SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. __)
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
V-ONE Corporation
(Name of Registrant as Specified In Its Charter)
V-ONE Corporation
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
1) Title of each class of securities to which
transaction applies:_________________________
2) Aggregate number of securities to which
transaction applies:_________________________
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the
filing is calculated and state how it was
determined):__________________________________
----------------------------------------------
4) Proposed maximum aggregate value of transaction:_
-------------------------------------------------
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:__________________________________
2) Form, Schedule or Registration Statement Number:_________
---------------------------------------------------------
3) Filing Party:____________________________________________
4) Date Filed:______________________________________________
<PAGE>
(COMPANY LOGO)
V-ONE
------------------------------
Security for a Connected World
`
March 31, 1997
Dear Shareholder:
On behalf of the Board of Directors, I cordially invite you to attend
the Annual Meeting of Shareholders of V-ONE Corporation ("Company"). The Annual
Meeting will be held at the Courtyard by Marriott, 2500 Research Boulevard,
Rockville, Maryland 20850, on May 15, 1997 at 10:00 a.m. Eastern Daylight time.
The stockholders will be asked at the Annual Meeting to vote on two
proposals. The first proposal relates to the reelection, with a term ending in
the year 2000, of one director of the Company. The second proposal relates to
the ratification of the Board of Directors' appointment of the auditors of the
Company for the year ending December 31, 1997. The Board of Directors
unanimously recommends that the Company's stockholders vote for both proposals.
Your vote is very important, regardless of the number of shares you
own. Please sign and return each proxy card that you receive in the postage-paid
return envelope, which is provided for your convenience. The return of your
proxy card will not prevent you from voting in person but will assure that your
vote is counted if you are unable to attend the Annual Meeting. We look forward
to seeing you on May 15.
Sincerely,
James F. Chen
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
1803 Research Boulevard, Suite 305, Rockville, Maryland 20850/ (301) 838-8900
<PAGE>
V-ONE CORPORATION
1803 RESEARCH BOULEVARD, SUITE 305 ROCKVILLE, MARYLAND 20850 (301) 838-8900
-------------------------
NOTICE
ANNUAL MEETING OF STOCKHOLDERS
MARCH 31, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders
("Annual Meeting") of V-ONE Corporation ("Company") will be held on May 15, 1997
at 10:00 a.m., Eastern Daylight time, at the Courtyard by Marriott, 2500
Research Boulevard, Rockville, Maryland 20850, for the following purposes:
1. To elect one director for the term expiring at the annual meeting held
in the year 2000 or until his successor has been elected and qualified;
2. To ratify the appointment of Coopers & Lybrand L.L.P., independent
public accountants, as the auditors of the Company for the year ending
December 31, 1997; and
3. To transact any other business as may properly come before the Annual
Meeting, or any adjournment thereof.
The Board of Directors has fixed the close of business on March 18,
1997 as the record date ("Record Date") for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting and at any adjournment
thereof. A complete list of stockholders of record of the Company on the Record
Date will be available for examination by any stockholder, for any purpose
germane to the Annual Meeting, during ordinary business hours, for the 10-day
period prior to the Annual Meeting, at the executive offices of the Company,
1803 Research Boulevard, Suite 305, Rockville, Maryland 20850.
BY ORDER OF THE BOARD OF DIRECTORS
Charles C. Chen
SECRETARY
Rockville, Maryland
March 31, 1997
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING, OR IN
PERSON, AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
<PAGE>
V-ONE CORPORATION
----------------------------
1803 Research Boulevard, Suite 305 Rockville, Maryland 20850 (301) 838-8900
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
The enclosed proxy is solicited by the Board of Directors of V-ONE
Corporation, a Delaware corporation ("Company"), for use at the Annual Meeting
of Stockholders on May 15, 1997 ("Annual Meeting"), and at any adjournment
thereof. The approximate date of mailing of this Proxy Statement is March 31,
1997.
INFORMATION RELATING TO VOTING AT THE ANNUAL MEETING
The securities to be voted at the Annual Meeting consist of shares of
common stock of the Company, $0.001 par value per share ("Common Stock"), with
each share entitling its record owner to one vote on the Proposals and on all
other matters properly brought before the Annual Meeting. The close of business
on March 18, 1997 has been fixed by the Board of Directors as the record date
("Record Date") for determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting. There were 1,291 record holders of the Common Stock
on the Record Date and 12,664,723 shares of Common Stock were outstanding and
eligible to be voted at the Annual Meeting as of that date. The Company had no
other class of voting securities outstanding on the Record Date.
The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of the Common Stock entitled to vote at the
Annual Meeting is necessary to constitute a quorum at the Annual Meeting. In the
event that less than a majority of the outstanding shares are present at the
Annual Meeting either in person or by proxy, a majority of the shares so
represented may vote to adjourn the Annual Meeting from time to time without
further notice. Directors receiving a plurality of votes will be elected in the
order of the number of votes received. With respect to the second proposal and
any other matter properly brought before the Annual Meeting or any adjournment
thereof, the vote required for approval shall be the affirmative vote of a
majority of the total number of votes that those present at the Annual Meeting,
in person or by proxy, are entitled to cast. There is no cumulative voting in
the election of directors.
All shares entitled to vote represented by a properly executed and
unrevoked proxy received in time for the Annual Meeting will be voted at the
Annual Meeting in accordance with the instructions given; in the absence of
instructions to the contrary, such shares will be voted FOR the Proposal to
elect the designated nominee for director and FOR the ratification of Coopers &
Lybrand L.L.P. as the Company's auditors. If any other matters properly come
before the Annual Meeting, the persons named as proxies will vote upon such
matters as determined by a majority of the Board of Directors.
Under Delaware law, shares represented at the Annual Meeting (either by
properly executed proxy or in person) that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee which are represented at
the Annual Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions as to either Proposal One or Proposal Two will have the same
effect as votes against the respective proposals. Broker non-votes, however,
will be treated as unvoted for purposes of determining approval of such
proposals (and therefore will reduce the absolute number - although not the
percentage - of votes needed for approval) and will not be counted as votes for
or against the proposals.
The cost of soliciting proxies will be borne by the Company. In
addition to use of the mails, proxies may be solicited personally or by
telephone or telegraph by officers, directors or employees of the Company who
will not be specially compensated for such solicitation activities. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for forwarding solicitation materials to the beneficial owners of
shares held of record by such persons, and the Company will reimburse such
persons for their reasonable expenses incurred in that connection.
<PAGE>
A stockholder may revoke his or her proxy at any time prior to its
exercise by (i) filing with Charles C. Chen, Secretary, V-ONE Corporation, 1803
Research Boulevard, Suite 305, Rockville, Maryland 20850, written notice
thereof, (ii) submitting a duly executed proxy bearing a later date or (iii)
appearing at the Annual Meeting and giving the Secretary notice of his or her
intention to vote in person. Unless previously revoked or otherwise instructed
thereon, proxies will be voted at the Annual Meeting on the Proposals as
described above.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The number of shares of Common Stock held as of February 28, 1997, by
each holder, if any, of more than 5% of the outstanding Common Stock of the
Company, by each director of the Company, each nominee for reelection as a
director, each executive officer named in the "Summary Compensation Table," and
by all executive officers and directors of the Company is set forth below. All
of the shares shown in the following table are shares of Common Stock and are
owned both of record and beneficially by the person named; the person named
possesses sole voting and investment power, except as otherwise indicated in the
footnotes to the table.
NAME AND ADDRESS (1) SHARES BENEFICIALLY OWNED(2) PERCENT OF CLASS(3)
- - ---------------- ------------------------- -------------------
James F. Chen 4,502,162 (4) 35.5%
Jieh-Shan Wang 485,184 (5) 3.8%
Robert W. Rybicki 95,377 (6) *%
William C. Wilson 156,169 (7) 1.2%
Charles C. Chen 200,000 (8) 1.6%
Hai Hua Cheng 1,669,139 13.2%
Harry S. Gruner 393,331 (9) 3.0%
William E. Odom 6,666 (10) *%
Executive Officers and Directors 7,523,028 (11) 59.3%
as a group (10 persons)
- - --------------------
* Less than 1%.
(1) Unless otherwise indicated, the mailing address of each shareholder is
c/o V-ONE Corporation, 1803 Research Boulevard, Suite 305, Rockville,
MD 20850.
(2) In accordance with Rule 13d-3 of the Exchange Act, a person is deemed
to be the beneficial owner of a security if he or she has or shares
voting power or investment power with respect to such security or has
the right to acquire such ownership within 60 days.
Each director and executive officer possesses sole voting and
investment power with respect to the shares listed, except as otherwise
indicated. The number of shares beneficially owned by each director or
executive officer is determined under rules promulgated by the SEC, and
the information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual currently has sole or shared
voting power or investment power, and also any shares which the
individual has the right to acquire within 60 days after February 28,
1997.
(3) Number of shares deemed outstanding includes any shares subject to
stock options and warrants beneficially owned by the person in question
that are currently exercisable or become exercisable within 60 days
after February 28, 1997.
2
<PAGE>
(4) Includes: (i) 600,000 shares of Common Stock held in a family limited
partnership, the general partner of which is a corporation controlled
by James F. Chen and his wife Mary S. Chen and (ii) 71,110 shares of
Common Stock registered in the name of Mary S. Chen as Trustee under
trusts for the benefit of Mr. Chen's children with respect to which
Mary S. Chen possesses voting and investment power.
(5) Includes 166,666 shares of Common Stock subject to restrictions on
transferability under the terms of the Company's 1996 Non-Statutory
Stock Option Plan ("Non-Statutory Plan") and 150,000 shares of Common
Stock held in a family limited partnership, the general partner of
which is a corporation controlled by Jieh-Shan Wang and his wife
Shwu-Ru Wang.
(6) Mr. Rybicki resigned from the Company as of January 3, 1997.
(7) Includes 66,666 shares of Common Stock subject to restrictions on
transferability under the terms of the Company's Non-Statutory Plan.
(8) Owned jointly with Kathleen H. Chen, his wife.
(9) Includes an option to purchase 6,666 shares of Common Stock granted
under the Company's 1996 Incentive Stock Option Plan ("1996 Plan") and
warrants to purchase 319,999 shares of Common Stock held by JMI Equity
Fund II, L.P. ("JMI"). Mr. Gruner is a general partner of JMI Partners
II, L.P., the general partner of JMI. See "Certain Transactions."
(10) Includes an option to purchase 6,666 shares of Common Stock granted
under the 1996 Plan.
(11) Includes 233,332 shares of Common Stock shares subject to restrictions
on transferability under the terms of the Company's Non-Statutory Plan
and 448,882 shares of Common Stock subject to stock options granted
under the Company's 1995 Non-Statutory Stock Option Plan ("1995 Plan")
and 1996 Plan and warrants to purchase 319,999 shares of Common Stock
held by JMI that are currently exercisable. Does not include 95,377
shares owned by Mr. Rybicki who resigned from the Company as of January
3, 1997.
ELECTION OF DIRECTORS
The Company's restated bylaws provide for a Board of Directors
consisting of up to seven members serving staggered terms. The term of office of
Harry S. Gruner on the Board of Directors of the Company will expire at the
Annual Meeting. Mr. Gruner has been nominated by the Company's Board of
Directors for reelection to the Board to serve for a three-year term.
There are no arrangements or understandings between the Company and any
person pursuant to which such person has been elected as a director or selected
as a nominee. If any nominee becomes unavailable for any reason, or if any other
vacancy in the class of directors to be elected at the Annual Meeting should
occur before the election, the shares represented by the proxy will be voted for
the person, if any, who is designated by the Board of Directors to replace the
nominee or to fill such other vacancy on the Board. The Board of Directors has
no reason to believe that the nominee will be unavailable or that any other
vacancy on the Board will occur. The nominee has consented to be named and has
indicated his intent to serve if elected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" THE NOMINEE FOR REELECTION
AS DIRECTOR AS SET FORTH ABOVE
3
<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The directors of the Company are currently classified into three
classes, which are elected on a staggered basis. Each director serves for a
three-year term and until his successor is duly elected and qualified. The
current members of the Board of Directors are set forth below:
DIRECTOR
OF THE
COMPANY TERM POSITION(S) CURRENTLY
NAME SINCE EXPIRES HELD WITH THE COMPANY
---- ----- ------- ---------------------
President, Chief Executive
James F. Chen (1)............. 1993 1999 Officer and Director
Charles C. Chen (1)(2)........ 1993 1998 Director and Secretary
Hai Hua Cheng (3)............. 1995 1998 Director
Harry S. Gruner(2) (4)........ 1996 1997 Director
William E. Odom(2)(3)......... 1996 1999 Director
- - ---------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Nominee for election.
Biographical information regarding the directors of the Company is as
follows:
JAMES F. CHEN, 46, founded the Company in February 1993 and has since
served as its President, Chief Executive Officer and a director. From 1980 to
1990, Mr. Chen managed INTELSAT's world-wide ground network engineering
projects. From 1990 to January 1993, he managed the INTELSAT Ground Network
Engineering Department and, from March 1992 to January 1993, he also directed
its Management Information Systems Division. Mr. Chen holds an M.S. in Computer
Science from George Washington University and a B.S. in Electrical Engineering
from Georgia Institute of Technology. He is Charles C. Chen's brother.
CHARLES C. CHEN, D.D.S., 42, has served as a director of the Company
since February 1993 and as the Company's Secretary since December 12, 1995.
Since July 1982, Dr. Chen has practiced periodontics with Zupnik, Winson & Chen,
D.D.S.P.A. Dr. Chen holds a D.D.S. from the Baltimore College of Dental Surgery,
University of Maryland, and a B.S. in Chemistry from the University of Maryland.
He is James F. Chen's brother.
HAI HUA CHENG, 48, has served as a director of the Company since
September 1995. Mr. Cheng is the majority owner of Scientek Corporation in
Taiwan and since August 1979 has served as Vice President and a director of that
company. Mr. Cheng is also the principal owner of Scientek Private Venture
Capital and has served as a director of that company since March 1990. In
addition, Mr. Cheng has served as a director of United Test Center Inc. (Taiwan)
since March 1995. Mr. Cheng holds a B.S. in Computer and Control Engineering
from National Chiao Tung University.
HARRY S. GRUNER, 37, has served as a director of the Company since June
1996. Since November 1992, he has been a general partner of JMI Equity Fund, a
private equity investment partnership. From August 1986 to October 1992, Mr.
Gruner was a principal with Alex. Brown & Sons Incorporated. Mr. Gruner is also
a director of Brock International, Inc., a developer, marketer and supporter of
software systems, Jackson Hewitt, Inc., an income tax processing company, the
META Group, Inc., a syndicated information technology research company, and
Hyperion Software, Inc., a financial software company, and numerous other
privately held companies. Mr. Gruner holds an M.B.A. from Harvard Business
School and a B.A. in History from Yale University.
4
<PAGE>
(RETIRED) LT. GEN. WILLIAM E. ODOM, 64, has served as a director of the
Company since June 1996. Since October 1988, General Odom has served as Director
of National Security Studies at the Hudson Institute. He has also served as an
adjunct professor at Yale University since January 1989. Prior to his retirement
from the military in 1988, General Odom held several military posts including,
Director of the National Security Agency, Assistant Chief of Staff for
Intelligence and Military Assistant to the National Security Advisor during the
Carter Administration. He is also a director of Nichols Research Corporation.
General Odom holds an M.A. and Ph.D. from Columbia University and a B.S. from
the United States Military Academy at West Point.
COMPENSATION OF DIRECTORS
The Company reimburses directors for travel expenses incurred in
connection with their attendance at meetings of the Board of Directors and its
committees. The two new non-employee directors elected at the June 1996 annual
meeting of shareholders each received an option to purchase 6,666 shares of
Common Stock under the1996 Plan upon such election.
Since March 1, 1996, Mr. Odom has been providing consulting services to
the Company for a fee of $2,500 per quarter. Either party may terminate the
consulting agreement at any time. The Company pays Mr. Odom an annual fee of
$10,000 for services rendered as a director in equal monthly installments.
BOARD OF DIRECTORS AND COMMITTEES
Meetings of the Board of Directors of the Company are held regularly
each month and as required. During 1996, the Board of Directors of the Company
held two meetings. The following are the committees of the Board of Directors of
the Company:
The Company's Board of Directors has established an Audit Committee
("Audit Committee") to recommend the firm to be appointed as independent
accountants to audit the Company's financial statements and to perform services
related to the audit, review the scope and results of the audit with the
independent accountants, review with management and the independent accountants
the Company's year-end operating results and consider the adequacy of the
internal accounting procedures. The Audit Committee consists of three directors,
none of whom are employees of the Company. The Audit Committee did not meet in
1996.
The Company's Board of Directors has also established a Compensation
Committee ("Compensation Committee") and an Executive Committee ("Executive
Committee"). The Compensation Committee, which consists of two directors,
reviews and recommends the compensation arrangements for all directors and
officers, approves such arrangements for other senior level employees and
administers and takes such other action as may be required in connection with
certain compensation and incentive plans of the Company. The Executive
Committee, which consists of two directors, addresses significant corporate,
operating and management matters between meetings of the full Board of
Directors. The Compensation Committee did not meet in 1996; however, the
Committee has followed the practice of taking action by written consent.
The Company has no standing nominating committee. A Director can be
nominated by a member of the Board of Directors or by written notice to the
Board of Directors not less than 120 calendar days in advance of the anniversary
date of the Company's previous year's annual meeting of shareholders.
No current member of the Board of Directors attended fewer than
seventy-five percent (75%) of the meetings of the Board of Directors and
committees of the Board of Directors on which he served during 1996.
5
<PAGE>
INFORMATION CONCERNING EXECUTIVE OFFICERS
The Company's executive officers are elected each year by the Company's
Board of Directors, unless the Board of Directors determines, upon appointing an
officer, that he or she shall serve for a different term. Any executive officer
may be removed at any time, with or without cause, by the Board of Directors.
Biographical information with respect to James F. Chen is provided above. See
"Information Concerning the Board of Directors." Biographical information
regarding the other executive officers of the Company is as follows:
JIEH-SHAN WANG, PH.D., 42, has been with the Company since its
inception and has served as the Company's Senior Vice President and Chief
Technical Officer since January 1997. From April 1996 to December 1996, Dr. Wang
served as the Company's Senior Vice President and Chief Technical Officer, from
August 1995 to April 1996, Dr. Wang served as the Company's Vice President of
Engineering and, from April 1994 to August 1995, he served as Chief Engineer.
Dr. Wang was with INTELSAT from June 1991 to April 1994, as Senior Systems
Engineer, where he led a team of engineers in the development of network
applications. Dr. Wang holds a Ph.D. in Physics from the University of Maryland
and a B.S. in Physics from National Taiwan University.
WILLIAM C. WILSON, 41, has served as the Company's Vice President of
Network Services since January 1997. From May 1996 to December 1996 Mr. Wilson
served as the Company's Vice President of Business Development, from April 1995
to May 1996, Mr. Wilson served as the Company's Vice President of Operations
and, from December 1994 to April 1995, he served as Director of Business
Development. Prior to joining the Company, Mr. Wilson provided consulting
services to the Company from August 1994 to December 1994 and served as an
independent consultant from August 1985 to November 1994. Mr. Wilson holds a
B.S. in Journalism and Economics from Ohio State University, School of
Agriculture.
BARNABY M. PAGE, 33, has served as the Company's Vice President of
Financial Services since January 1997. From June 1996 to December 1996, Mr. Page
served as the Company's Vice President of Direct Sales, from October 1995 to
June 1996, Mr. Page served as the Company's Director of Sales and, and from
August 1995 to October 1995, he served as Manager of Commercial Sales. Prior to
joining the Company, Mr. Page served as Regional Sales Manager for DiBiasio &
Edgington, Inc. from January 1993 to August 1995 and as Regional Sales
Representative for Thompson Financial Services from July 1992 to December 1992.
From July 1990 to July 1992, Mr. Page was a Sales Representative with Bloomberg
Financial Markets. Mr. Page earned a Certificate in International Relations and
Economics from the University of Copenhagen, Denmark, and holds a B.A. in
Political Science and Journalism from the University of Massachusetts at
Amherst.
CHARLES B. GRIFFIS, 52, has served as the Company's Senior Vice
President and Chief Financial Officer since September 1996 and began serving as
the Company's Treasurer as of January 1, 1997. Prior to joining the Company, Mr.
Griffis served as Senior Vice President and Chief Financial Officer of Masstor
Systems Corporation, a company that filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code on September 8, 1994, from April
1990 to September 1996. From November 1983 to April 1990, Mr. Griffis served as
a General Partner of Griffis, Sandler & Co., a private venture capital firm, and
as President of Charles Griffis & Co., Inc., a business consulting firm. Mr.
Griffis holds an M.B.A. in Finance from Columbia University and a B.A. in
History from Yale University.
CHRISTOPHER T. BROOK, 57, has served as the Company's Vice President of
Product Development since February 1997. From September 1996 to February 1997,
Mr. Brook served as the Company's Director of Product Development. Mr. Brook was
with GE Information Services, Inc. for approximately 27 years prior to joining
the Company, holding a number of technology-related positions including Manager
of Directory Services and Network Architecture, Manager of Network Architecture
and most recently, Manager of Emerging Technology, where Mr. Brook was
responsible for investigating new information technologies. Mr. Brook graduated
from Clifton College (Bristol, England) with an emphasis in the Classics.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid to the Chief Executive
Officer and the three other most highly compensated executive officers of the
Company whose salary plus bonus exceeded $100,000 during the year ended December
31, 1996 ("Named Executives") and their compensation for services in 1996, 1995
and 1994.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards
------------------- ------
Salary Other Annual Options All Other
Salary Other Annual Options Compensation
Name and Principal Position Year ($) Compensation($) (#) ($)
- - --------------------------- ---- ------ --------------- --- -------------
<S> <C> <C> <C> <C> <C>
James F. Chen 1996 $123,385 $ 3,000 -- $ 4,350 (1)
President and Chief
Executive Officer 1995 -- $18,000 -- $ 5,273 (2)
1994 -- -- -- --
Jieh-Shan Wang
Senior Vice President
and Chief Technical Officer
1996 $101,667 $ 3,000 166,666 (3) $ 4,633 (4)
1995 $69,500 $ 2,000 -- $ 1,273 (4)
1994 -- -- -- $ 18,959
Robert W. Rybicki
former Vice President 1996 $108,974 -- 95,377 --
of Indirect Channels
1995 $15,000 -- -- --
1994 -- -- -- --
William C. Wilson
Vice President of 1996 $91,667 -- 1,840 $ 15,825 (5)
Network Services
1995 $55,000 -- 133,333 --
1994 -- -- -- $ 8,374
</TABLE>
- - --------------------------
(1) Represents payments made by the Company to finance Mr. Chen's
automobile.
(2) Represents payments made by the Company of $2,213 to finance Mr. Chen's
automobile and $3,060 for Mr. Chen's health insurance.
(3) Represents options granted under the Company's 1996 Non-Statutory Plan
(expired on December 31, 1996), which upon exercise, became shares of
Common Stock subject to restrictions on transferability.
(4) Represents payments made by the Company to finance Mr. Wang's
automobile.
(5) Represents payments made by the Company for Mr. Wilson's re-location.
7
<PAGE>
STOCK OPTIONS
The following tables set forth further information regarding the grant
of options to the Named Executives of the Company in 1996 under the Company's
1995 Plan, 1996 Plan and Non-Statutory Plan.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS FAIR POTENTIAL REALIZED VALUE
GRANTED TO MARKET ASSUMED ANNUAL RATES OF
OPTIONS EMPLOYEES IN VALUE ON STOCK PRICE APPRECIATION
GRANTED FISCAL YEAR EXERCISE DATE OF EXPIRATION FOR
NAME (#) (3) PRICE ($/Sh) GRANT DATE OPTION TERM
---- --- --- ------------ ----- ---- -----------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C> <C>
James F. Chen -- -- -- -- -- -- --
President and
Chief
Executive Officer
Jieh-Shan Wang 166,666(1) 10.4% $0.75(2) $4.50 12/31/96 $662,497 $699,997
Senior Vice
President
and Chief
Technical
Officer
Robert W. Rybicki 83,201 5.2% $3.75 $4.50 6/12/06 $297,862 $659,105
former Vice 12,176 0.8% $4.50 -- 6/12/06 34,458 $ 87,324
President
of Indirect
Channels
William C. 66,666(1) 4.1% $0.75(2) $4.50 6/12/06 $438,664 $478,118
Wilson 1,840 0.1% $4.50 -- 6/12/06 $ 5,207 $ 13,196
Vice President
of Network
Services
</TABLE>
No stock appreciation rights ("SARs") were granted to any Named
Executive during 1996.
(1) These options were exercised on April 22, 1996.
(2) These options were granted at a price below market value because they
were subject to restrictions on transferability pursuant to the terms
of the Company's Non-Statutory Plan.
(3) Exercisable as of December 31, 1996.
8
<PAGE>
The following table summarizes the value realized upon
exercise of outstanding stock options and the value of the outstanding
options held by the Chief Executive Officer and the Named Executives at
December 31, 1996.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, DECEMBER 31,
ACQUIRED 1996 (#) 1996($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
James F. Chen
President and Chief -- -- -- --
Executive Officer
Jieh-Shan Wang
Senior Vice President 166,666 $624,997 166,666/0 --
and Chief Technical
Officer
Robert W. Rybicki
former Vice President -- -- 95,377/0 $324,687/0
of Indirect Channels
William C. Wilson
Vice President of 66,666 $249,997 135,173/0 $915,724/0
Network Services
</TABLE>
1995 NON-STATUTORY STOCK OPTION PLAN
In May 1995, the Company adopted the 1995 Plan under which stock
options may be awarded to key employees of the Company. The 1995 Plan was
ratified by the Company's shareholders at the 1996 annual meeting held on June
28, 1996. Eight employees have received awards under the 1995 Plan.
Stock Option Awards. Stock options ("Non-Qualified Options") that do
not meet the requirements of Section 422 of the Internal Revenue Code of 1986,
as amended ("Code"), are available for grant under the 1995 Plan. The term of
each Non-Qualified Option is determined by the committee of the Board of
Directors that administers the 1995 Plan, but no option is exercisable more than
ten years after the date of grant. Unless otherwise provided in an employee's
option agreement, Non-Qualified Options granted under the 1995 Plan expire ten
years from the date of grant and are exercisable in three equal installments
over a twenty-four month period. Non-Qualified Options also may be subject to
restrictions on exercise, as determined by the Committee.
The exercise price for Non-Qualified Options may be no less than par
value per share. The exercise price is payable by either a check in the amount
of the purchase price or by previously owned shares of Common Stock with a
market value equal to the purchase price.
Non-Qualified Options granted under the 1995 Plan are not transferable
by the optionee during an employee's lifetime. Unless otherwise provided in the
employee's option agreement, Non-Qualified Options will be exercisable within
three months of any termination of employment.
Duration of the Plan; Share Authorization. The 1995 Plan will remain in
effect until May 15, 2005, unless terminated earlier by the Company's Board of
Directors. As of February 28, 1997, awards were outstanding with respect to
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345,849 shares of Common Stock. Such shares of Common Stock have an aggregate
market value of approximately $2.3 million based on the price of $6.75 per
share.
On June 12, 1996, the Board determined that no further options would be
granted under the 1995 Plan.
1995 Plan Administration. The 1995 Plan is administered by the
Compensation Committee. The 1995 Plan authorizes the Compensation Committee to
grant Non-Qualified Options to key employees to purchase up to 352,293 shares of
Common Stock and to determine the employees to whom Non-Qualified Options will
be granted, the number of shares subject to each Non-Qualified Option and
applicable vesting schedules.
The members of the Compensation Committee are appointed by the Board.
The Compensation Committee must be comprised of at least two members. Members of
the Compensation Committee are eligible to receive options under the 1995 Plan,
provided that such members do not participate in the decision to grant
themselves options.
Transferability; Repurchase Right. Each employee who receives an award
under the 1995 Plan is prohibited from transferring or otherwise disposing of
the underlying shares of Common Stock until April 27, 1997, 180 days following
the public offering of the Company's Common Stock ("Offering"). However, shares
of Common Stock may be used to pay the exercise price of Non-Qualified Options.
Upon an employee's termination of employment with the Company, the
Company has the right to repurchase any or all of the shares of Common Stock
issued to the employee with respect to Non-Qualified Options granted under the
1995 Plan, whether then held by the employee or a transferee. The Company's
right to repurchase shares of Common Stock terminates once the Offering is
consummated.
Termination and Amendment. The 1995 Plan may be terminated, modified or
amended by the Company's shareholders. Although the Board of Directors may
terminate, modify or amend the 1995 Plan to conform to any change in law or
regulation, the Board of Directors may not, without shareholder approval, (i)
increase the maximum number of shares as to which Non-Statutory Options may be
granted under the Plan; (ii) change the class of employees eligible to be
granted Non-Qualified Options, (iii) increase the periods during which
Non-Qualified Options may be granted or exercised or (iv) provide for the
administration of the Plan by other than the Committee. No termination,
modification or amendment may be made to the 1995 Plan without the consent of
any employee whose rights would be adversely affected thereby.
Awards Made. As of February 28, 1997, Non-Qualified Options to purchase
345,849 shares of Common Stock were outstanding under the 1995 Plan.
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<PAGE>
The following table shows the number of shares (excluding awards that
have expired unexercised or were canceled) subject to outstanding options under
the 1995 Plan as of February 28, 1997 for each of the Company's Chief Executive
Officer and Named Executives, all current executive officers as a group, all
current directors who are not, and at December 31, 1996 were not, executive
officers as a group and all non-executive officer employees as a group.
NUMBER OF SHARES
OF COMMON STOCK EXERCISE PRICE
NAME UNDERLYING OPTION (OR RANGE)
- - ---- ----------------- ----------
James F. Chen
President, Chief Executive
Officer and Director........... -- --
Jieh-Shan Wang
Senior Vice President and Chief
Technical Officer.............. -- --
Robert W. Rybicki
former Vice President of Indirect
Channels....................... -- --
William C. Wilson
Vice President of Network Services
133,333 $0.4245
All executive officers as a group..
(1 person) 133,333 $0.4245
All employees who are not executive
officers as a group
(8 persons)....................
212,516 $0.4245 - $4.50
All directors who are not executive
officers as a group (0 persons)
-- --
1996 INCENTIVE STOCK PLAN
On June 12, 1996, the Board of Directors of the Company adopted the
1996 Plan, under which both options and restricted share awards may be made to
the Company's key employees and consultants. Under the 1996 Plan, automatic
stock option awards are made to non-employee directors. The 1996 Plan was
ratified by the Company's shareholders at the 1996 annual meeting held on June
28, 1996.
Awards Available Under the 1996 Plan. Awards to key employees and
consultants under the 1996 Plan may take the form of both stock options and
restricted share awards; however, no employee may receive awards with respect to
more than 500,000 shares of Common Stock under the 1996 Plan. As of February 28,
1997, approximately 79 employees were eligible to receive awards under the 1996
Plan. Awards under the 1996 Plan may be granted alone or in combination with
other awards. Non-employee directors may only receive non-discretionary stock
option awards (described in more detail below) under the 1996 Plan. As of
February 28, 1997, two of the Company's non-employee directors received options
under the 1996 Plan.
Stock Options. Stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Code and stock options that do not meet such
requirements ("Non-Qualified Options") are both available for grant under the
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1996 Plan. The term of each option will be determined by the Compensation
Committee, but no option will be exercisable more than ten years after the date
of grant. Options will also be subject to restrictions on exercise, such as
exercise in periodic installments, as determined by the Committee. The exercise
price for an Incentive Stock Option must be at least 100% of the fair market
value of a share of Common Stock on the date of grant of such option (110% in
the case of Incentive Stock Options granted to a shareholder who owns in excess
of 10% of the Company's voting stock). There is no minimum exercise price for
Non-Qualified Options. The exercise price is payable in cash, in shares of
Common Stock owned by a participant, with respect to Non-Qualified Options, a
promissory note payable to the Company or by cashless exercise with a
participant's broker, as determined by the Committee.
Stock options granted under the 1996 Plan are not transferable except
by will or the laws of descent and distribution. Unless otherwise provided in
the relevant option agreement, options will only be exercisable within three
months of any termination of employment other than termination for "cause" or
termination due to death or disability. Unless otherwise provided in the
relevant option agreement, options will be exercisable by a participant or
beneficiary, as the case may be, within one year of a termination of employment
by reason of death or disability. If a participant's employment is terminated
for "cause," his or her options will no longer be exercisable after the date of
such termination of employment unless the option agreement provides otherwise.
The Compensation Committee may provide, at the time of grant of
Incentive Stock Options and at or after the time of grant of Non-Qualified
Options, that, if a participant surrenders already owned shares of Common Stock
in full or partial payment of an option, then, concurrent with such surrender,
the participant, subject to the availability of shares of Common Stock under the
1996 Plan, will be granted a new Non-Qualified Option (a "Reload Option")
covering a number of shares of Common Stock equal to the number so surrendered.
A Reload Option may be granted in connection with the exercise of an option that
is itself a Reload Option. Each Reload Option will have the same expiration date
as the original option and an exercise price equal to the fair market value of
the Company's shares of Common Stock on the date of grant of the Reload Option.
A Reload Option is exercisable immediately or at such time or times as the
Compensation Committee determines and will be subject to such other terms and
conditions as the Compensation Committee may prescribe.
Restricted Shares. The Compensation Committee may award restricted
shares to a participant. Such a grant gives a participant the right to receive
shares of Common Stock subject to a risk of forfeiture based upon certain
conditions. The forfeiture restrictions on the shares of Common Stock may be
based upon performance standards, length of service, or other criteria as the
Compensation Committee may determine. Until all restrictions are satisfied,
lapsed, or waived, the Company will maintain control over the restricted shares
but the participant will be able to vote the shares of Common Stock and
generally will be entitled to dividends on the shares of Common Stock. Upon
termination of employment, the participant generally forfeits the right to the
shares of Common Stock to the extent the applicable performance standards,
length of service requirements or other measurement criteria have not been met.
Non-Employee Director Options. The 1996 Plan provides for the automatic
grant of a Non-Qualified Option to purchase 6,666 shares of Common Stock to each
non-employee director on the first date he or she is elected as such by the
Company's shareholders. However, non-employee directors who were first elected
as such by the Company's shareholders prior to the 1996 annual meeting are not
entitled to receive such an option. The option price is the fair market value of
a share of Common Stock on the date of grant of such option. All such options
have a five year term and are exercisable in full on the date of grant. On June
28, 1996, Harry S. Gruner and William E. Odom were elected to the Board of
Directors. In connection with such election, each director received an option to
purchase 6,666 shares of Common Stock at an exercise price of $9.00 per share
under the 1996 Plan.
If a non-employee director's service with the Company terminates by
reason of death, his or her option may be exercised for a period of one year
from the date of death or until the expiration of the option, whichever is
shorter. If a non-employee director's service with the Company terminates other
than by reason of death, his or her option may be exercised for a period of
three months from the date of such termination, or until the expiration of the
stated term of the option, whichever is shorter.
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<PAGE>
Duration of the 1996 Plan; Share Authorization. The 1996 Plan will
remain in effect until June 11, 2006, unless terminated earlier by the Company's
Board of Directors. Awards may be issued with respect to up to 2,333,333 shares
of Common Stock. Such shares of Common Stock have an aggregate market value of
approximately $15.7 million based on the price per share as of February 28,
1997 of $6.75.
In the event the purchase price of an option is paid or tax or
withholding payments relating to an award are satisfied, in whole or in part
through the delivery of already owned shares of Common Stock, a participant will
be deemed to have received an award with respect to those shares of Common
Stock. The Common Stock covered by any unexercised portions of terminated
options, shares of Common Stock forfeited and shares of Common Stock subject to
awards that are otherwise surrendered by a participant without receiving any
payment or other benefit with respect thereto may again be subject to new awards
under the 1996 Plan.
1996 Plan Administration. The 1996 Plan is administered by the
Compensation Committee. The Compensation Committee is currently comprised solely
of non-employee directors who are not eligible to participate in the 1996 Plan
except with respect to certain automatic, non-discretionary stock option awards,
as described above. The Compensation Committee determines the key employees and
consultants who are eligible for and granted awards, determines the amount and
type of awards, determines the duration of the option (which may not exceed ten
years), establishes rules and guidelines relating to the 1996 Plan, establishes,
modifies and terminates terms and conditions of awards and takes such other
action as may be necessary for the proper administration of the 1996 Plan.
The members of the Compensation Committee are appointed by the Board.
As directors, members of the Compensation Committee may be removed at any time
but only for cause and only by the affirmative vote of the holders of 67% or
more of the outstanding shares of the Company's capital stock entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the shareholders called for that purpose.
Transferability; Repurchase Right. Each participant who receives an
award under the 1996 Plan is prohibited from transferring or otherwise disposing
of the underlying shares of Common Stock until April 27, 1997. However, shares
of Common Stock may be used to pay the exercise price of options and to pay
withholding and other taxes as otherwise provided in the 1996 Plan.
Change in Control. Upon the occurrence of a change in control of the
Company, all options become immediately exercisable and all restrictions on
restricted shares lapse. A change in control includes:
(1) approval of the Company's shareholders of a consolidation or merger
of the Company with any third party, unless the Company is the entity surviving
such merger or consolidation;
(2) approval of the Company's shareholders of a transfer of all or
substantially all of the assets of the Company to a third party or a complete
liquidation or dissolution of the Company;
(3) a third party (other than James F. Chen and his affiliates),
directly or indirectly, through one or more subsidiaries or transactions or
acting in concert with one or more persons or entities: (a) acquiring any
combination of beneficial ownership of the Company's voting stock and
irrevocable proxies representing more than 20% of the Company's voting stock,
(b) acquiring the ability to control in any manner the election of a majority of
the directors of the Company or (c) acquiring the ability to directly or
indirectly exercise a controlling influence over the management or policies of
the Company;
(4) any election has occurred of persons to the Company's Board of
Directors that causes a majority of such Board to consist of persons other than
(a) persons who were members of the Board on June 12, 1996 ("Effective Date")
and/or (b) persons who were nominated for election as members of the Board by
the Board (or a committee of the Board) at a time when the majority of the Board
(or of such committee) consisted of persons who were members of the Board on the
Effective Date; or
(5) a determination made by the SEC or any similar agency having
regulatory control over the Company that a change in control, as defined in the
securities laws or regulations then applicable to the Company, has occurred.
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Termination and Amendment. The Board may amend or terminate the 1996
Plan and the Compensation Committee may amend or alter the terms of awards under
the 1996 Plan but no such action shall affect or in any way impair the rights of
a participant under any award previously granted without such participant's
consent. No amendment may be made, without shareholder approval, that would
require shareholder approval under any applicable law or rule unless the Board
determines that compliance with such law or rule is no longer desired.
Antidilution Provisions. The number of shares of Common Stock
authorized to be issued under the 1996 Plan and subject to outstanding awards
(and the purchase or exercise price thereof) will be adjusted to prevent
dilution or enlargement of rights in the event of any stock dividend, stock
split, combination or exchange of shares, merger, consolidation or other change
in capitalization with a similar substantive effect upon the 1996 Plan or the
awards.
Awards Made. As of February 28, 1997, Incentive and Non-Qualified
Options to purchase 1,434,125 shares of Common Stock are outstanding under the
1996 Plan, including options to purchase 13,332 shares of Common Stock granted
to two non-employee directors. As of such date, no restricted share awards have
been granted under the 1996 Plan.
The following table shows the number of shares (excluding awards that
have expired unexercised or were canceled) subject to outstanding options under
the 1996 Plan as of February 28, 1997 for each of the Company's Chief Executive
Officer and Named Executives, all current executive officers as a group, all
current directors who are not, and at December 31, 1996 were not, executive
officers as a group and all non-executive officer employees as a group.
NUMBER OF SHARES
OF COMMON STOCK EXERCISE PRICE
NAME UNDERLYING OPTION (OR RANGE)
- - ---- ----------------- ----------
James F. Chen
President, Chief Executive
Officer and Director........... -- --
Jieh-Shan Wang
Senior Vice President and Chief
Technical Officer.............. 30,000 $5.875
Robert W. Rybicki
former Vice President of Indirect
Channels....................... 95,377 $3.75 - $4.50
William C. Wilson
Vice President of Network Services 1,840 $4.50
All executive officers as
a group (5 persons)..... 302,217 $3.75 - $5.875
All employees who are not executive
officers as a group (1)
(78 persons)................... 1,118,576 $3.75 - $5.875
All directors who are not executive
officers as a group (2 persons)
13,332 $9.00
- - ---------------
(1) Includes awards made to former employees of the Company if the option
is exercisable.
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Certain Federal Income Tax Consequences. The following is a brief
summary of the principal federal income tax consequences of awards under the
1996 Plan based upon current federal income tax laws.
A participant is not generally subject to federal income tax either at
the time of grant or at the time of exercise of an Incentive Stock Option.
However, upon exercise, the difference between the fair market value of the
shares of Common Stock and the exercise price may be includable in the
participant's alternative minimum taxable income. If a participant does not
dispose of shares of Common Stock acquired through the exercise of an Incentive
Stock Option within one year after their receipt and within two years after the
date of the option's grant, any gain or loss upon the disposition will be taxed
as long-term capital gain or loss.
The Company will not receive any tax deduction on the exercise of an
Incentive Stock Option or, if the holding requirements are met, on the sale of
the underlying shares of Common Stock. If a disqualifying disposition occurs
(i.e., one of the holding requirements is not met), the participant will be
treated as receiving compensation subject to ordinary income tax in the year of
the disqualifying disposition, and the Company will be entitled to a deduction
for compensation expense in an amount equal to the amount the participant
includes in income. The tax will generally be imposed on the difference between
the fair market value of the shares of Common Stock at the time of exercise and
the exercise price or, if less, the gain the participant realized on the sale of
the shares. Any appreciation in value after the time of exercise will be taxed
as long-term or short-term capital gain (depending on how long the shares are
held after exercise) and will not result in any deduction by the Company.
There are no federal income tax consequences to participant at the time
of grant of a Non-Qualified Option. Upon exercise of the option, the participant
must pay tax on ordinary income equal to the difference between the exercise
price and the fair market value of the underlying shares on the date of
exercise. The Company will receive a commensurate tax deduction at the time of
exercise. Any appreciation in value after the time of exercise will be taxed
upon the disposition of the shares as long-term or short-term capital gain
(depending on how long the shares are held after exercise), and will not result
in any deduction by the Company. Non-employee director options will receive the
same federal income tax treatment as other Non-Qualified Options.
Except as described below, a grant of restricted shares does not
constitute a taxable event for either a participant or the Company. However, the
participant will be subject to tax, at ordinary income rates, when any
restrictions on ownership of the shares of Common Stock lapse. The Company will
be entitled to take a commensurate deduction at that time.
A participant may elect to recognize taxable ordinary income at the
time restricted shares are awarded in an amount equal to the fair market value
of the shares of Common Stock at the time of grant, determined without regard to
any forfeiture restrictions. If such an election is made, the Company will be
entitled to a deduction at that time in the same amount. Future appreciation on
the shares of Common Stock will be taxed when the shares are sold as short-term
or long-term capital gain (depending on how long the shares are held after
exercise) and will not result in any deduction by the Company. If, after making
such an election, the shares of Common Stock are forfeited, the participant will
be unable to claim a deduction.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Executive compensation is structured to provide levels of compensation
that will enable the Company to attract and retain qualified executives who can
help the Company and its shareholders to maximize value. In the early stages of
the Company's development, James F. Chen, the Company's founder, President and
Chief Executive Officer, determined the compensation for the executive officers
and other employees of the Company. Such compensation consisted of a relatively
low salaries combined with incentive bonuses, Company stock and options to
purchase additional shares of Company stock.
In June 1996, the Board of Directors established the Compensation
Committee, which recommends the compensation arrangements of all directors and
executive officers. Consistent with the Company's growth, the Compensation
Committee began to adjust the compensation paid to its executive officers to be
competitive within the high technology industry. As a result, compensation for
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<PAGE>
executive officers currently consists primarily of base salary, cash bonuses and
grants of stock options pursuant to the Company's plans. Base salaries are
initially determined by evaluating the responsibilities of the position and the
experience and knowledge of the individual. Bonuses and annual salary
adjustments, if any, are determined by evaluating performance taking into
account such factors as achievement of the Company's strategic goals, assumption
of additional responsibilities and attainment of specific individual objectives.
The Board believes that stock ownership by management is especially beneficial
in aligning the interest of management and stockholders in the Company.
From the inception of the Company until 1996, Mr. Chen received a
significant number of shares of the Company in lieu of receiving a salary. In
June 1996, Mr. Chen entered into an employment agreement with the Company that
provides for a base salary of $125,000. Also in June 1996, the Company entered
into an employment agreement with Jieh-Shan Wang, hwo held the position of the
Company's Vice President of Engineering at that time. Mr. Wang's agreement
provides for a base salary of $100,000. See "Employment Agreements," for more
information on the employment agreements of Mr. Chen and Mr. Wang. The salaries
for Mr. Chen and Mr. Wang were based primarily on their fundamental
contributions to the growth of the Company from its inception to the Offering.
Grants of Company stock options are intended to align the interest of
executives, key employees and others with the long-term interests of the
Company's shareholders and to encourage executives and key employees to remain
with the Company. The Board of Directors has authorized the Compensation
Committee to grant stock options to key employees and others under the Company's
stock option plans. In general, Mr. Chen recommends to the Compensation
Committee levels of stock option grants based upon the same factors as used for
bonus and salary adjustments. Mr. Chen does not currently hold, nor has he ever
been granted, options to purchase the Company's Common Stock.
Section 162(m) of the Internal Revenue Code of 1986, as amended
("Code"), imposes a limitation on the deductability of nonperformance-based
compensation in excess of $1million paid to the Named Executives. Currently, no
Executive Officer of the Company is paid compensation in excess of $1 million
per year and it is not anticipated that any executive officer will be paid in
excess of $1 million in 1997. The 1996 Plan provides for awards that can be made
in compliance with Section 162(m). The Company's Compensation Committee is
composed of Directors Hai Hua Cheng and William E. Odom.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until October 28, 1996, the Company's Compensation Committee was
composed of directors Harry S. Gruner and Hai Hua Cheng. From that date through
the year ended December 31, 1996, William E. Odom replace Mr. Gruner as a member
of the Compensation Committee.
The Company was initially capitalized by a $10,000 investment by its
founder, President and Chief Executive Officer, James F. Chen. Mr. Chen has, on
three separate occasions, made loans to the Company. Mr. Chen advanced the
Company operating funds under three separate promissory notes, which are updated
on an annual basis, bear interest at 8% per annum and are due on demand. Total
amounts outstanding under the notes were $39,705, $19,293 and $143,644 on
December 31, 1993, 1994 and 1995, respectively. The Company repaid the balance
of $138,305 on the notes to Mr. Chen with the proceeds of the Offering.
On May 15, 1995, Scientek Corporation, through Hai Hua Cheng, a
director of the Company, and C.C. Tsai, invested $500,000 in the Company in
consideration for ownership of 15% of the Company's outstanding Common Stock
after giving effect to this issuance. As further consideration for this
investment, the Company issued 56,000 shares of Common Stock to a voting trust
("Voting Trust") for the benefit of Mr. Cheng, the majority owner of Scientek
Corporation. Mr. Chen served as voting trustee for this trust under a Voting
Trust Agreement dated January 1, 1996. The Voting Trust terminated upon
consummation of the Offering. The proceeds of this financing were used to meet
general operating expenses.
On June 1, 1995, the Company borrowed $330,000 from Scientek
Corporation and issued a promissory note, bearing no interest, due June 1, 1996.
The note was assigned to Hai Hua Cheng by Scientek Corporation. The terms of the
note provide that, as further consideration for the loan, the Company would
issue 153,333 shares of Common Stock to Scientek Corporation immediately after
repayment of the loan. As further consideration for the loan, the Company issued
16
<PAGE>
76,666 shares of Common Stock to the Voting Trust for the benefit of Mr. Cheng
described above. Upon consummation of the offering, the Voting Trust terminated
and all 132,666 of the Voting Trust shares were transferred directly to Mr.
Cheng. On May 17, 1996, Mr. Cheng executed an agreement extending the term of
the note to May 31, 1997. On June 12, 1996, in consideration for Mr. Cheng's
agreement not to demand payment of the note until May 31, 1997, the Board of
Directors authorized the Company to offer Mr. Cheng the option to receive Common
Stock based on a $4.50 per share conversion price in lieu of cash in payment of
the note. The Board reserved and authorized the issuance of 73,333 shares of
Common Stock for this purpose. On June 28, 1996, the Company repaid the loan
made by Mr. Cheng by issuing 226,666 shares of Common Stock to Mr. Cheng in full
payment of the note, including the 153,333 shares of Common Stock described
above. In connection with this loan, the Company recognized interest expenses of
$56,954 and $40,681 during the year ended December 31, 1995 and the six months
ended June 30, 1996, respectively.
On May 15, 1995, Mr. Chen contributed 132,666 shares of Common Stock to
the capital of the Company for the Company's use in transferring the
above-described 132,666 shares to the Voting Trust. On June 28, 1996, Mr.
Chen contributed 153,333 shares of Common Stock to the capital of the Company.
On May 15, 1995, Mr. Chen also contributed 333,333 shares of Common
Stock owned by him to the capital of the Company for the Company to transfer to
Jieh-Shan Wang, Senior Vice President and Chief Technical Officer, for services
rendered. In addition, on April 4, 1996 Mr. Chen contributed 383,967 shares of
Common Stock owned by him to the capital of the Company for the Company to
transfer to participants in the Non-Statutory Plan.
Two of the Company's executive officers, Jieh-Shan Wang and William C.
Wilson, have paid for options granted under the 1995 Plan with promissory notes.
The only one of the two executive officers who borrowed more than $60,000 from
the Company is Mr. Wang. Mr. Wang borrowed $124,750 from the Company and
executed a 6% interest-bearing promissory note, due April 22, 2006, that is
secured by the shares of Common Stock issued on exercise of the option by Mr.
Wang ("Pledged Shares"). The terms of the note provide for payments of principal
and interest to be made annually, beginning on April 22, 1997. If, at any time,
the fair market value of the Pledged Shares securing the note is less than the
amount due under the note, Mr. Wang will remain liable for the balance due. If
Mr. Wang sells the Pledged Shares at any time prior to April 22, 2006, then the
proceeds of the sale will be applied to the balance of the note before payment
will be made to Mr. Wang.
In June 1996, the Company borrowed $1,500,000 from JMI pursuant to the
issuance of an unsecured 8% senior subordinated note in the principal amount of
$1,500,000 due at the earlier of consummation of the Offering or June 18, 2000,
with detachable warrants to purchase 333,332 shares of Common Stock. Of the
333,332 detachable warrants, 319,999 are exercisable at $3.75 per share, and
66,666 were exercisable at $0.015 per share. Mr. Chen, the Company's founder,
President and Chief Executive Officer, contributed to the Company the additional
13,333 shares of Common Stock. The note must be redeemed upon consummation of
the Offering and the warrants with an exercise price of $0.015 per share were
exercised on June 28, 1996. The remaining detachable warrants entitle JMI to
purchase 319,999 shares of Common Stock at $3.75 per share. Mr. Gruner, a
director of the Company, is a general partner of JMI Partners II, L.P., the
general partner of JMI.
The Company has adopted a policy providing that all material
transactions (other than compensation arrangements that must be approved by the
Compensation Committee) between the Company and its officers, directors and
other affiliates (i) must be approved by a majority of the disinterested members
of the Company's Board of Directors or a committee thereof (following disclosure
to the Board of Directors of the material facts of the relationship and the
transaction), and (ii) must be on terms no less favorable to the Company than
can be obtained from unaffiliated third parties.
STOCK PERFORMANCE GRAPH
The following graph compares the change from the date of the Offering
in the Company's total return on its Common Stock with (a) the change in the
total return on the stocks included in the CRSP Total Return Index for the
Nasdaq Stock Market (U.S.) and (b) the change in the total return on the stocks
included in the Company's peer group (5 companies) assuming an initial
17
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investment of $100 on October 24, 1996, the date the Common Stock began trading
on Nasdaq. All of these total returns are computed assuming the reinvestment of
dividends at the frequency with which dividends were paid during the period. The
Common Stock price performance shown below should not be viewed as being
indicative of future performance.
SOURCES: NASDAQ
October 24, 1996 December 31, 1996
V-ONE CORP 100.00 145.00
NASDAQ TOTAL RETURN INDEX 100.00 105.59
PEER GROUP (5 COMPANIES) 100.00 83.26
[GRAPHIC OMITTED]
V-ONE CORP $ 5.000 $ 7.250 145.000
NASDAQ TOTAL RETURN INDEX $402.734 $425.258 105.593
PEER GROUP (5 COMPANIES)
CHECKPOINT - CHKPF $ 30.875 $ 21.750
RAPTOR - RAPT $ 22.875 $ 20.125
SECURITY DYNAMICS -SDTI $ 36.250 $ 31.500
CYLINK -CYLK $ 14.000 $ 13.000
AXENT - AXNT $ 17.750 $ 15.000
$121.750 $101.375 83.265
EMPLOYMENT AGREEMENTS
On June 12 and July 8, 1996, respectively, the Company entered into
employment agreements with James F. Chen, the Company's founder, President and
Chief Executive Officer and Jieh-Shan Wang, the Company's Senior Vice President
and Chief Technical Officer (each an "Executive") at annual base salaries of
$125,000 and $100,000, respectively. Each employment agreement has a two year
term and is automatically renewed for additional two year terms on each
successive anniversary date, commencing June 12 and July 8, 1997, respectively.
However, either the Company or the Executive may serve written notice of
termination prior to June 12 or July 8, 1997, respectively, or prior to June 12
or July 8 of each succeeding year, as the case may be, in which case the
respective employment agreement will terminate at the end of the two year period
that begins with June 12 or July 8 following the date of such written notice.
18
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Under each employment agreement, the Board (or a Board committee) is
obligated to review the Executive's base salary promptly following the
completion of the Offering and thereafter at least annually. As a result of such
review, the Board or committee may, in its discretion, increase, but generally
may not decrease, the Executive's base salary. After any adjustment following
the Offering, the Board or committee may not increase the Executive's base
salary for any one year by an amount greater than 50% of his then base salary.
It is intended that the Board or committee will consider in any such review
factors relating to the Executive's performance, duties and responsibilities and
endeavor to maintain his compensation at a level comparable to that of similarly
situated executives in the Company's industry. Each employment agreement also
provides that the Executive may be paid such bonuses, if any, as may be awarded
from time to time by the Board or such committee, in its discretion. Such
bonuses shall be based on results of operations, special contributions made by
the Executive, seniority, competitive conditions in the Company's industry and
such other factors as the Board or such committee considers relevant.
In the case of Mr. Chen's employment agreement, in the event that (i)
Mr. Chen terminates his employment with the Company (other than because of his
death) within two years following a change in control (as defined in the
employment agreement), (ii) the Company terminates Mr. Chen's employment for any
reason (other than because of death, disability or just cause) within two years
following a change in control, (iii) Mr. Chen terminates his employment with the
Company because of the Company's material breach of the employment agreement,
(iv) Mr. Chen's base salary is reduced unless such reduction is permitted by the
employment agreement or (v) the Company's principal executive offices are
relocated to a location outside Montgomery County, Maryland, or the Company
requires Mr. Chen to be based anywhere other than the Company's principal
executive offices, then the Company must make a lump sum severance payment to
Mr. Chen. The payment is equal to the sum of (a) the aggregate amount of the
future base salary payments Mr. Chen would have received if he continued in the
employ of the Company until 24 months (36 months if an event described in
clauses (i) or (ii) above occurs) following the termination date and (b) Mr.
Chen's projected bonus for the year in which the termination date occurs. The
payment required by clause (a) is calculated at the highest rate of base salary
paid to Mr. Chen at any time under the employment agreement, with such payments
discounted to present value at a discount rate equal to 1% above the per annum
one-year Treasury Bill rate. The bonus amount is computed assuming that Mr. Chen
had remained in the Company's employ until the end of that year and that all
performance goals or other performance measures have been met at the then
current level for the remainder of that year.
Under Mr. Wang's employment agreement, Mr. Wang receives a lump sum
severance payment under the circumstances described in clauses (ii), (iii), (iv)
and (v) in the preceding paragraph. Mr. Wang's severance payment is calculated
in the same manner as Mr. Chen's except that, for purposes of the calculation of
benefits payable under clause (a) of the preceding paragraph, Mr. Wang is
limited to 24 months of base salary in all circumstances, including the
circumstances described in clause (ii).
The Company may terminate the Executive's employment for "just cause"
at any time by giving him written notice, in which case the Company is only
obligated to pay him his base salary as then in effect through the termination
date. If the Executive fails to perform his duties under the employment
agreement on account of a disability, the Company may terminate the agreement on
a date not less than 30 days thereafter unless he resumes full performance of
his duties within such period. Each Executive is entitled to terminate his
employment with the Company on, or at any date after, a date on which he is at
least 65 years old. Each employment agreement also terminates in the event of
the Executive's death. In either such event, the Company must pay the Executive
or his legal representative the Executive's base salary as then in effect that
has accrued to the last day of the month in which the retirement date or the
date of death occurs.
INDEPENDENT AUDITORS
The Company's Audit Committee and Board of Directors have selected
Coopers & Lybrand L.L.P. to serve as the Company's independent accountants for
the year ending December 31, 1997. Coopers & Lybrand L.L.P. served as the
Company's auditors for the year ended December 31, 1996. Representatives of
Coopers & Lybrand L.L.P. will be present at the Annual Meeting where they will
have the opportunity to make a statement if they desire to do so and where they
will be available to respond to any appropriate questions.
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<PAGE>
ANNUAL REPORT
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1996 ACCOMPANIES THIS PROXY STATEMENT. UPON
WRITTEN REQUEST, THE COMPANY WILL PROVIDE TO ANY STOCKHOLDER FREE OF CHARGE, A
COPY OF ITS ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. REQUESTS FOR COPIES OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K SHOULD BE DIRECTED TO CHARLES B. GRIFFIS, SENIOR VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER AND TREASURER, V-ONE CORPORATION, 1803
RESEARCH BOULEVARD, SUITE 305, ROCKVILLE, MARYLAND 20850.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company no later than December
1, 1997 to be considered for inclusion in the Company's Proxy Statement and form
of proxy relating to such meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no
business other than that described herein that will be presented for
consideration at the Annual Meeting. If, however, any other business shall
properly come before the Annual Meeting, the proxy holders intend to vote the
proxies as determined by a majority of the Board of Directors.
By Order of the Board of Directors
CHARLES C. CHEN
SECRETARY
March 31, 1997
<PAGE>
REVOCABLE PROXY
V-ONE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the Board of Directors, or any of them,
each with full power of substitution as the lawful proxies of the undersigned
and hereby authorizes them to represent and to vote as designated below all
shares of common stock of V-ONE Corporation ("Company") which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Shareholders of the Company to be held on May 15, 1997, and at any adjournment
thereof.
V-ONE CORPORATION
1803 RESEARCH BOULEVARD
SUITE 305
ROCKVILLE, MD 20850
1. Proposal One: Election of Director for a term ending in 2000.
FOR [ ] WITHHOLD AUTHORITY to vote for [ ] ABSTAIN [ ]
nominee listed below nominee listed below
Nominee: Harry S. Gruner
2. Proposal Two: Ratify the election of Coopers & Lybrand L.L.P. as independent
auditors for fiscal year ending December 31, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion on such other business as may properly come before the
meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR THE MATTERS LISTED ABOVE.
Whether or not you plan to attend the meeting, you are urged to execute
and return this proxy, which may be revoked at any time prior to its use.
Change of Address or [ ]
Comments Mark Here
Please sign your name exactly as it appears hereon.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
Date: __________________________________, 1997
-----------------------------------------
Signature of Shareholder
-----------------------------------------
Signature of Additional Shareholder(s)
