Audit Committee has received from the
auditors a formal written statement describing all relationships
between the auditors and the Company that might bear on the
auditors independence consistent with Independence
Standards Board Standard No. 1 (Independence Discussions
with Audit Committees), discussed with the auditors any
relationships that may impact their objectivity and
independence, including the amount and significance of non-audit
services provided by them, and satisfied itself as to the
auditors independence.
Based on the reviews and discussions referred to
above, the Audit 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 September 30, 2003 for filing with the
Securities and Exchange Commission. The Audit Committee has also
selected the independent auditors for the fiscal year ending
September 30, 2004.
15
Stock Price Performance
The information regarding stock price
performance contained in this section shall not be deemed to be
soliciting material or to be filed with
the Securities and Exchange Commission, nor shall such
information be incorporated by reference into any future filings
under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates it by reference in such
filing.
The graph below compares the annual percentage
change in the cumulative total return on shares of Common Stock
for F5 Networks, Inc., the Nasdaq Composite Index and the Nasdaq
Computer Index for the period commencing June 4, 1999,the
date of the Companys initial public offering, and ending
September 30, 2003.
Comparison of Cumulative Total Return
*
16
Compensation Philosophy
provide a competitive total compensation package
that enables the Company to attract, retain and reward executive
officers who contribute to the Companys success;
provide incentive compensation that is directly
linked to the performance of the Company; and
establish incentives that relate to the
Companys annual and long-term business strategies and
objectives.
Salary
Incentive Compensation
Stock Options
Compensation Committee
Alan J. Higginson, Chair
Karl D. Guelich
Rich Malone
Audit Committee
Karl Guelich, Chair
Alan J. Higginson
Keith D. Grinstein
6/4/99
9/30/99
9/29/99
9/28/01
9/30/02
9/30/03
100
457
229
62
51
129
100
111
148
60
47
72
100
122
173
55
42
68
*
Assumes that $100 was invested June 4, 1999
in shares of Common Stock and in each index, and that all
dividends were reinvested. Shareholder returns over the
indicated period should not be considered indicative of future
shareholder returns.
PROPOSAL 1: ELECTION
OF TWO CLASS II DIRECTORS
At the Annual Meeting, the shareholders will vote
on the election of two Class II directors to serve for
three-year terms until the annual meeting of shareholders for
fiscal year end 2006 and until their successors are elected and
qualified. The Board of Directors has unanimously nominated John
McAdam and Alan J. Higginson for election to the Board of
Directors as Class II directors. The nominees have
indicated that they are willing and able to serve as directors.
If either nominee becomes unable or unwilling to serve, the
accompanying proxy may be voted for the election of such other
person as shall be designated by the Board of Directors. The
proxies being solicited will be voted for no more than two
nominees for Class II directors at the Annual Meeting. The
directors will be elected by a plurality of the votes cast, in
person or by proxy, at the Annual Meeting, assuming a quorum is
present. Shareholders do not have cumulative voting rights in
the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
Unless otherwise instructed, it is the intention
of the persons named in the accompanying proxy card to vote
shares represented by properly executed proxy cards for the
election of Messrs. McAdam and Higginson.
PROPOSAL 2: ELECTION
OF ONE CLASS III DIRECTOR
At the Annual Meeting, the shareholders will vote
on the election of one Class III director to serve for a
one-year term until the annual meeting of shareholders for
fiscal year end 2004 and until his successor is elected and
qualified. The Board of Directors has unanimously nominated Rich
Malone for election to the Board of Directors as a
Class III director. The nominee has indicated that he is
willing and able to serve as director. If the nominee becomes
unable or unwilling to serve, the accompanying proxy may be
voted for the election of such other person as shall be
designated by the Board of Directors. The proxies being
solicited will be voted for no more than one nominee for
Class III director at the Annual Meeting. The directors
will be elected by a plurality of the votes cast, in person or
by proxy, at the Annual Meeting, assuming a quorum is present.
Shareholders do not have cumulative voting rights in the
election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
Unless otherwise instructed, it is the intention
of the persons named in the accompanying proxy card to vote
shares represented by properly executed proxy cards for the
election of Mr. Malone.
PROPOSAL 3: AMENDMENT
TO THE AMENDED AND RESTATED 1998 EQUITY INCENTIVE PLAN
At the Annual Meeting, the shareholders of the
Company will be asked to approve an amendment to the 1998 Equity
Incentive Plan (the 1998 Plan) which, if approved,
will increase the number of shares of Common Stock available for
purchase under the 1998 Plan by 2,000,000 shares, to an
aggregate of 8,300,000 shares. The affirmative vote of the
holders of a majority of the outstanding shares of Common Stock
of the Company represented and voting on the proposal at the
Annual Meeting is required to adopt the amendment to the 1998
Plan.
The Board of Directors believes that the 1998
Plan has contributed to strengthening the incentive of
participating employees to achieve the objectives of the Company
and its shareholders by encouraging employees to acquire a
greater proprietary interest in the Company. The Board of
Directors believes that additional shares must be reserved for
use under the 1998 Plan to enable the Company to attract and
retain key employees through the granting of options under the
1998 Plan. The proposed increase in the number of shares under
the 1998 Plan is not required or intended to cover awards
previously made under the 1998 Plan. As such, no new plan
benefits have been granted to date, and future awards under the
1998 Plan are not yet determinable.
17
Description of the 1998 Plan
The following description of the 1998 Plan is a
summary and so is qualified by reference to the complete text of
the 1998 Plan, which is available through EDGAR or upon request
of the Company.
General.
The 1998
Plan provides for grants of incentive stock options
(ISOs) that qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the
Code), to employees, including officers, of the
Company or any affiliate of the Company and nonstatutory stock
options (NSOs), restricted stock purchase awards
(Restricted Stock Awards), and stock bonuses to
employees, including officers, or directors of and consultants
to the Company or any affiliate of the Company. As of
February 20, 2004, the Company had approximately
522 employees, 4 non-employee directors and
2 consultants who would be eligible to participate in the
1998 Plan.
The 1998 Plan was adopted by the Board of
Directors on October 22, 1998 and the Companys
shareholders approved it on November 12, 1998. Initially,
800,000 shares were reserved for issuance under the 1998 Plan.
In April 1999, an additional 1,500,000 shares were reserved
for issuance under the 1998 Plan, which increase was approved by
shareholders in May 1999. On November 9, 1999, an
additional 1,000,000 shares were reserved for issuance
under the plan, which increase was approved by the shareholders
on February 17, 2000. On January 18, 2001, an
additional 2,000,000 were reserved for issuance under the plan,
which increase was approved by the shareholders on
April 20, 2001. On December 6, 2002, an additional
1,000,000 were reserved for issuance under the plan, which
increase was approved by shareholders on February 13, 2003.
A total of 1,320,000 options were granted to
certain executive officers on their hire dates under individual
option plans. Of these options, 645,000 have been cancelled and
terminated. As of February 20, 2004 the Company had issued
2,459,376 shares upon the exercise of options granted under
the 1998 Plan and options to purchase 3,135,543 shares were
outstanding with 705,081 shares reserved for future grants
or purchases under the 1998 Plan. The 1998 Plan will terminate
on October 21, 2008, unless terminated sooner by the Board.
Shares subject to stock awards that have lapsed or terminated,
without having been exercised in full, may again become
available for the grant of awards under the 1998 Plan.
The Board of Directors or a committee appointed
by the Board administers the 1998 Plan. The Board of Directors
has the authority to determine which recipients and what types
of awards are to be granted, including the exercise price,
number of shares subject to the award and the exercisability of
the awards. Any award may be granted either alone or in tandem
with other awards.
Options.
Options
granted under the 1998 Plan may be ISOs or NSOs. The term of a
stock option granted under the 1998 Plan generally may not
exceed 10 years. The Board of Directors determines the
exercise price of options granted under the 1998 Plan. However,
in the case of an ISO, the exercise price cannot be less than
100% of the fair market value of the Common Stock on the date of
grant and, in the case of an NSO, the exercise price cannot be
less than 50% of the fair market value of the Common Stock on
the date of grant. Options granted under the 1998 Plan vest at
the rate specified in the option agreement.
Except as expressly provided by the terms of an
NSO agreement, an optionee may not transfer options other than
by will or the laws of descent or distribution, provided that an
optionee may designate a beneficiary who may exercise the option
following the optionees death. An optionee whose
relationship with the Company or any related corporation ceases
for any reason, except by death or permanent and total
disability, generally may exercise vested options up to three
months following cessation. Vested options may generally be
exercised for up to 12 months after an optionees
relationship with the Company or any affiliate of the Company
ceases due to disability and for generally up to 18 months
after the relationship with the Company or any affiliate of the
Company ceases due to death. However, options may terminate or
expire sooner or later as may be determined by the Board of
Directors and set forth in the option agreement.
No ISO may be granted to any person who, at the
time of the grant, owns, or is deemed to own, stock possessing
more than 10% of the total combined voting power of the Company
or any affiliate of the Company, unless the option exercise
price is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the
option does not exceed five years from the date of grant. In
addition, the
18
No person may be granted options under the 1998
Plan covering an aggregate of more than 200,000 shares of Common
Stock in any calendar year. The Company believes that with this
limitation and other provisions of the 1998 Plan, options
granted under the 1998 Plan that have an exercise price equal to
or greater than the fair market value of the stock subject to
the option on the date of grant will generate qualified
performance-based compensation within the meaning of
section 162(m) of the Internal Revenue Code and will
therefore not be subject to the $1,000,000 cap on deductibility
for federal income tax purposes of certain compensation payments
in excess of $1,000,000. See Certain Federal Income Tax
Consequences below.
Restricted Stock Awards and Stock Bonuses.
Restricted Stock Awards granted under
the 1998 Plan may be granted pursuant to a repurchase option in
the Companys favor in accordance with a vesting schedule
determined by the Board. The purchase price of these awards will
be at least 50% of the fair market value of the Common Stock on
the date of grant. Stock bonuses may be awarded in consideration
for past services. Rights under a stock bonus or restricted
stock purchase agreement may not be transferred other than by
will or by the laws of descent and distribution unless the stock
bonus or restricted stock purchase agreement specifically
provides for transferability.
Change of control provisions.
Upon certain changes in control of the
Company as provided under the 1998 Plan, the surviving entity
will either assume or substitute all outstanding stock awards
under the 1998 Plan. If the surviving entity determines not to
assume or substitute these awards, then with respect to persons
whose service with the Company or any affiliate of the Company
has not terminated before the change in control, the vesting of
50% of these stock awards (and the time during which these
awards may be exercised) will accelerate and the awards
terminated if not exercised before the change in control.
Certain Federal Income Tax
Consequences
THE FOLLOWING SUMMARY OF FEDERAL INCOME TAX
CONSEQUENCES IS BASED UPON EXISTING STATUTES, REGULATIONS AND
INTERPRETATIONS THEREOF. THE APPLICABLE RULES ARE COMPLEX, AND
INCOME TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH PLAN PARTICIPANT. THIS PROXY STATEMENT
DESCRIBES FEDERAL INCOME TAX CONSEQUENCES OF GENERAL
APPLICABILITY, BUT DOES NOT PURPORT TO DESCRIBE PARTICULAR
CONSEQUENCES TO EACH INDIVIDUAL PLAN PARTICIPANT, OR FOREIGN,
STATE OR LOCAL INCOME TAX CONSEQUENCES, WHICH MAY DIFFER FROM
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
Incentive Stock Options
Awards and Exercise of Options.
ISOs are intended to constitute
incentive stock options within the meaning of
Section 422 of the Code. ISOs may be granted only to
employees of the Company or certain affiliates of the Company
(including directors who are also employees). The recipient of
an Option (the Optionee) does not recognize regular
taxable income upon either the grant or exercise of an ISO.
However, the excess of the fair market value of the shares
purchased upon exercise over the Option exercise price (the
Option Spread) is includable in the Optionees
alternative minimum taxable income
(AMTI) for purposes of the alternative minimum tax
(AMT). The Option Spread is generally measured on
the date of exercise and is includable in AMTI in the year of
exercise. Special rules regarding the time of AMTI inclusion may
apply for shares subject to a substantial risk of
forfeiture (including, in the case of each person subject
to the reporting requirements of Section 16 of the Exchange
Act, any limitations on resale of shares imposed under
Section 16(b) of the Exchange Act).
Sale of Option Shares.
If an Optionee holds the shares
purchased under an ISO for at least two years from the date the
ISO was granted and for at least one year from the date such
shares were transferred to the
19
Exercise With Stock.
If an Optionee pays for ISO shares
with shares of the Company acquired under an ISO or a qualified
employee stock purchase plan (statutory option
stock), the tender of shares is a Disqualifying
Disposition of the statutory option stock if the above described
(or other applicable) holding periods respecting those shares
have not been satisfied. If the holding periods with respect to
the statutory option stock are satisfied, or the shares were not
acquired under a statutory stock option of the Company, then any
appreciation in value of the surrendered shares is not taxable
upon surrender. Special basis and holding period rules apply
where previously-owned stock other than statutory option stock
is used to exercise an ISO.
Nonqualified Stock Options
Award and Exercises of Options.
An Optionee is not taxable upon the
award of a NSO. Federal income tax consequences upon exercise
will depend upon whether the shares thereby acquired are subject
to a substantial risk of forfeiture. If the shares
are not subject to a substantial risk of forfeiture, or if they
are so restricted and the Optionee files an election under
Section 83(b) of the Code (a Section 83(b)
Election) with respect to the shares, the Optionee will
have ordinary income at the time of exercise measured by the
Option Spread on the exercise date. The Optionees tax
basis in the shares will be their fair market value on the date
of exercise, and the holding period for purposes of determining
whether capital gain or loss upon sale is long-term or
short-term also will begin on that date. If the shares are
subject to a substantial risk of forfeiture and no
Section 83(b) Election is filed, the Optionee will not be
taxable upon exercise, but instead will have ordinary income, on
the date the stock is no longer subject to a substantial risk of
forfeiture, in an amount equal to the difference between the
amount paid for the shares under the Option and their fair
market value on such date; in addition, the Optionees
holding period will begin on that date.
Whether or not the shares are subject to a
substantial risk of forfeiture, the amount of ordinary income
taxable to an Optionee who was an employee at the time of grant
constitutes supplemental wages subject to
withholding of income and employment taxes by the Company, and
the Company receives a corresponding income tax deduction.
Sale of Option Shares.
Upon sale, other than to the Company,
of shares acquired under a NSO, an Optionee generally will
recognize capital gain or loss to the extent of the difference
between the sale price and the Optionees tax basis in the
shares, which will be long-term gain or loss if the
Optionees holding period in the shares is more than one
year. If stock is sold to the Company rather than to a third
party, the sale may not produce capital gain or loss. A sale of
shares to the Company will constitute a redemption of such
shares, which could be taxable as a dividend unless the
redemption is not essentially equivalent to a
dividend within the meaning of the Code. Any such dividend
income should qualify for the reduced rate of tax applicable
until 2009.
Exercise with Stock.
If an Optionee tenders Common Stock
(other than statutory option stock) to pay all or part of the
exercise price of a NSO, the Optionee will not have a taxable
gain or deductible loss on the surrendered shares. Instead,
shares acquired upon exercise that are equal in value to the
fair market value of the shares surrendered in payment are
treated as if they had been substituted for the surrendered
shares,
20
If the surrendered shares are statutory option
stock as described above under Incentive Stock
Options, with respect to which the applicable holding
period requirements for favorable income tax treatment have not
expired, then the newly acquired shares substituted for the
statutory option shares should remain subject to the federal
income tax rules governing the surrendered shares, but the
surrender should not constitute a Disqualifying Disposition of
the surrendered stock.
Section 162(m) Limitations
Section 162(m) of the Code limits to
$1,000,000 per person the amount that the Company may deduct for
compensation paid to any of its most highly compensation
executive officers in any year after 1993. Under current
regulations, compensation received through the exercise of an
option will not be subject to the $1,000,000 limit if the option
and the plan meet certain requirements. One such requirement is
that the plan must state the maximum number of shares with
respect to which option may be granted to any employee during a
specified period. Accordingly, the 1998 Plan provides that no
participant, with certain exceptions, may be granted options to
acquire more than 200,000 shares in any year.
THE BOARD RECOMMENDS A VOTE FOR
APPROVAL OF THIS PROPOSAL.
Unless instructed otherwise, it is the intention
of the persons named in the accompanying proxy card to vote
shares represented by properly executed proxy cards or
electronic ballots for this proposal.
PROPOSAL 4: AMENDMENT
OF THE F5 NETWORKS, INC.1999 EMPLOYEE STOCK PURCHASE
PLAN
At the Annual Meeting, the Companys
shareholders are being asked to approve the amendment of the
Companys 1999 Employee Stock Purchase Plan (the 1999
Purchase Plan) and the reservation of 1,000,000 additional
shares of Common Stock for issuance thereunder. The following is
a summary of principal features of the 1999 Purchase Plan. This
summary, however, does not purport to be a complete description
of all the provisions of the 1999 Purchase Plan, which is
available through EDGAR or upon request of the Company.
General
The 1999 Purchase Plan was adopted by the Board
of Directors in April 1999. In connection with the amendment of
the 1999 Purchase Plan, the Board of Directors has reserved a
total of 1,000,000 additional shares of Common Stock for
issuance thereunder. The Board of Directors believes that, in
order to attract qualified employees to the Company and to
provide incentives to its current employees, it is necessary to
grant its employees the right to purchase Common Stock of the
Company pursuant to the 1999 Purchase Plan. Accordingly, the
shareholders are being asked to approve the amendment to the
1999 Purchase Plan.
The 1999 Purchase Plan is implemented by offering
and purchase periods, each six months in duration, that commence
on May 1 and November 1 of each year, or at such other
time or times as may be determined by the Board of Directors.
The first offering period commenced on June 4, 1999. The
Purchase Plan is intended to qualify under Section 423 of
the Internal Revenue Code of 1986, as amended (the
Code). The 1999 Purchase Plan is further deemed to
contain, and options granted thereunder shall contain, and the
shares issued upon exercise thereof shall be subject to, any
additional conditions and restrictions as may be required by
Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the Exchange Act) to qualify for the
maximum exemption from Section 16 of the Exchange Act with
respect to 1999 Purchase Plan transactions.
21
Purpose
The purpose of the 1999 Purchase Plan is to
provide employees (including officers and employee directors) of
the Company with an opportunity to purchase Common Stock of the
Company through payroll deductions.
Administration
The 1999 Purchase Plan is to be administered by
the Board of Directors of the Company or a committee appointed
by the Board (the Administrator). At the present
time, the 1999 Purchase Plan is administered by the Board of
Directors. All questions of interpretation or application of the
1999 Purchase Plan are determined by the Administrator.
Eligibility and Participation
Employees (including officers and employee
directors) who are employed for at least 20 hours per week
and more than five months in any calendar year and who are
employed by the Company as of the first business day of each
offering period of the plan (the Offering Date) are
eligible to participate in an offering under the 1999 Purchase
Plan, subject to certain limitations imposed by
Section 423(b) of the Internal Revenue Code of 1986, as
amended (the Code) and limitations on stock
ownership as set forth in the 1999 Purchase Plan. No employee
shall be granted an option under the 1999 Purchase Plan if
(i) immediately after the grant such employee would own
stock and/or hold outstanding options to purchase stock
possessing five percent (5%) or more of the total voting
power or value of all classes of stock of the Company or its
subsidiaries, or (ii) such option would permit such
employee to purchase stock under all employee stock purchase
plans of the Company and its subsidiaries to accrue at a rate
which exceeds $25,000 of fair market value of such stock for
each calendar year in which such option is outstanding at any
time.
Eligible employees become participants in the
1999 Purchase Plan by filing with the payroll department of the
Company a subscription agreement authorizing payroll deductions
prior to the applicable Offering Date, unless a later time for
filing the subscription agreement has been set by the
Administrator. Payroll deductions shall commence on the first
payroll following the Offering Date and shall end on the last
payroll paid on or prior to the last day (the Purchase
Date) of the offering period to which the subscription
agreement is applicable, unless sooner terminated by the
participant.
Grant and Exercise of Option
At the beginning of an offering period, each
participant is granted an option to purchase up to that number
of shares determined by dividing such employees payroll
deductions accumulated prior to the end of the offering period
and retained in the participants account as of the end of
the offering period by the lower of (i) eighty-five
percent (85%) of the fair market value of a share of the
Common Stock at the beginning of the offering period or
(ii) eighty-five percent (85%) of the fair market
value of a share of the Common Stock on the last day of the
offering period; provided that in no event shall a participant
be permitted to purchase during each calendar year for which an
option is outstanding more than a number of shares determined by
dividing $25,000 by the fair market value of a share of the
Common Stock at the beginning of the offering period, and
provided further that such purchases shall be subject to the
limitations set forth below. The Company may make a pro rata
reduction in the number of shares subject to options if the
total number of shares which would otherwise be subject to
options granted at the beginning of an offering period exceeds
the number of remaining available shares in the 1999 Purchase
Plan. Unless an employee withdraws his or her participation in
the 1999 Purchase Plan by giving written notice to the Company
of his or her election to withdraw all accumulated payroll
deductions prior to the end of an offering period, the
employees option for the purchase of shares will be
exercised automatically at the end of the offering period, and
the maximum number of full shares subject to option which are
purchasable with the accumulated payroll deductions in his or
her account will be purchased at the applicable purchase price
determined as provided below.
During his or her lifetime, a participants
option to purchase shares under the 1999 Purchase Plan is
exercisable only by him or her. However, a participant may file
a written designation of a beneficiary who is
22
Purchase Price
The purchase price per share at which shares are
sold to participating employees under the 1999 Purchase Plan is
the lower of (i) 85% of the fair market value per share of
the Common Stock at the time the option is granted at the
commencement of the offering period, and (ii) 85% of the
fair market value per share of the Common Stock at the time the
option is exercised on the applicable Purchase Date. The fair
market value of the Common Stock on a given date shall be
determined by the Board of Directors and will generally be based
upon the last reported sales price of the Common Stock on the
Nasdaq National Market.
Payroll Deductions
The purchase price of the shares to be acquired
under the 1999 Purchase Plan is accumulated by payroll
deductions during the offering period. The deductions may not be
more than 15% of a participants aggregate compensation
during the offering period. A participant may discontinue his or
her participation in the 1999 Purchase Plan during an offering
period. Payroll deductions for a participant shall commence on
the first payroll following the Offering Date and shall continue
until his or her participation is terminated as provided in the
1999 Purchase Plan.
Termination of Employment
Termination of a participants employment
for any reason, including retirement or death, or the failure of
the participant to remain in the continuous employ of the
Company for at least 20 hours per week during the
applicable offering period, cancels his or her option and his or
her participation in the 1999 Purchase Plan immediately. In such
event, the payroll deductions credited to the participants
account will be returned to him or her or, in the case of death,
to the person or persons entitled thereto as provided in the
1999 Purchase Plan.
Adjustments Upon Changes in
Capitalization
In the event any change is made in the
Companys capitalization in the middle of an offering
period, such as a stock split, stock dividend, combination or
reclassification, that results in an increase or decrease in the
number of shares of Common Stock outstanding without receipt of
consideration by the Company, appropriate adjustment shall be
made in the purchase price and in the number of shares subject
to options under the 1999 Purchase Plan.
In the event of a proposed dissolution or
liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action,
unless otherwise provided by the Administrator. In the event of
a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another
corporation, each option under the 1999 Purchase Plan shall be
assumed or an equivalent substitute option shall be substituted
by such successor corporation or a parent or subsidiary of such
successor corporation. If the options are not assumed or
substituted, the Administrator may elect to shorten the Offering
Period then in progress by setting a new Purchase Date prior to
the consummation of such sale or merger and notifying the
optionees of the change in their Purchase Date.
Amendment and Termination of the
Plan
The Board of Directors may at any time amend or
terminate the 1999 Purchase Plan without the approval of the
shareholders, except that such termination cannot affect options
previously granted nor may an amendment make any change in an
option granted prior thereto which adversely affects the rights
of any
23
The 1999 Purchase Plan has no expiration date.
Tax Information
The 1999 Purchase Plan, and the right of
participants to make purchases thereunder, is intended to
qualify under the provisions of Sections 421 and 423 of the
Code. Under these provisions, no income will be taxable to a
participant until the shares purchased under the Plan are sold
or otherwise disposed of. Upon sale or other disposition of the
shares, the participant will generally be subject to tax and the
amount of the tax will depend upon how long the shares have been
held by the participant. If the shares are sold or otherwise
disposed of more than two years from the first day of the
offering period or more than one year after the applicable
Purchase Date, the participant will recognize ordinary income
measured as the lesser of (a) the excess of the fair market
value of the shares at the time of such sale or disposition over
the purchase price, or (b) an amount equal to 15% of the
fair market value of the shares as of the first day of the
offering period. Any additional gain will be treated as
long-term capital gain if the shares are held for more than one
year after the Purchase Date. If the shares are sold or
otherwise disposed of before the expiration of these holding
periods, the participant will recognize ordinary income
generally measured as the excess of the fair market value of the
shares on the date the shares are purchased over the purchase
price. Any additional gain or loss on such sale or disposition
will be long-term or short-term capital gain or loss, depending
on the holding period. The Company is not entitled to a
deduction for amounts taxed as ordinary income or capital gain
to a participant except to the extent of ordinary income
recognized by participants upon a sale or disposition of shares
prior to the expiration of the holding period(s) described above.
The foregoing is only a summary of the effect of
federal income taxation upon the participant and the Company
with respect to the shares purchased under the 1999 Purchase
Plan. Reference should be made to the applicable provisions of
the Code. In addition, the summary does not discuss the tax
consequences of a participants death or the income tax
laws of any state or foreign country in which the participant
may reside.
THE BOARD RECOMMENDS A VOTE FOR
APPROVAL OF THIS PROPOSAL.
Unless instructed otherwise, it is the intention
of the persons named in the accompanying proxy card to vote
shares represented by properly executed proxy cards or
electronic ballots for this proposal.
OTHER MATTERS
Auditors
The independent accounting firm of
PricewaterhouseCoopers LLP has acted as the Companys
auditor since inception and has been selected as the auditor for
the current year. Representatives of that firm are expected to
be present at the Annual Meeting and will have an opportunity to
make a statement, if they so desire, and will be available to
respond to appropriate questions.
24
Principal Accountants Fees and
Services
The following is a summary of the fees billed to
the Company by PricewaterhouseCoopers LLP for professional
services rendered for the fiscal years ended September 30,
2003 and 2002:
Audit Fees.
Consists
of fees billed for professional services rendered for the audit
of the Companys consolidated financial statements and
review of the interim consolidated financial statements included
in quarterly reports and services that are normally provided by
PricewaterhouseCoopers LLP in connection with statutory and
regulatory filings or engagements.
Audit-Related Fees.
Consists of fees billed for assurance and related services that
are reasonably related to the performance of the audit or review
of the Companys consolidated financial statements and are
not reported under Audit Fees. These services
include accounting consultations in connection with
acquisitions, services related to registration statements, and
consultations concerning financial accounting and reporting
standards.
Tax Fees.
Consists
of fees billed for professional services for tax compliance, tax
advice and tax planning. These services include assistance
regarding federal, state and international tax compliance, tax
audit defense, customs and duties, mergers and acquisitions, and
international tax planning.
Audit Committee Pre-Approval
Procedures
The Audit Committee meets with our independent
auditors to approve the annual scope of accounting services to
be performed and the related fee estimates. The Audit Committee
also meets with our independent auditors, on a quarterly basis,
following completion of their quarterly reviews and annual audit
and prior to our earnings announcements, to review the results
of their work. During the course of the year, the Chairman of
the committee has the authority to pre-approve requests for
services that were not approved in the annual pre-approval
process. The chairman reports any interim pre-approvals at the
following quarterly meeting. At each of the meetings, management
and our independent auditors update the Audit Committee with
material changes to any service engagement and related fee
estimates as compared to amounts previously approved. During
fiscal 2003, all audit and non-audit services performed by
PricewaterhouseCoopers LLP for the Company were
pre-approved by the Audit Committee in accordance with the
foregoing procedures.
Annual Independence Determination
The Audit Committee considered whether the
provision of nonaudit services is compatible with the principal
accountants independence and concluded that the provision
of nonaudit services has been compatible with maintaining the
independence of the Companys external auditors. The Audit
Committee has authorized the Companys external auditors to
provide tax services for the Company for 2004.
Other Matters
Neither the Board of Directors nor management
intends to bring before the meeting any business other than the
matters referred to in the Notice of Meeting and this Proxy
Statement. If any other business should properly come before the
meeting, or any adjournment thereof, the persons named in the
proxy will vote on such matters according to their best judgment.
25
Years Ended
September 30,
Fee Category
2003
2002
$
206,500
$
197,202
78,750
21,039
2,000
14,750
$
287,250
$
232,991
SHAREHOLDER PROPOSALS FOR THE ANNUAL MEETING
FOR FISCAL YEAR END 2004
The Companys Bylaws provide that advance
notice of a shareholders proposal must be delivered to or
mailed and received at the Companys principal executive
offices not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business
on the one hundred twentieth (120th) day prior to the first
anniversary of the preceding years annual meeting.
However, the Bylaws also provide that in the event the date of
the annual meeting has been changed by more than thirty
(30) days from the date contemplated at the time of the
previous years proxy statement, this advance notice must
be received not earlier than the close of business on the
ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth
(60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first
made by the Company fewer than seventy (70) days prior to
the date of such annual meeting, the close of business on the
tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the
Company. Each shareholders notice must contain the
following information as to each matter the shareholder proposes
to bring before the annual meeting: (A) a brief description
of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual
meeting, (B) the name and address, as they appear on the
Companys books, of the shareholder proposing such
business, (C) the class and number of shares of the Company
which are beneficially owned by the shareholder, (D) any
material interest of the shareholder in such business and
(E) any other information that is required to be provided
by the shareholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, in such
shareholders capacity as a proponent of a shareholder
proposal.
A copy of the full text of the provisions of the
Companys Bylaws dealing with shareholder nominations and
proposals is available to shareholders from the Secretary of the
Company upon written request.
Shareholders who intend to have a proposal
considered for inclusion in the Companys proxy materials
for presentation at the Annual Meeting for fiscal year end 2004
must submit the proposal to the Company no later than
December 30, 2004. Shareholders who intend to present a
proposal at the Annual Meeting for fiscal year end 2004 without
inclusion of such proposal in the Companys proxy materials
are required to provide notice of such proposal to the Company
no later than February 1, 2005 or management of the Company
will have discretionary voting authority at the fiscal year end
2004 annual meeting with respect to any such proposal without
discussion of the matter in Proxy Statement for such meeting.
The Company reserves the right to reject, rule out of order, or
take appropriate action with respect to any proposal that does
not comply with these and other applicable requirements.
26
APPENDIX A
F5 Networks, Inc.
Amended and Restated Charter of the Audit
Committee
The Amended and Restated Charter of the
Companys Audit Committee is as follows:
Purposes:
The purposes of the audit committee are to:
Monitor the integrity of the financial statements
of the company.
Oversee the accounting and financial reporting
processes of the company and audits of its financial statements.
Oversee the independence of the companys
independent auditor.
Appoint and provide for the compensation of a
registered public accounting firm (as that term is
defined in Section 2(a) of the Sarbanes-Oxley Act of 2002)
to serve as the companys independent auditor, oversee the
work of the independent auditor (including resolution of any
disagreements between management and the independent auditor
regarding financial reporting), evaluate the performance of the
independent auditor and, if so determined by the audit
committee, replace the independent auditor; it being
acknowledged that the independent auditor is ultimately
accountable to the board of directors and the committee, as
representatives of the companys stockholders.
Composition:
The audit committee shall be composed of three or
more directors, as determined by the board of directors, each of
whom shall be independent, as that term is defined
in Section 10A(m) of the Securities Exchange Act of 1934
(the Exchange Act), and the applicable rules and
regulations (Regulations) of the SEC, each of whom
shall meet the independence and financial literacy requirements
of the NASDAQ, and at least one of whom shall have past
employment experience in finance or accounting, requisite
professional certification in accounting, or any other
comparable experience or background which results in the
individuals financial sophistication, including being or
having been chief executive officer, chief financial officer or
other senior officer with financial oversight responsibilities.
Unless a chair is designated by the board of
directors, the committee members may appoint their own chair by
majority vote.
Responsibilities:
Appoint and provide for the compensation of a
registered public accounting firm (as that term is
defined in Section 2(a) of the Sarbanes-Oxley Act of 2002)
to serve as the companys independent auditor, oversee the
work of the independent auditor (including resolution of any
disagreements between management and the independent auditor
regarding financial reporting), evaluate the performance of the
independent auditor and, if so determined by the audit
committee, replace the independent auditor; it being
acknowledged that the independent auditor is ultimately
accountable to the board of directors and the committee, as
representatives of the companys stockholder
Evaluate periodic reports that the independent
auditor submits to the audit committee regarding the
auditors independence, discuss such reports with the
auditor and, if so determined by the audit committee in response
to such reports, recommend that the board of directors take
appropriate action to oversee the independence of the
independent auditor.
Meet with management and the independent auditor
to discuss the annual financial statements and the report of the
independent auditor thereon, and to discuss significant issues
encountered in the course of the
A-1
Review the management letter delivered by the
independent auditor in connection with the audit.
Discuss with the independent auditor the matters
required to be discussed by SAS 61, as it may be modified
or supplemented
Following such reviews and discussions, if so
determined by the audit committee, recommend to the board of
directors that the annual financial statements be included in
the companys annual report.
Meet quarterly with management and the
independent auditor to review and discuss the quarterly
financial statements; provided that this responsibility may be
delegated to the chairman of the audit committee.
Meet at least once each year in separate
executive sessions with management and the independent auditor
to discuss matters that the committee or either of these groups
believes could significantly affect the financial statements.
Have meetings with management as the audit
committee deems appropriate to discuss significant financial
risk exposures facing the company, and steps management has
taken to monitor and control such exposures.
Instruct the independent auditor and the internal
auditor, if any, to advise the audit committee if there are any
subjects that require special attention.
Instruct the independent auditor to report to the
audit committee on all critical accounting policies of the
company, all alternative treatments of financial information
within generally accepted accounting principles that have been
discussed with management, ramifications of the use of such
alternative disclosures and treatments and the treatment
preferred by the auditors, and other material written
communication between the auditors and management.
Review significant changes to the companys
accounting principles and practices proposed by the independent
auditor or management.
Evaluate the performance of the independent
auditor and, if so determined by the audit committee, recommend
to the board of directors replacement of the independent auditor.
At the request of the company counsel, review
with the company counsel legal and regulatory matters that may
have significant impact on the companys financial
statements, compliance policies or programs.
Conduct or authorize such inquiries into matters
within the committees scope of responsibility as the
committee deems appropriate. The committee shall be empowered to
retain independent counsel and other professionals to assist in
the conduct of any such inquiries.
Provide minutes of audit committee meetings to
the board of directors, and report to the board of directors on
any significant matters arising from the committees work.
At least annually, review and reassess this
charter and, if appropriate, recommend proposed changes to the
board of directors.
Prepare the report required by the rules of the
Securities and Exchange Commission to be included in the
companys annual proxy statement.
A-2
Establish a procedure for receipt, retention and
treatment of any complaints received by the Company about its
accounting, internal accounting controls or auditing matters and
for the confidential and anonymous submission by employees of
concerns regarding questionable accounting or auditing matters.
Approve, in accordance with Sections 10A(h)
and (i) of the Exchange Act and the Regulations, all
professional services, to be provided to the company by its
independent auditor, provided that the audit committee shall not
approve any non-audit services proscribed by Section 10A(g)
of the Exchange Act in the absence of an applicable exemption.
The audit committee may adopt policies and procedures for the
approval of such services which may include delegation of
authority to a designated member or members of the audit
committee to approve such services so long as any such approvals
are disclosed to the full audit committee at its next scheduled
meeting.
Review and approve all related party transactions.
Authority:
By adopting this Charter, the board of directors
delegates to the audit committee full authority in its
discretion to:
Perform each of the responsibilities of the audit
committee described above.
Appoint a chair of the audit committee, unless a
chair is designated by the board of directors.
Engage independent counsel and other advisers as
the audit committee determines necessary to carry out its
responsibilities.
Cause the officers of the corporation to provide
such funding as the audit committee shall determine to be
appropriate for payment of compensation to the companys
independent auditor and any legal counsel or other advisers
engaged by the audit committee, and payment of ordinary
administrative expenses of the audit committee that are
necessary or appropriate in carrying out its duties.
It is not the responsibility of the audit
committee to plan or conduct audits, or to determine whether the
companys financial statements are complete and accurate or
in accordance with generally accepted accounting principles. It
is not the responsibility of the audit committee to conduct
inquiries, to resolve disagreements, if any, between management
and the independent auditor, or to assure compliance with laws,
regulations or company compliance policies or
programs.
A-3
APPENDIX B
AMENDED AND RESTATED
F5 NETWORKS, INC.
1998 EQUITY INCENTIVE PLAN
Adopted November 12, 1998
1. Purposes.
(a)
Eligible Stock Award Recipients.
The persons eligible to receive Stock Awards are the Employees,
Directors and Consultants of the Company and its Affiliates.
(b)
Available Stock Awards.
The
purpose of the Plan is to provide a means by which eligible
recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the
granting of the following Stock Awards: (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock
bonuses and (iv) rights to acquire restricted stock.
(c)
General Purpose.
The Company, by
means of the Plan, seeks to retain the services of the group of
persons eligible to receive Stock Awards, to secure and retain
the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates.
2. Definitions.
(a)
Affiliate
means any
parent corporation or subsidiary corporation of the Company,
whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b)
Board
means the Board
of Directors of the Company.
(c)
Code
means the
Internal Revenue Code of 1986, as amended.
(d)
Committee
means a
Committee appointed by the Board in accordance with subsection
3(c).
(e)
Common Stock
means
the common stock of the Company.
(f)
Company
means F5
Networks, Inc., a Washington corporation.
(g)
Consultant
means any
person, including an advisor, (i) who is engaged by the
Company or an Affiliate to render services other than as an
Employee or as a Director or (ii) who is a member of the
Board of Directors of an Affiliate.
(h)
Continuous Service
means that the Participants service with the Company
or an Affiliate, whether as an Employee, Director or Consultant,
is not interrupted or terminated. The Participants
Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Participant
renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the
Participant renders such service, provided that there is no
interruption or termination of the Participants Continuous
Service. For example, a change in status from an Employee of the
Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the
Company, in that partys sole discretion, may determine
whether Continuous Service shall be considered interrupted in
the case of any leave of absence approved by that party,
including sick leave, military leave or any other personal leave.
(i)
Covered Employee
means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under
the Exchange Act, as determined for purposes of
Section 162(m) of the Code.
B-1
(j)
Director
means a
member of the Board of Directors of the Company.
(k)
Disability
means
(i) before the Listing Date, the inability of a person, in
the opinion of a qualified physician acceptable to the Company,
to perform the major duties of that persons position with
the Company or an Affiliate of the Company because of the
sickness or injury of the person and (ii) after the Listing
Date, the permanent and total disability of a person within the
meaning of Section 22(e)(3) of the Code.
(l)
Employee
means any
person employed by the Company or an Affiliate. Mere service as
a Director or payment of a directors fee by the Company or
an Affiliate shall not be sufficient to constitute
employment by the Company or an Affiliate.
(m)
Exchange Act
means
the Securities Exchange Act of 1934, as amended.
(n)
Fair Market Value
means, as of any date, the value of the Common Stock
determined as follows:
(o)
Incentive Stock Option
means an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(p)
Listing Date
means
the first date upon which the Common Stock is listed (or
approved for listing) upon notice of issuance on any securities
exchange or designated (or approved for designation) upon notice
of issuance as a national market security on an interdealer
quotation system if such securities exchange or interdealer
quotation system has been certified in accordance with the
provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q)
Non-Employee Director
means a Director of the Company who either (i) is not a
current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or
indirectly) from the Company or its parent or a subsidiary for
services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would
not be required under Item 404(a) of Regulation S-K
promulgated pursuant to the Securities Act
(Regulation S-K)), does not possess an interest
in any other transaction as to which disclosure would be
required under Item 404(a) of Regulation S-K and is
not engaged in a business relationship as to which disclosure
would be required under Item 404(b) of Regulation S-K;
or (ii) is otherwise considered a non-employee
director for purposes of Rule 16b-3.
(r)
Nonstatutory Stock Option
means an Option not intended to qualify as an Incentive
Stock Option.
(s)
Officer
means a
person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(t)
Option
means an
Incentive Stock Option or a Nonstatutory Stock Option granted
pursuant to the Plan.
(u)
Option Agreement
means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an
individual Option grant. Each Option Agreement shall be subject
to the terms and conditions of the Plan.
(v)
Optionholder
means a
person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.
B-2
(w)
Outside Director
means a Director of the Company who either (i) is not a
current employee of the Company or an affiliated
corporation (within the meaning of Treasury Regulations
promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an affiliated
corporation receiving compensation for prior services
(other than benefits under a tax qualified pension plan), was
not an officer of the Company or an affiliated
corporation at any time and is not currently receiving
direct or indirect remuneration from the Company or an
affiliated corporation for services in any capacity
other than as a Director or (ii) is otherwise considered an
outside director for purposes of Section 162(m)
of the Code.
(x)
Participant
means a
person to whom a Stock Award is granted pursuant to the Plan or,
if applicable, such other person who holds an outstanding Stock
Award.
(y)
Plan
means this F5
Networks, Inc. 1998 Equity Incentive Plan.
(z)
Rule 16b-3
means
Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(aa)
Securities Act
means
the Securities Act of 1933, as amended.
(bb)
Stock Award
means
any right granted under the Plan, including an Option, a stock
bonus and a right to acquire restricted stock.
(cc)
Stock Award Agreement
means a written agreement between the Company and a holder
of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall
be subject to the terms and conditions of the Plan.
(dd)
Ten Percent Shareholder
means a person who owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes
of stock of the Company or of any of its Affiliates.
3. Administration.
(a)
Administration by Board.
The
Board shall administer the Plan unless and until the Board
delegates administration to a Committee or an administrator, as
provided in subsection 3(c).
(b)
Powers of Board.
The Board shall
have the power, subject to, and within the limitations of, the
express provisions of the Plan:
(c)
Delegation to Committee.
B-3
4. Shares Subject
to the Plan.
(a)
Share Reserve.
Subject to the
provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock
Awards shall not exceed in the aggregate Six Million Three
Hundred Thousand (6,300,000) shares of Common Stock.
(b)
Reversion of Shares to the Share
Reserve.
If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Stock Award
shall revert to and again become available for issuance under
the Plan. The number of shares of Common Stock that may be
issued pursuant to Stock Awards, as specified in
subsection 4(a), shall only be reduced to reflect new
shares that are actually delivered under the Plan. Therefore, a
stock-for-stock exercise of an Option shall result in only the
net number of additional shares of Common Stock being counted
against the share reserve.
(c)
Source of Shares.
The stock
subject to the Plan may be unissued shares or reacquired shares,
bought on the market or otherwise.
5. Eligibility.
(a)
Eligibility for Specific Stock
Awards.
Incentive Stock Options may be granted only to
Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b)
Ten Percent Shareholders.
No Ten
Percent Shareholder shall be eligible for the grant of an
Incentive Stock Option unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant and the Option is
not exercisable after the expiration of five (5) years from
the date of grant.
(c)
Section 162(m) Limitation.
Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, no employee shall be eligible
to be granted Options covering more than Two Hundred Thousand
(200,000) shares of the Common Stock during any calendar year.
This subsection 5(c) shall not apply prior to the Listing
Date and, following the Listing Date, this subsection 5(c)
shall not apply until (i) the earliest of: (1) the
first material modification of the Plan (including any increase
in the number of shares reserved for issuance under the Plan in
accordance with Section 4); (2) the issuance of all of
the shares of Common Stock reserved for issuance under the Plan;
(3) the expiration of the Plan; or (4) the first
meeting of shareholders at which Directors of the Company are to
be elected that occurs after the close of the third
B-4
6. Option
Provisions.
Each Option shall be in such form and shall
contain such terms and conditions as the Board shall deem
appropriate. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the
time of grant, and, if a certificate is issued for shares
purchased on exercise of an Option, a separate certificate or
certificates will be issued for shares purchased on exercise of
each type of Option. The provisions of separate Options need not
be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or
otherwise) the substance of each of the following provisions:
(a)
Term.
Subject to the provisions
of subsection 5(b) regarding Ten Percent Shareholders, no Option
shall be exercisable after the expiration of ten (10) years
from the date it was granted.
(b)
Exercise Price of an Incentive Stock
Option.
Subject to the provisions of subsection 5(b)
regarding Ten Percent Shareholders, the exercise price of each
Incentive Stock Option shall be not less than one hundred
percent (100%) of the Fair Market Value of the stock subject to
the Option on the date the Option is granted. Notwithstanding
the foregoing, an Incentive Stock Option may be granted with an
exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c)
Exercise Price of a Nonstatutory
Stock Option.
Subject to the provisions of
subsection 5(b) regarding Ten Percent Shareholders, the
exercise price of each Nonstatutory Stock Option granted prior
to the Listing Date shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option granted on or after the Listing
Date shall be not less than fifty percent (50%) of the Fair
Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, a Nonstatutory
Stock Option may be granted with an exercise price lower than
that set forth in the preceding sentence if such Option is
granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of
Section 424(a) of the Code.
(d)
Consideration.
The purchase price
of stock acquired pursuant to an Option shall be paid, to the
extent permitted by applicable statutes and regulations, either
(i) in cash at the time the Option is exercised or
(ii) at the discretion of the Board at the time of the
grant of the Option (or subsequently in the case of a
Nonstatutory Stock Option) by (1) delivery to the Company
of other Common Stock, (2) according to a deferred payment
or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other Common Stock) with
the Participant or (3) in any other form of legal
consideration that may be acceptable to the Board.
Notwithstanding the foregoing, no Officer or Director may pay
the exercise price of an Option by a deferred payment
arrangement.
In the case of any deferred payment arrangement,
interest shall be compounded at least annually and shall be
charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the
Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e)
Transferability of an Incentive Stock
Option.
An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(e), the Optionholder may,
by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the
event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(f)
Transferability of a Nonstatutory
Stock Option.
A Nonstatutory Stock Option granted prior to
the Listing Date shall be transferable to the extent that
transferability is both permitted by Section 260.140.41(d)
of Title 10 of the California Code of Regulations at the
time the Option is granted and provided for in the
B-5
(g)
Vesting Generally.
The total
number of shares of Common Stock subject to an Option may, but
need not, vest and therefore become exercisable in periodic
installments which may, but need not, be equal. The Option may
be subject to such other terms and conditions on the time or
times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem
appropriate. The vesting provisions of individual Options may
vary. The provisions of this subsection 6(g) are subject to
any Option provisions governing the minimum number of shares as
to which an Option may be exercised.
(h)
Termination of Continuous
Service.
In the event an Optionholders Continuous
Service terminates (other than upon the Optionholders
death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to
exercise it as of the date of termination) but only within such
period of time ending on the earlier of (i) the date
three (3) months following the termination of the
Optionholders Continuous Service (or such longer or
shorter period specified in the Option Agreement, which, for
Options granted prior to the Listing Date, shall not be less
than thirty (30) days, unless such termination is for
cause), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate.
(i)
Extension of Termination Date.
An
Optionholders Option Agreement may also provide that if
the exercise of the Option following the termination of the
Optionholders Continuous Service (other than upon the
Optionholders death or Disability) would be prohibited at
any time solely because the issuance of shares would violate the
registration requirements under the Securities Act, then the
Option shall terminate on the earlier of (i) the expiration
of the term of the Option set forth in subsection 6(a) or
(ii) the expiration of a period of three (3) months
after the termination of the Optionholders Continuous
Service during which the exercise of the Option would not be in
violation of such registration requirements.
(j)
Disability of Optionholder.
In
the event an Optionholders Continuous Service terminates
as a result of the Optionholders Disability, the
Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of
termination), but only within such period of time ending on the
earlier of (i) the date twelve (12) months following
such termination (or such longer or shorter period specified in
the Option Agreement, which, for Options granted prior to the
Listing Date, shall not be less than six (6) months) or
(ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder
does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(k)
Death of Optionholder.
In the
event (i) an Optionholders Continuous Service
terminates as a result of the Optionholders death or
(ii) the Optionholder dies within the period (if any)
specified in the Option Agreement after the termination of the
Optionholders Continuous Service for a reason other than
death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date
of death) by the Optionholders estate, by a person who
acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option
upon the Optionholders death pursuant to
subsection 6(e) or 6(f), but only within the period ending
on the earlier of (1) the date eighteen (18) months
following the date of death (or such longer or shorter period
specified in the Option Agreement, which, for Options granted
prior to the Listing Date, shall not be less than six
(6) months) or (2) the expiration of the term of such
Option as set forth in the Option Agreement. If, after death,
the Option is not exercised within the time specified herein,
the Option shall terminate.
(l)
Re-Load Options.
Without in any
way limiting the authority of the Board to make or not to make
grants of Options hereunder, the Board shall have the authority
(but not an obligation) to include as part of
B-6
Any such Re-Load Option may be an Incentive Stock
Option or a Nonstatutory Stock Option, as the Board may
designate at the time of the grant of the original Option;
provided, however, that the designation of any Re-Load Option as
an Incentive Stock Option shall be subject to the one hundred
thousand dollars ($100,000) annual limitation on exercisability
of Incentive Stock Options described in subsection 10(d)
and in Section 422(d) of the Code. There shall be no
Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares under
subsection 4(a) and the Section 162(m)
Limitation on the grants of Options under
subsection 5(c) and shall be subject to such other terms
and conditions as the Board may determine which are not
inconsistent with the express provisions of the Plan regarding
the terms of Options.
7. Provisions of
Stock Awards Other Than Options.
(a)
[reserved]
(b)
Restricted Stock Awards.
Each
restricted stock purchase agreement shall be in such form and
shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms
and conditions of separate restricted stock purchase agreements
need not be identical, but each restricted stock purchase
agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
B-7
8. Covenants of
the Company.
(a)
Availability of Shares.
During
the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of Common Stock required to
satisfy such Stock Awards.
(b)
Securities Law Compliance.
The
Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may
be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided,
however, that this undertaking shall not require the Company to
register under the Securities Act the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award.
If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such
authority is obtained.
9. Use of
Proceeds from Stock.
Proceeds from the sale of stock pursuant to Stock
Awards shall constitute general funds of the Company.
10. Miscellaneous.
(a)
Acceleration of Exercisability and
Vesting.
The Board shall have the power to accelerate the
time at which a Stock Award may first be exercised or the time
during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the
Stock Award stating the time at which it may first be exercised
or the time during which it will vest.
(b)
Shareholder Rights.
No
Participant shall be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to
such Stock Award unless and until such Participant has satisfied
all requirements for exercise of the Stock Award pursuant to its
terms.
(c)
No Employment or other Service
Rights.
Nothing in the Plan or any instrument executed or
Stock Award granted pursuant thereto shall confer upon any
Participant or other holder of Stock Awards any right to
continue to serve the Company or an Affiliate in the capacity in
effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate
(i) the employment of an Employee with or without notice
and with or without cause, (ii) the service of a Consultant
pursuant to the terms of such Consultants agreement with
the Company or an Affiliate or (iii) the service of a
Director pursuant to the Bylaws of the Company or an Affiliate,
and any applicable provisions of the corporate law of the state
in which the Company or the Affiliate is incorporated, as the
case may be.
(d)
Incentive Stock Option $100,000
Limitation.
To the extent that the aggregate Fair Market
Value (determined at the time of grant) of stock with respect to
which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of
the Company and its Affiliates) exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed
such limit (according to the order in which they were granted)
shall be treated as Nonstatutory Stock Options.
(e)
Investment Assurances.
The
Company may require a Participant, as a condition of exercising
or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the
Participants knowledge and experience in financial and
business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she
is capable of evaluating, alone or together with the purchaser
B-8
(f)
Withholding Obligations.
To the
extent provided by the terms of a Stock Award Agreement, the
Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition
of stock under a Stock Award by any of the following means (in
addition to the Companys right to withhold from any
compensation paid to the Participant by the Company) or by a
combination of such means: (i) tendering a cash payment;
(ii) authorizing the Company to withhold shares from the
shares of the Common Stock otherwise issuable to the Participant
as a result of the exercise or acquisition of stock under the
Stock Award; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
(g)
Repurchase Limitation.
The terms
of any repurchase option shall be specified in the Stock Award
and may be either at Fair Market Value at the time of repurchase
or at the original purchase price. To the extent required by
Section 260.140.41 and Section 260.140.42 of
Title 10 of the California Code of Regulations, any
repurchase option contained in a Stock Award granted prior to
the Listing Date to a Participant who is not an Officer,
Director or Consultant shall be upon the terms described below:
(h)
Cancellation and Re-Grant of
Options.
B-9
11. Adjustments
upon Changes in Stock.
(a)
Capitalization Adjustments.
If
any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the
Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities
subject to the Plan pursuant to subsection 4(a) and the maximum
number of securities subject to award to any person pursuant to
subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of securities
and price per share of stock subject to such outstanding Stock
Awards. The Board, the determination of which shall be final,
binding and conclusive, shall make such adjustments. (The
conversion of any convertible securities of the Company shall
not be treated as a transaction without receipt of
consideration by the Company.)
(b)
Change in Control
Dissolution or Liquidation.
In the event of a dissolution or
liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
(c)
Change in Control Asset
Sale, Merger, Consolidation or Reverse Merger.
12. Amendment of
the Plan and Stock Awards.
(a)
Amendment of Plan.
The Board at
any time, and from time to time, may amend the Plan. However,
except as provided in Section 11 relating to adjustments
upon changes in stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent
shareholder approval is
B-10
(b)
Shareholder Approval.
The Board
may, in its sole discretion, submit any other amendment to the
Plan for shareholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from
the limit on corporate deductibility of compensation paid to
certain executive officers.
(c)
Contemplated Amendments.
It is
expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide
eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted
under it into compliance therewith.
(d)
No Impairment of Rights.
Rights
under any Stock Award granted before amendment of the Plan shall
not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the Participant and
(ii) the Participant consents in writing.
(e)
Amendment of Stock Awards.
The
Board at any time, and from time to time, may amend the terms of
any one or more Stock Awards; provided, however, that the rights
under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of
the Participant and (ii) the Participant consents in
writing.
13. Termination
or Suspension of the Plan.
(a)
Plan Term.
The Board may suspend
or terminate the Plan at any time. Unless sooner terminated, the
Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or
approved by the shareholders of the Company, whichever is
earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b)
No Impairment of Rights.
Suspension or termination of the Plan shall not impair rights
and obligations under any Stock Award granted while the Plan is
in effect except with the written consent of the Participant.
14. Effective
Date of Plan.
The Plan shall become effective as determined by
the Board, but no Stock Award shall be exercised (or, in the
case of a stock bonus, shall be granted) unless and until the
Plan has been approved by the shareholders of the Company, which
approval shall be within twelve (12) months before or after
the date the Plan is adopted by the Board.
15. Choice of
Law.
All questions concerning the construction,
validity and interpretation of this Plan shall be governed by
the law of the State of Washington, without regard to such
states conflict of laws rules.
B-11
APPENDIX C
F5 NETWORKS, INC
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY BOARD OF DIRECTORS APRIL 5 ,
1999
Purpose.
The purpose of the Plan is to provide a means by
which Employees of the Company and certain designated Affiliates
may be given an opportunity to purchase Shares of the Company.
The Company, by means of the Plan, seeks to
retain the services of such Employees, to secure and retain the
services of new Employees and to provide incentives for such
persons to exert maximum efforts for the success of the Company
and its Affiliates.
The Company intends that the Rights to purchase
Shares granted under the Plan be considered options issued under
an employee stock purchase plan, as that term is
defined in Section 423(b) of the Code.
Definitions.
Affiliate
means any parent corporation or
subsidiary corporation, whether now or hereafter existing, as
those terms are defined in Sections 424(e) and (f),
respectively, of the Code.
Board
means the Board of Directors of the
Company.
Code
means the United States Internal
Revenue Code of 1986, as amended.
Committee
means a Committee appointed by the
Board in accordance with subparagraph 3(c) of the Plan.
Company
means F5 Networks, Inc., a Washington corporation.
Director
means a member of the Board.
Eligible Employee
means an Employee who meets the
requirements set forth in the Offering for eligibility to
participate in the Offering.
Employee
means any person, including Officers
and Directors, employed by the Company or an Affiliate of the
Company. Neither service as a Director nor payment of a
directors fee shall be sufficient to constitute
employment by the Company or the Affiliate.
Employee Stock Purchase Plan
means a plan that grants rights
intended to be options issued under an employee stock
purchase plan, as that term is defined in
Section 423(b) of the Code.
Exchange Act
means the United States Securities
Exchange Act of 1934, as amended.
Fair Market Value
means the value of a security, as
determined in good faith by the Board. If the security is listed
on any established stock exchange or traded on the Nasdaq
National Market or the Nasdaq SmallCap Market, then, except as
otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where
necessary to the nearest whole cent) for such security (or the
closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest
volume of trading in the relevant security of the Company) on
the trading day prior to the relevant determination date, as
reported in
The Wall Street Journal
or such other source
as the Board deems reliable.
Non-Employee Director
means a Director who either
(i) is not a current Employee or Officer of the Company or
its parent or subsidiary, does not receive compensation
(directly or indirectly) from the Company
C-1
Offering
means the grant of Rights to purchase
Shares under the Plan to Eligible Employees.
Offering Date
means a date selected by the Board for
an Offering to commence.
Outside Director
means a Director who either
(i) is not a current employee of the Company or an
affiliated corporation (within the meaning of the
Treasury regulations promulgated under Section 162(m) of
the Code), is not a former employee of the Company or an
affiliated corporation receiving compensation for
prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an
affiliated corporation at any time, and is not
currently receiving direct or indirect remuneration from the
Company or an affiliated corporation for services in
any capacity other than as a Director, or (ii) is otherwise
considered an outside director for purposes of
Section 162(m) of the Code.
Participant
means an Eligible Employee who holds
an outstanding Right granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Right
granted under the Plan.
Plan
means this F5 Networks, Inc. 1999
Employee Stock Purchase Plan.
Purchase Date
means one or more dates established by
the Board during an Offering on which Rights granted under the
Plan shall be exercised and purchases of Shares carried out in
accordance with such Offering.
Right
means an option to purchase Shares
granted pursuant to the Plan.
Rule 16b-3
means Rule 16b-3 of the Exchange
Act or any successor to Rule 16b-3 as in effect with respect to
the Company at the time discretion is being exercised regarding
the Plan.
Securities Act
means the United States Securities Act
of 1933, as amended.
Share
means a share of the common stock of
the Company.
Administration.
The Board shall administer the Plan unless and
until the Board delegates administration to a Committee, as
provided in subparagraph 3(c). Whether or not the Board has
delegated administration, the Board shall have the final power
to determine all questions of policy and expediency that may
arise in the administration of the Plan.
The Board (or the Committee) shall have the
power, subject to, and within the limitations of, the express
provisions of the Plan:
To determine when and how Rights to purchase
Shares shall be granted and the provisions of each Offering of
such Rights (which need not be identical).
To designate from time to time which Affiliates
of the Company shall be eligible to participate in the Plan.
To construe and interpret the Plan and Rights
granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise
of this power, may correct any defect, omission or inconsistency
in the Plan, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.
To amend the Plan as provided in
paragraph 14.
C-2
Generally, to exercise such powers and to perform
such acts as it deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the
intent that the Plan be treated as an Employee Stock Purchase
Plan.
The Board may delegate administration of the Plan
to a Committee of the Board composed of two (2) or more
members, all of the members of which Committee may be, in the
discretion of the Board, Non-Employee Directors and/or Outside
Directors. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee of two
(2) or more Outside Directors any of the administrative
powers the Committee is authorized to exercise (and references
in this Plan to the Board shall thereafter be to the Committee
or such a subcommittee), subject, however, to such resolutions,
not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish
the Committee at any time and revest in the Board the
administration of the Plan.
Shares Subject to the Plan.
Subject to the provisions of paragraph 13
relating to adjustments upon changes in securities, the Shares
that may be sold pursuant to Rights granted under the Plan shall
not exceed in the aggregate one million (1,000,000) Shares. If
any Right granted under the Plan shall for any reason terminate
without having been exercised, the Shares not purchased under
such Right shall again become available for the Plan.
The Shares subject to the Plan may be unissued
Shares or Shares that have been bought on the open market at
prevailing market prices or otherwise.
Grant of Rights; Offering.
The Board may from time to time grant or provide
for the grant of Rights to purchase Shares of the Company under
the Plan to Eligible Employees in an Offering on an Offering
Date or Dates selected by the Board. Each Offering shall be in
such form and shall contain such terms and conditions as the
Board shall deem appropriate, which shall comply with the
requirements of Section 423(b)(5) of the Code that all
Employees granted Rights to purchase Shares under the Plan shall
have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and
treated as part of the Plan. The provisions of separate
Offerings need not be identical, but each Offering shall include
(through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise)
the period during which the Offering shall be effective, which
period shall not exceed twenty-seven (27) months beginning
with the Offering Date, and the substance of the provisions
contained in paragraphs 6 through 9, inclusive.
If a Participant has more than one Right
outstanding under the Plan, unless he or she otherwise indicates
in agreements or notices delivered hereunder: (i) each
agreement or notice delivered by that Participant will be deemed
to apply to all of his or her Rights under the Plan, and
(ii) an earlier-granted Right (or a Right with a lower
exercise price, if two Rights have identical grant dates) will
be exercised to the fullest possible extent before a
later-granted Right (or a Right with a higher exercise price if
two Rights have identical grant dates) will be exercised.
Eligibility.
Rights may be granted only to Employees of the
Company or, as the Board may designated as provided in
subparagraph 3(b), to Employees of an Affiliate. Except as
provided in subparagraph 6(b), an Employee shall not be eligible
to be granted Rights under the Plan unless, on the Offering
Date, such Employee has been in the employ of the Company or the
Affiliate, as the case may be, for such continuous period
preceding such grant as the Board may require, but in no event
shall the required period of continuous employment be equal to
or greater than two (2) years.
The Board may provide that each person who,
during the course of an Offering, first becomes an Eligible
Employee will, on a date or dates specified in the Offering
which coincides with the day on which such person
C-3
No Employee shall be eligible for the grant of
any Rights under the Plan if, immediately after any such Rights
are granted, such Employee owns stock possessing five percent
(5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 6(c), the rules of
Section 424(d) of the Code shall apply in determining the
stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be
treated as stock owned by such Employee.
An Eligible Employee may be granted Rights under
the Plan only if such Rights, together with any other Rights
granted under all Employee Stock Purchase Plans of the Company
and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such Eligible Employees rights to
purchase Shares of the Company or any Affiliate to accrue at a
rate which exceeds twenty five thousand dollars ($25,000) of the
fair market value of such Shares (determined at the time such
Rights are granted) for each calendar year in which such Rights
are outstanding at any time.
The Board may provide in an Offering that
Employees who are highly compensated Employees within the
meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
Rights; Purchase Price.
On each Offering Date, each Eligible Employee,
pursuant to an Offering made under the Plan, shall be granted
the Right to purchase up to the number of Shares purchasable
either:
The Board shall establish one or more Purchase
Dates during an Offering on which Rights granted under the Plan
shall be exercised and purchases of Shares carried out in
accordance with such Offering.
In connection with each Offering made under the
Plan, the Board may specify a maximum amount of Shares that may
be purchased by any Participant as well as a maximum aggregate
amount of Shares that may be purchased by all Participants
pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board
may specify a maximum aggregate amount of Shares which may be
purchased by all Participants on any given Purchase Date under
the Offering. If the aggregate purchase of Shares upon exercise
of Rights granted under the Offering would exceed any such
maximum aggregate amount, the Board shall make a pro rata
allocation of the Shares available in as nearly a uniform manner
as shall be practicable and as it shall deem to be equitable.
C-4
The purchase price of Shares acquired pursuant to
Rights granted under the Plan shall be not less than the lesser
of:
Participation; Withdrawal;
Termination.
An Eligible Employee may become a Participant in
the Plan pursuant to an Offering by delivering a participation
agreement to the Company within the time specified in the
Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the
maximum percentage specified by the Board of such
Employees Earnings during the Offering (as defined in each
Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant
under the Plan and either may be deposited with the general
funds of the Company or may be deposited in a separate account
in the name of, and for the benefit of, such Participant with a
financial institution designated by the Company. To the extent
provided in the Offering, a Participant may reduce (including to
zero) or increase such payroll deductions. To the extent
provided in the Offering, a Participant may begin such payroll
deductions after the beginning of the Offering. A Participant
may make additional payments into his or her account only if
specifically provided for in the Offering and only if the
Participant has not already had the maximum permitted amount
withheld during the Offering.
At any time during an Offering, a Participant may
terminate his or her payroll deductions under the Plan and
withdraw from the Offering by delivering to the Company a notice
of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board in the Offering. Upon
such withdrawal from the Offering by a Participant, the Company
shall distribute to such Participant all of his or her
accumulated payroll deductions (reduced to the extent, if any,
such deductions have been used to acquire Shares for the
Participant) under the Offering, without interest unless
otherwise specified in the Offering, and such Participants
interest in that Offering shall be automatically terminated. A
Participants withdrawal from an Offering will have no
effect upon such Participants eligibility to participate
in any other Offerings under the Plan but such Participant will
be required to deliver a new participation agreement in order to
participate in subsequent Offerings under the Plan.
Rights granted pursuant to any Offering under the
Plan shall terminate immediately upon cessation of any
participating Employees employment with the Company or a
designated Affiliate for any reason (subject to any
post-employment participation period required by law) or other
lack of eligibility. The Company shall distribute to such
terminated Employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have
been used to acquire Shares for the terminated Employee) under
the Offering, without interest unless otherwise specified in the
Offering. If the accumulated payroll deductions have been
deposited with the Companys general funds, then the
distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial
institution as provided in subparagraph 8(a), then the
distribution shall be made from the separate account, without
interest unless otherwise specified in the Offering.
Rights granted under the Plan shall not be
transferable by a Participant otherwise than by will or the laws
of descent and distribution, or by a beneficiary designation as
provided in paragraph 15 and, otherwise during his or her
lifetime, shall be exercisable only by the person to whom such
Rights are granted.
Exercise.
On each Purchase Date specified therefor in the
relevant Offering, each Participants accumulated payroll
deductions and other additional payments specifically provided
for in the Offering (without any increase for interest) will be
applied to the purchase of Shares up to the maximum amount of
Shares permitted pursuant
C-5
Unless otherwise specifically provided in the
Offering, the amount, if any, of accumulated payroll deductions
remaining in any Participants account after the purchase
of Shares that is equal to the amount required to purchase one
or more whole Shares on the final Purchase Date of the Offering
shall be distributed in full to the Participant at the end of
the Offering, without interest. If the accumulated payroll
deductions have been deposited with the Companys general
funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated
payroll deductions have been deposited in a separate account
with a financial institution as provided in subparagraph 8(a),
then the distribution shall be made from the separate account,
without interest unless otherwise specified in the Offering.
No Rights granted under the Plan may be exercised
to any extent unless the Shares to be issued upon such exercise
under the Plan (including Rights granted thereunder) are covered
by an effective registration statement pursuant to the
Securities Act and the Plan is in material compliance with all
applicable state, foreign and other securities and other laws
applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance,
no Rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be
delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve
(12) months and the Purchase Date shall in no event be more
than twenty-seven (27) months from the Offering Date. If,
on the Purchase Date of any Offering hereunder, as delayed to
the maximum extent permissible, the Plan is not registered and
in such compliance, no Rights granted under the Plan or any
Offering shall be exercised and all payroll deductions
accumulated during the Offering (reduced to the extent, if any,
such deductions have been used to acquire Shares) shall be
distributed to the Participants, without interest unless
otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Companys general
funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated
payroll deductions have been deposited in a separate account
with a financial institution as provided in
subparagraph 8(a), then the distribution shall be made from
the separate account, without interest unless otherwise
specified in the Offering.
Covenants of the Company.
During the terms of the Rights granted under the
Plan, the Company shall ensure that the amount of Shares
required to satisfy such Rights are available.
The Company shall seek to obtain from each
federal, state, foreign or other regulatory commission or agency
having jurisdiction over the Plan such authority as may be
required to issue and sell Shares upon exercise of the Rights
granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission
or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of Shares under the
Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights
unless and until such authority is obtained.
Use of Proceeds from Shares.
Proceeds from the sale of Shares pursuant to
Rights granted under the Plan shall constitute general funds of
the Company.
Rights as a Shareholder.
A Participant shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect
to, Shares subject to Rights granted under the Plan unless and
until the Participants Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.
C-6
Adjustments upon Changes in
Securities.
If any change is made in the Shares subject to
the Plan, or subject to any Right, without the receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split,
liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving
the receipt of consideration by the Company), the Plan will be
appropriately adjusted in the class(es) and maximum number of
Shares subject to the Plan pursuant to subparagraph 4(a), and
the outstanding Rights will be appropriately adjusted in the
class(es), number of Shares and purchase limits of such
outstanding Rights. The Board shall make such adjustments, and
its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall
not be treated as a transaction that does not involve the
receipt of consideration by the Company.)
In the event of: (i) a dissolution,
liquidation, or sale of all or substantially all of the assets
of the Company; (ii) a merger or consolidation in which the
Company is not the surviving corporation; or (iii) a
reverse merger in which the Company is the surviving corporation
but the Shares outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether
in the form of securities, cash or otherwise, then: (1) any
surviving or acquiring corporation shall assume Rights
outstanding under the Plan or shall substitute similar rights
(including a right to acquire the same consideration paid to
Shareholders in the transaction described in this
subparagraph 13(b)) for those outstanding under the Plan,
or (2) in the event any surviving or acquiring corporation
refuses to assume such Rights or to substitute similar rights
for those outstanding under the Plan, then, as determined by the
Board in its sole discretion such Rights may continue in full
force and effect or the Participants accumulated payroll
deductions (exclusive of any accumulated interest which cannot
be applied toward the purchase of Shares under the terms of the
Offering) may be used to purchase Shares immediately prior to
the transaction described above under the ongoing Offering and
the Participants Rights under the ongoing Offering
thereafter terminated.
Amendment of the Plan.
The Board at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 13
relating to adjustments upon changes in securities and except as
to minor amendments to benefit the administration of the Plan,
to take account of a change in legislation or to obtain or
maintain favorable tax, exchange control or regulatory treatment
for Participants or the Company or any Affiliate, no amendment
shall be effective unless approved by the shareholders of the
Company to the extent shareholder approval is necessary for the
Plan to satisfy the requirements of Section 423 of the
Code, Rule 16b-3 under the Exchange Act and any Nasdaq or
other securities exchange listing requirements. Currently under
the Code, shareholder approval within twelve (12) months
before or after the adoption of the amendment is required where
the amendment will:
It is expressly contemplated that the Board may
amend the Plan in any respect the Board deems necessary or
advisable to provide Employees with the maximum benefits
provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee
Stock Purchase Plans and/or to bring the Plan and/or Rights
granted under it into compliance therewith.
Rights and obligations under any Rights granted
before amendment of the Plan shall not be impaired by any
amendment of the Plan, except with the consent of the person to
whom such Rights were granted, or
C-7
Designation of Beneficiary.
A Participant may file a written designation of a
beneficiary who is to receive any Shares and/or cash, if any,
from the Participants account under the Plan in the event
of such Participants death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares
and cash. In addition, a Participant may file a written
designation of a beneficiary who is to receive any cash from the
Participants account under the Plan in the event of such
Participants death during an Offering.
The Participant may change such designation of
beneficiary 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 Participants death, the Company shall deliver such
Shares and/or cash to the executor or administrator of the
estate of the Participant, or if no such executor or
administrator has been appointed (to the knowledge of the
Company), the Company, in its sole discretion, may deliver such
Shares and/or cash to the spouse or to any one or more
dependents or relatives of the Participant, or if no spouse,
dependent or relative is known to the Company, then to such
other person as the Company may designate.
Termination or Suspension of the
Plan.
The Board in its discretion may suspend or
terminate the Plan at any time. Unless sooner terminated, the
Plan shall terminate at the time that all of the Shares subject
to the Plans reserve, as increased and/or adjusted from
time to time, have been issued under the terms of the Plan. No
Rights may be granted under the Plan while the Plan is suspended
or after it is terminated.
Rights and obligations under any Rights granted
while the Plan is in effect shall not be impaired by suspension
or termination of the Plan, except as expressly provided in the
Plan or with the consent of the person to whom such Rights were
granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that
the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.
Effective Date of Plan.
The Plan shall become effective as determined by
the Board, but no Rights granted under the Plan shall be
exercised unless and until the Plan has been approved by the
shareholders of the Company within twelve (12) months
before or after the date the Plan is adopted by the Board, which
date may be prior to the effective date set by the Board.
C-8
VOTE BY INTERNET
www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of information up until
11:59 P.M. Eastern Time on April 28, 2004. Have your
proxy card in hand when you access the web site and follow the
instructions to obtain your records and to create an electronic
voting instruction form.
VOTE BY PHONE
1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern Time on
April 28, 2004. Have your proxy card in hand when you call
and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it
in the postage-paid envelope weve provided or return to F5
Networks, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
F5 NETWORKS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joann M. Reiter, with full power of
substitution, proxy to vote at the Annual Meeting of Shareholders of F5
Networks, Inc. (the Company), to be held on April 29, 2004 at 10:00 a.m.,
local time, at F5 Networks, Inc. Headquarters, 401 Elliott Avenue West,
Seattle, WA 98119, and at any adjournment thereof, hereby revoking any proxies
heretofore given, to vote all shares of Common Stock of the Company, held or
owned by the undersigned, as directed on the reverse side of this proxy card,
and in her discretion upon such other matters as may come before the meeting.
(TO BE SIGNED ON REVERSE SIDE)
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
NOTE: Please sign exactly as name(s) appears hereon. When signing in a
representative capacity, please give title.
By Order of the Board of Directors,
Joann Reiter
Vice President, General Counsel and
Secretary
(i) If the Common Stock is listed on any
established stock exchange or traded on the Nasdaq National
Market or the Nasdaq SmallCap Market, the Fair Market Value of a
share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the
greatest volume of trading in the Common Stock) on the day of
determination or, if the day of determination is not a market
trading day, then on the last market trading day prior to the
day of determination, as reported in
The Wall Street Journal
or such other source as the Board deems reliable.
(ii) In the absence of such markets for the
Common Stock, the Fair Market Value shall be determined in good
faith by the Board.
(i) To determine from time to time which of
the persons eligible under the Plan shall be granted Stock
Awards; when and how each Stock Award shall be granted; what
type or combination of types of Stock Award shall be granted;
the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award; and the
number of shares with respect to which a Stock Award shall be
granted to each such person.
(ii) To construe and interpret the Plan and
Stock Awards granted under it, and to establish, amend and
revoke rules and regulations for its administration. The Board,
in the exercise of this power, may correct any defect, omission
or inconsistency in the Plan or in any Stock Award Agreement, in
a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as
provided in Section 12.
(iv) Generally, to exercise such powers and
to perform such acts as the Board deems necessary or expedient
to promote the best interests of the Company which are not in
conflict with the provisions of the Plan.
(i)
General.
The Board may delegate
administration of the Plan to a Committee or Committees of one
or more members of the Board, and the term Committee
shall apply to any person or persons to whom such authority has
been delegated. The Board or the Committee may further delegate
its authority and responsibilities under the Plan to an Officer.
However, if administration is delegated to an Officer,
such Officer may grant Stock Awards only within
guidelines established by the Board or the Committee, and only
the Board or the Committee may make a Stock Award to an Officer
or Director. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise
(and references in this Plan to the Board shall thereafter be to
the Committee or subcommittee, or an Officer to whom authority
has been delegated), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration
of the Plan.
(ii)
Committee Composition.
In the
discretion of the Board, a Committee may consist solely of two
or more Outside Directors, in accordance with
Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3.
Within the scope of such authority, the Board or the Committee
may (i) delegate to a committee of one or more members of
the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (1) not
then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from
such Stock Award or (2) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the
Code and/or) (ii) delegate to a committee of one or more
members of the Board who are not Non-Employee Directors the
authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
(i)
Purchase Price.
Subject to the
provisions of subsection 5(b) regarding Ten Percent
Shareholders, the purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall
determine and designate in such restricted stock purchase
agreement. For restricted stock awards, the purchase price shall
not be less than fifty percent (50%) of the stocks Fair
Market Value on the date such award is made or at the time the
purchase is consummated.
(ii)
Consideration.
The purchase
price of stock acquired pursuant to the restricted stock
purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board,
according to a deferred payment or other arrangement with the
Participant; or (iii) in any other form of legal
consideration that may be acceptable to the Board in its
discretion. Notwithstanding the foregoing, no Officer or
Director may pay the purchase price for restricted stock by a
deferred payment arrangement.
(iii)
Vesting.
Subject to the
Repurchase Limitation in subsection 10(g), shares of
Common Stock acquired under the restricted stock purchase
agreement must be subject to a share repurchase option in favor
of the Company in accordance with a vesting schedule to be
determined by the Board.
(iv)
Termination of Participants
Continuous Service.
Subject to the Repurchase
Limitation in subsection 10(g), in the event a
Participants Continuous Service terminates, the Company
may repurchase or otherwise reacquire any or all of the shares
of Common Stock held by the Participant which have not vested as
of the date of termination under the terms of the restricted
stock purchase agreement.
(v)
Transferability.
For a restricted
stock award made before the Listing Date, rights to acquire
shares under the restricted stock purchase agreement shall not
be transferable except by will or by the
laws of descent and distribution and shall be
exercisable during the lifetime of the Participant only by the
Participant. For a restricted stock award made on or after the
Listing Date, rights to acquire shares under the restricted
stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth
in the restricted stock purchase agreement, as the Board shall
determine in its discretion, so long as stock awarded under the
restricted stock purchase agreement remains subject to the terms
of the restricted stock purchase agreement.
(i)
Fair Market Value.
If the
repurchase option gives the Company the right to repurchase the
shares upon termination of employment at not less than the Fair
Market Value of the shares to be purchased on the date of
termination of Continuous Service, then (i) the right to
repurchase shall be exercised for cash or cancellation of
purchase money indebtedness for the shares within ninety
(90) days of termination of Continuous Service (or in the
case of shares issued upon exercise of Stock Awards after such
date of termination, within ninety (90) days after the date
of the exercise) or such longer period as may be agreed to by
the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the
Code regarding qualified small business stock) and
(ii) the right terminates when the shares become publicly
traded.
(ii)
Original Purchase Price.
If the
repurchase option gives the Company the right to repurchase the
shares upon termination of Continuous Service at the original
purchase price, then (i) the right to repurchase at the
original purchase price shall lapse at the rate of at least
twenty percent (20%) of the shares per year over five
(5) years from the date the Stock Award is granted (without
respect to the date the Stock Award was exercised or became
exercisable) and (ii) the right to repurchase shall be
exercised for cash or cancellation of purchase money
indebtedness for the shares within ninety (90) days of
termination of Continuous Service (or in the case of shares
issued upon exercise of Options after such date of termination,
within ninety (90) days after the date of the exercise) or
such longer period as may be agreed to by the Company and the
Participant (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code regarding
qualified small business stock).
(i)
Authority to Reprice.
Without the
approval of the shareholders of the Company, the Board shall not
have the authority to effect, at any time and from time to time,
(i) the repricing of any outstanding Options under the Plan
and/or (ii) with the consent of any adversely affected
holders of Options, the cancellation of any outstanding Options
under the Plan and the grant in substitution therefor of new
Options under the Plan covering the same or different numbers of
shares of Common Stock.
(ii)
Effect of Repricing under
Section 162(m) of the Code.
Shares subject to an Option
which is amended or canceled in order to set a lower exercise
price per share shall continue to be counted against the maximum
award of Options permitted to be granted pursuant to
subsection 5(c). The repricing of an Option under this
subsection 10(i) resulting in a reduction of the exercise
price shall be deemed to be a cancellation of the original
Option and the grant of a substitute Option; in the event of
such repricing, both the original and the substituted Options
shall be counted against the maximum awards of Options permitted
to be granted pursuant to subsection 5(c). The provisions
of this subsection 10(i)(b) shall be applicable only to the
extent required by Section 162(m) of the Code.
(i) In the event of (1) a sale of
substantially all of the assets of the Company, (2) a
merger or consolidation in which the Company is not the
surviving corporation or (3) a reverse merger in which the
Company is the surviving corporation but the shares of Common
Stock outstanding immediately preceding the merger are converted
by virtue of the merger into other property, whether in the form
of securities, cash or otherwise, then any surviving corporation
or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock
awards (including an award to acquire the same consideration
paid to the shareholders in the transaction described in this
subsection 11(c) for those outstanding under the Plan).
(ii) For purposes of subsection 11(c)
an Award shall be deemed assumed if, following the change in
control, the Award confers the right to purchase in accordance
with its terms and conditions, for each share of Common Stock
subject to the Award immediately prior to the change in control,
the consideration (whether stock, cash or other securities or
property) to which a holder of a share of Common Stock on the
effective date of the change in control was entitled.
(iii) In the event any surviving corporation
or acquiring corporation refuses to assume such Stock Awards or
to substitute similar stock awards for those outstanding under
the Plan, then with respect to Stock Awards held by Participants
whose Continuous Service has not terminated, the vesting of 50%
of such Stock Awards (and, if applicable, the time during which
such Stock Awards may be exercised) shall be accelerated in
full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other
Stock Awards outstanding under the Plan, such Stock Awards shall
terminate if not exercised (if applicable) prior to such event.
the date on which such Right is granted shall be
the Offering Date of such Right for all purposes,
including determination of the exercise price of such Right;
the period of the Offering with respect to such
Right shall begin on its Offering Date and end coincident with
the end of such Offering; and
the Board may provide that if such person first
becomes an Eligible Employee within a specified period of time
before the end of the Offering, he or she will not receive any
Right under that Offering.
with a percentage designated by the Board not
exceeding fifteen percent (15%) of such Employees Earnings
(as defined by the Board in each Offering) during the period
which begins on the Offering Date (or such later date as the
Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the
end of the Offering; or
with a maximum dollar amount designated by the
Board that, as the Board determines for a particular Offering,
(1) shall be withheld, in whole or in part, from such
Employees Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date
(or such later date as the Board determines for a particular
Offering) and ends on the date stated in the Offering, which
date shall be no later than the end of the Offering and/or (2)
shall be contributed, in whole or in part, by such Employee
during such period.
an amount equal to eighty-five percent (85%) of
the fair market value of the Shares on the Offering Date; or
an amount equal to eighty-five percent (85%) of
the fair market value of the Shares on the Purchase Date.
Increase the amount of Shares reserved for Rights
under the Plan;
Modify the provisions as to eligibility for
participation in the Plan to the extent such modification
requires shareholder approval in order for the Plan to obtain
employee stock purchase plan treatment under Section 423 of
the Code or to comply with the requirements of Rule 16b-3;
or
Modify the Plan in any other way if such
modification requires shareholder approval in order for the Plan
to obtain employee stock purchase plan treatment under
Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
ANNUAL MEETING OF SHAREHOLDERS
April 29, 2004
F5 NETWORKS, INC.
401 ELLIOTT AVENUE WEST
SEATTLE, WA 98119
VOTE BY INTERNETwww.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the
day before the cut-off date or meeting date. Have
your proxy card in hand when you access the web
site and follow the instructions to obtain your
records and to create an electronic voting
instruction form.
VOTE BY PHONE1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern
Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you call
and then follow the instructions.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it
in the postage-paid envelope weve provided or
return to F5 Networks, Inc., c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717.
F5NET1
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
Nominees: Class II
1. 01) John McAdam
02) Alan J.
Higginson
For
All
[ ]
Withhold
All
[ ]
For All
Except
[ ]
To withhold authority to vote,
mark For All Except and write
the nominees number on the line
below.
For
Withhold
Abstain
[ ]
[ ]
[ ]
For
Against
Abstain
[ ]
[ ]
[ ]
Purchase Plan
[ ]
[ ]
[ ]
This proxy is revocable and when
properly executed, will be voted in
the manner directed by the
undersigned shareholder. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE
PROPOSALS.
Date
Signature (Joint Owners)
Date