TCI
TCI INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 13, 1996
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of TCI
International, Inc. which will be held at the Sheraton Inn - Sunnyvale,
1100 N. Mathilda Avenue, Sunnyvale, California at 8:30 a.m. on February 13, 1996
for the following purposes:
1. To elect two Class III directors to serve until the 1999 Annual Meeting and
until their successors have been elected and qualified;
2. To consider and vote upon a proposal to approve the TCI International, Inc.
1995 Non-Employee Director Stock Option Plan;
3. To consider and vote upon a proposal to ratify the selection of KPMG Peat
Marwick LLP as independent public accountants for the fiscal year ending
September 30, 1996; and
4. To act upon such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on January 5, 1996 as
the record date for determining those stockholders who will be entitled to
vote at the meeting. The stock transfer books will not be closed between the
record date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of TCI International, Inc. is required to constitute a quorum.
Accordingly, it is important that your shares be represented at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
IN THE ENCLOSED ENVELOPE. Your proxy may be revoked at any time prior to the
time it is voted.
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
Very truly yours,
John W. Ballard
President
Sunnyvale, California
January 22, 1996
Stockholders Should Read the Entire Proxy Statement
Carefully Prior to Returning Their Proxies
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held February 13, 1996
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of TCI International, Inc., a Delaware corporation, of
proxies to be voted at the Annual Meeting of Stockholders to be held
at 8:30 a.m. on February 13, 1996 at the Sheraton Inn - Sunnyvale,
1100 N. Mathilda Avenue, Sunnyvale, California, or at any adjournments or
postponements thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Stockholders. TCI International, Inc. is a holding
company which has two operating subsidiaries, Technology for Communications
International ("TCI") and BR Communications. Unless the context otherwise
indicates, the term "Company" as used herein refers to TCI International, Inc.
and its consolidated subsidiaries. This Proxy Statement and the proxy card
were first mailed to stockholders on or about January 22, 1996.
VOTING RIGHTS AND SOLICITATION
The close of business on January 5, 1996 was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting. As of that date,
TCI International, Inc. had 3,142,132 shares of common stock (the
"Common Stock") issued and outstanding (excluding Treasury Stock held by the
Company). All such shares of the Common Stock outstanding on the record date
are entitled to vote at the Annual Meeting, and stockholders of record
entitled to vote at the meeting will have one (1) vote for each share on the
matters to be voted upon.
Shares of the Common Stock represented by proxies in the accompanying form
which are properly executed, and returned to the Company will be voted at the
Annual Meeting of Stockholders in accordance with the stockholders'
instructions contained therein. In the absence of contrary instructions,
shares represented by such proxies will be voted FOR the election of each
director as described herein under "Proposal 1 - Election of Directors", FOR
approval of the TCI International Inc. 1995 Non-Employee Director Stock Option
Plan as described herein under "Proposal 2 - Approval of the TCI International,
Inc. 1995 Non-Employee Director Stock Option Plan", and FOR ratification of the
selection of accountants as described herein under "Proposal 3 - Ratification
of Selection of Independent Public Accountants." Management does not know of
any matters to be presented at this Annual Meeting other than those set forth
in this Proxy Statement and the Notice accompanying this Proxy Statement. If
other matters should properly come before the meeting, the proxy holders will
vote on such matters in accordance with their best judgment. Any stockholder
has the right to revoke his or her proxy at any time before it is voted by
delivering to the Secretary of the Company a written notice of revocation or a
duly executed proxy bearing a later date or by attending the Annual Meeting and
voting in person.
Assuming a quorum is present, the two nominees for Directors receiving the
greatest number of votes cast at the meeting will be elected. The affirmative
vote of a majority of the shares represented at the meeting is required to
approve the TCI International, Inc. 1995 Non-Employee Director Stock Option Plan
and the affirmative vote of a majority of the shares represented at the meeting
is required to ratify the selection of the auditors for the Company.
Abstentions and broker non-votes are each included in the determination of the
number of shares present for quorum purposes. Abstentions are counted in
tabulations of the votes cast on proposals presented to stockholders, whereas
broker non-votes are not counted for purposes of determining whether a proposal
has been approved.
The entire cost of soliciting proxies will be borne by the Company. Proxies
will be solicited principally through the use of mails, but, if deemed
desirable, may be solicited personally or by telephone, telegraph or special
letter by officers, and regular Company employees for no additional
compensation. Arrangement may be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the Company's Common Stock, and such persons may be
reimbursed for their expenses.
PROPOSAL 1
ELECTION OF DIRECTORS
The members of the Board of Directors of TCI International, Inc. are classified
into three classes, one of which is elected at each Annual Meeting of
Stockholders to hold office for a three-year term and until successors of
such class have been elected and qualified. The nominees for the Board of
Directors are set forth below. The proxy holders intend to vote all proxies
received by them in the accompanying form for the nominees for director listed
below. In the event that any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them for the
nominees listed below. As of the date of this Proxy Statement, the Board of
Directors is not aware of any nominee who is unable or will decline to serve as
a director. The current two Class III directors, Messrs. Hausman and Shillito,
have reached the established Board of Director retirement age and will not
be standing for reelection.
Nominees to Board of Directors
Class and Year
in which Term
Name Principal Occupation Will Expire Age
Donald C. Cox Professor, Electrical Class III; 1999 58
Engineering, Stanford
University
C. Alan Peyser President, Country Long Class III; 1999 62
Distance
Donald C. Cox, a professor of Electrical Engineering at Stanford University,
has held the Harold Trap Friis Professor of Engineering seat since 1993 and is
the Director of Stanford's Center for Communications. From 1991 to
1993, he was Executive Director of Radio Research Department, Bellcore.
C. Alan Peyser is currently President of Country Long Distance. He was Chief
Executive Officer of Cable and Wireless, Inc. from 1993 to 1995 and President
of Cable and Wireless, Inc. from 1980 to 1993. He has been a director of Cable
and Wireless since 1993. Mr. Peyser also serves as a director of Tridex, Inc.
Directors Not Standing For Election
Class and Year
Director in which Term
Name Principal Occupation Since Will Expire Age
Asaph H. Hall Retired. 1992 Class I; 1997 62
E.M.T. Jones, Retired. Chairman of
the Board of TCI
International, Inc. 1987 Class I; 1997 71
John W. Ballard President of TCI
International, Inc. 1987 Class II; 1998 62
Hamilton W. Budge Retired. Of counsel
to Brobeck, Phleger
& Harrison 1987 Class II; 1998 67
Asaph H. Hall, from 1991 to 1994, was Corporate Vice President-Information
Systems and Administrative Services at General Dynamics and from 1984 to 1991
was General Manager of General Dynamics Data Systems Division. Mr. Hall has
held various other positions at General Dynamics since 1977. He serves on the
Compensation Committee and Audit Committee.
E.M.T. Jones, a founder of TCI, has been Chairman of the Board of the Company
since 1990. From 1985 to 1990, Dr. Jones served as Vice President, Development
of TCI. From 1974 to 1985 he was Executive Vice President of TCI. From 1968
to 1974 Dr. Jones served as Vice President, Engineering of TCI. He has been a
Director of TCI since 1968 and of the Company since 1987. Dr. Jones is a member
of the Stock Option Committee.
John W. Ballard, a founder of TCI, became a Director of TCI in 1968 and has been
its President since 1974. From TCI's founding until 1974 he served as Executive
Vice President and General Manager. He has been President and Chief Executive
Officer and a Director of the Company since 1987. Mr. Ballard is a member of
the Stock Option Committee.
Hamilton W. Budge is of counsel to Brobeck, Phleger & Harrison, the Company's
general counsel. He was a Director of TCI from 1968 until 1987, and became a
Director of the Company in 1987. Mr. Budge is a member of the Compensation
Committee. He is also a director of Pope & Talbot, Inc.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four meetings during the
fiscal year ended September 30, 1995. Each Director attended (during the period
that he served) at least 75% of the aggregate of (i) the total number of
meetings of the Board and (ii) the total number of meetings held by all
committees of the Board on which he served.
The Company has an Audit Committee, a Compensation Committee and a Stock Option
Committee of the Board of Directors. There is no nominating committee or
committee performing the functions of a nominating committee.
The Audit Committee meets with the Company's financial management and its
independent public accountants and reviews internal control conditions, audit
plans and results, and financial reporting procedures. This Committee, which
currently consists of Messrs. Hausman, Hall, Peyser and Shillito, held three
meetings during the Company's last fiscal year.
The Compensation Committee reviews and approves the Company's compensation
arrangements for key employees. This Committee, which currently consists of
Messrs. Shillito, Budge, Cox and Hall, held two meetings during the last fiscal
year.
The Stock Option Committee has in the past administered the Company's 1981 Stock
Option Plan. However, this Committee, which currently consists of Messrs.
Ballard and Jones, no longer meets the three disinterested-person administration
requirement of Rule 16b-3, as in effect prior to the May 1, 1991 amendments,
under the Securities Exchange Act of 1934. Accordingly, the full Board must
grant stock options to officers of the Company until such time as there are
three or more disinterested individuals on this Committee or the administration
of the 1981 Stock Option Plan is otherwise brought into compliance with the
applicable requirements of amended Rule 16b-3.
DIRECTOR REMUNERATION
Each non-officer member of the Board of Director was paid an annual retainer
fee of $10,800 in fiscal year 1995 (prorated quarterly, for those directors
serving a portion of the year) and was reimbursed for all out-of-pocket
costs incurred in connection with their attendance at board meetings.
Mr. Hausman received an additional annual retainer fee of $2,700 for his
service as Chairman of the Audit Committee. The Company also pays each
non-officer Director $675 for each Board meeting attended, $450 for each
committee meeting attended that is not held in conjunction with a Board meeting,
and $225 for each committee meeting attended that is held in conjunction with a
Board meeting. On July 14, 1995, Mr. Cox and Mr. Peyser were each granted a
stock option for 2,500 shares of Common Stock with an exercise price of $8.75
per share. Each option has a maximum term of seven (7) years,
subject to earlier termination following the optionee's cessation of Board
service, and will become exercisable for the option shares in a series of five
(5) successive equal annual installments upon the optionee's completion of each
year of Board service over the five (5)-year period measured from the grant
date. However, each option will become immediately exercisable for all the
option shares upon an acquisition of substantially all of the Company's
outstanding stock or assets.
In addition, each non-employee Board member will receive, over his or her
continued period of Board service, a series of option grants under the 1995
Non-Employee Director Stock Option Plan (the "Director Plan"), provided the
Director Plan is approved by the stockholders at the Annual Meeting.
The Director Plan was established on September 1, 1995, and on that date each
of the following non-employee Board members received an option grant
under the Director Plan for 10,000 shares of the Company's common stock:
Messrs. Budge, Cox, Hall, Hausman, Peyser and Shillito. Each option has an
exercise price of $7.63 per share, the closing price of the Company's
common stock on the grant date, as reported on the Nasdaq National Market.
None of the options, however, will become exercisable for any of the option
shares unless the stockholders approve the implementation of the Director
Plan by voting in favor of Proposal 2 below. For further information concerning
the terms and conditions of the September 1, 1995 option grants, please see the
summary of the Director Plan set forth in Proposal 2 below.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of
the Company's Common Stock as of January 5, 1996 by (i) each person who is known
to the Company to own beneficially more than 5% of the outstanding shares of the
Common Stock of the Company, (ii) each director, (iii) each officer listed in
the Summary Compensation Table, and (iv) all directors and executive officers
as a group. All shares are subject to the named person's sole voting and
investment power except where otherwise indicated.
Shares Percent
Name and Address of Beneficial Owner Beneficially Owned Of Class
TCI International Inc. Employee
Stock Ownership Plan 729,850(1) 23.2%
c/o Bank of America NT&SA, Trustee
1 South Van Ness Ave., San Francisco,
California 94103
John W. Ballard 447,687(2) 14.2%
c/o TCI International, Inc.
222 Caspian Drive, Sunnyvale,
California 94089
Athena Capital Management, Inc, 171,450(3) 5.5%
75 James Way, Southampton,
Pennsylvania 18966
E.M.T. Jones 167,468(2) 5.3%
c/o TCI International, Inc.
222 Caspian Drive, Sunnyvale,
California 94089
Hamilton W. Budge(4) 4,000 *
Asaph H. Hall(4) 7,500 *
Arthur H. Hausman(4) 550 *
Barry J. Shillito(4) 3,100 *
John W. Ballard III(2)(4) 38,965 1.2%
All directors and executive
officers as a group
(7 persons) (1)(2)(4) 669,270 21.3%
(1) Each of approximately 197 participants in the Company's Employee Stock
Ownership Plan has sole voting power over all shares allocated to his or her
account. The Administrative Committee for the Employee Stock Ownership
Plan, which includes Mr. John W. Ballard, an officer and director of the
Company, has investment power over the assets of the Employee Stock Ownership
Plan, subject to the terms and limitations of such Plan. The Charles Schwab
Trust Company serves as trustee in accordance with the terms of the Employee
Stock Ownership Plan.
(2) Includes shares allocated under the Employee Stock Ownership Plan to the
participant's account through September 30, 1995. Such shares are included in
the aggregate holdings of the Employee Stock Ownership Plan (see footnote (1)).
(3) Athena Capital Management, Inc., an investment advisor registered under
section 203 of the Investment Advisors Act of 1940 owns 171,450 shares according
to information contained in its Schedule 13G filed on January 31, 1995.
(4) Includes shares subject to options which are currently exercisable or will
become exercisable prior to March 31, 1996.
* Percentage of shares beneficially owned does not exceed 1% of the class so
owned.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation paid or accrued by the Company
for the years ended September 30, 1995, 1994 and 1993 to the Chief Executive
Officer, and to the one other executive officer of the Company during the fiscal
year ended September 31, 1995 (the "Named Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Annual Compensation Compensation
Name and Principal Fiscal Securities Underlying All Other
Position Year Salary(1) Bonus Options/SARs (#) Compensation (2)
<S> <C> <C> <C> <C> <C>
John W. Ballard, 1995 $153,171 $30,000 --- $7,452
President and Chief 1994 153,784 19,000 --- 6,999
Executive Officer of 1993 152,242 20,000 --- 23,296 (3)
the Company and TCI
John W. Ballard III,
Vice President Finance 1995 122,969 25,000 25,000 6,930
of the Company;
President BR
Communications 1994 123,458 17,000 --- 5,550
and General Manager TCI 1993 121,581 17,500 30,000 4,549
</TABLE>
(1) Salary amounts include employee contributions under the Company's 401(k)
Plan
(2) Represents the Company's contribution under the Company's ESOP and 401(k)
Plan as follows:
<TABLE>
<CAPTION>
Section 401(k) Employee Stock
Plan/Profit Sharing Plan Ownership Plans
1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
John W. Ballard $6,052 $3,476 $3,391 $1,400 $3,523 $3,199
John W. Ballard III 5,647 2,819 2,432 1,283 2,731 2,117
</TABLE>
(3) Includes payment of $17,306 to reduce the accrued, but unused, vacation
hours from prior years.
Stock Options
The following table sets forth certain information concerning stock options
granted in fiscal year 1995 under the Company's 1981 Stock Option Plan to each
Named Officer. No stock appreciation rights ("SARs") were granted during such
fiscal year to any Named Officer. The table also lists potential realizable
values of such options on the basis of assumed annual compounded stock
appreciation rates of 5% and 10% over the life of the options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Potential Realizable Value at
Total Options Assumed Annual Rates of
Number of Securities Granted to Exercise Stock Price Appreciation
Underlying Stock Employees in Price Per Expiration for Option Term (3)
Name Options Granted (1) Fiscal 1995 Share (2) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
John W. Ballard III 25,000 8% $4.25 12/2/2001 $43,254 $100,801
</TABLE>
(1) The option was granted under the Company's 1981 Stock Option Plan with an
exercise price equal to 100% of the fair market value of the option shares on
the December 2, 1994 grant date. The option has a maximum term of 7
years measured from such grant date, subject to earlier termination upon the
optionee's cessation of employment with the Company. The option will become
exercisable for the option shares in 5 equal and successive annual
installments upon the optionee's continued period of employment with the Company
measured from the grant date. The option will become immediately exercisable
for all the option shares upon acquisition of substantially all the
Company's outstanding stock or assets, unless the option is assumed by the
acquiring entity.
(2) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company may
also finance the option exercise by loaning the optionee sufficient funds to pay
the exercise price for the purchased shares and the federal and state tax
liability incurred in connection with the exercise. The Plan Administrator
also has the authority to reprice outstanding options through the cancellation
of those options and the grant of replacement options with a exercise price
equal to the lower fair market value of the option shares on the regrant date.
(3) The potential realizable value is reported net of the option price, but
before any income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% only from the
date of grant to the expiration of the option. There is no assurance provided
to any executive officer or any other holder of the Company's securities that
the actual stock price appreciation over the option term will be at the assumed
5% and 10% levels or at any other defined level. Unless the market price of the
Common Stock does in fact appreciate over the option term, no value will be
realized from the option grants made to the named individual.
Option/SAR Exercises and Holdings
The following table provides information with respect to the Named Officers
concerning the exercise of stock options during the 1995 fiscal year and the
unexercised options held by such individuals at the end of the 1995
fiscal year. No stock options or SARs were exercised during the 1995 fiscal
year, nor were any SARs outstanding at the end of such fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-Money
Shares Options/SARs at FY-End (#) Options/SARs at FY-End (1)
Acquired Value
Name on Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
John W. Ballard III None None 32,400/35,600 $104,875/$134,500
</TABLE>
(1) Value based upon the closing selling price of the Company's Common Stock
on September 30, 1995 on the Nasdaq National Market ($8.125 per share) less the
exercise price payable per share.
Employment Contract and Change of Control Arrangements
The Company does not presently have any employment contracts in effect with the
Chief Executive Officer or its other executive officer. As indicated in
footnote (1) to the table entitled "Option Grants in Last Fiscal Year,"
the shares subject to option grants made to date under the Company's 1981 Stock
Option Plan will immediately vest upon an acquisition of the Company, unless the
options are assumed by the acquiring entity.
Compensation Committee and Board of Directors Report on Executive Compensation
The Compensation Committee of the Board of Directors is composed entirely of
independent outside directors. The Committee is responsible for reviewing and
approving the compensation policies for all employees, including all officers,
whose annual compensation is in excess of $100,000. The Stock Option Committee
has in the past administered the Company's 1981 Stock Option Plan. However, the
Stock Option Committee, which currently consists of Messrs. Ballard and Jones,
no longer meets the three disinterested-person administration requirement of
Rule 16b-3, as in effect prior to the May 1, 1991 amendments, under the
Securities Exchange Act of 1934. Accordingly, the full Board must grant stock
options to officers of the Company until such time as there are three or
more disinterested individuals on this Stock Option Committee or the
administration of the 1981 Stock Option Plan is otherwise brought into
compliance with the applicable requirements of amended Rule 16b-3.
The objective of the Compensation Committee is to establish a comprehensive
program for the Company's executive officers which will (i) allow the Company to
attract and retain the services of highly qualified individuals,
(ii) tie executive compensation directly to the Company's business and
performance objectives and (iii) reward outstanding individual performance that
contributes to the Company's growth and long term success.
In general, the compensation package for executive officers is comprised of
three elements: (i) base salary which reflects individual performance and is
designed primarily to be marginally competitive with salary levels of
similarly sized companies both within and without the industry which compete
with the Company for executive talent, (ii) annual variable performance awards
payable in cash and tied to the achievement of performance targets,
and (iii) long term stock based incentive awards which strengthen the mutuality
of interest between the executive officers and the Company's stockholders.
The Compensation Committee annually evaluates the executive officers' base
compensation and bonus eligibility compared with surveyed executive compensation
for similar sized companies and divisions published by the American Electronics
Association. Eligibility for bonuses is generally based on a weighted
evaluation taking into account the overall performance of the Company, the
Compensation Committee's evaluation of each participant's contribution to such
performance, and progress made towards the attainment of long term growth
objectives. The Compensation Committee meets with the Chief Executive Officer
(the "CEO") to review his evaluation of the officers' performance and
eligibility for bonuses and then reconvenes without the CEO's presence to
evaluate his performance. The Committee gives a report on its meeting to the
full Board of Directors.
For purposes of the stock price performance graph which appears latter in this
Proxy Statement, the Company has selected the S&P Aerospace/Defense Index as the
industry index. However, in selecting companies to survey for compensation
purposes, the Compensation Committee considered many factors including
geographic location, growth rate, annual revenue and profitability, and market
capitalization. The Compensation Committee also considered companies outside
the industry which may compete with the Company in recruiting executive
talent. For this reason, there was no meaningful correlation between companies
surveyed for compensation data and the companies included in the S&P Aerospace
Index.
The base salary level for the Company's executive officers for fiscal 1995 was
at the 36th percentile of the base salary paid by companies in the peer group
survey taken into consideration for comparative compensation purposes.
In fiscal 1995 the Company's executive officers received a 3.5% increase in base
salary compensation over salary levels paid in fiscal 1994.
For fiscal 1995, the Compensation Committee established a bonus pool to be
distributed on a discretionary basis among executives and managers of the
Company and its subsidiaries provided certain financial performance
benchmarks were met. For fiscal 1995, the Compensation Committee recommended to
the full Board of Directors that Mr. John W. Ballard and Mr. John W. Ballard III
receive bonuses of $30,000 and $25,000 respectively, in recognition of their
performance.
For fiscal 1996, the Compensation Committee has again established a bonus pool
to be distributed on a discretionary basis among executives and managers of the
Company and its subsidiaries. The basis of distribution of this pool will be
subjective, but is generally tied to the achievement of corporate and divisional
goals as detailed in the Company's most recent strategic plan. More
specifically, these goals relate to progress on new product
introduction efforts and achievement of certain profitability and other
financial milestones.
Stock options are considered a component of the total compensation of officers.
All stock options are granted under the 1981 Stock Option Plan and are intended
to align the interests of each officer-optionee with those of the stockholders
and provide them with a significant incentive to manage the Company from the
prospective of an owner with an equity interest in the success of the business.
The size of the option grant made to each executive officer under the 1981 Plan
is based upon that individual's current position with the Company, internal
comparability with option grants made to other Company executives and the
individual's potential for future responsibility and promotion over the option
term. The Board of Directors also takes into account the existing equity
holdings, whether in shares or in vested or unvested stock options, of the
executive officer in determining the appropriate level of equity incentive to
provide for each officer. However, the Board of Directors does not adhere to
any specific guidelines as to the relative option holdings of the Company's
executive officers. During fiscal 1995, Mr. John W. Ballard III
received an option to purchase 25,000 shares of Company stock at $4.25,
exercisable as to 20% of the option shares after December 2, 1995 and as to an
additional 20% of the optioned shares after each December 2 thereafter through
December 2, 1999.
CEO Compensation. In setting the compensation payable to the Company's CEO,
the Compensation Committee has sought to achieve two objectives: (i) establish
a level of base salary competitive with that paid by companies within the
industry which are of comparable size to the Company and by companies outside
of the industry with which the Company competes for executive talent, and (ii)
make a significant percentage of the total compensation package contingent upon
performance.
The base salary established for the CEO on the basis of the foregoing criteria
is intended to provide him with a level of stability and certainty each year.
However, this element of compensation historically has been affected to
some degree by the Company's profitability. In fiscal year 1995, the CEO's
salary component of compensation was at the 35th percentile of the base salary
in effect for chief executive officers of the same peer group companies which
were included in the survey reviewed by the Compensation Committee for
comparative compensation purposes. The balance of the compensation, a cash
bonus of $30,000, earned by the CEO for fiscal year 1995 was entirely
dependent upon performance and provided no dollar guarantee. Because of the
significant equity holdings the CEO currently has in the Company, no stock
option grants have, to date, been made to the CEO under the Company's 1981
Stock Option Plan.
Deduction Limit for Executive Compensation. Section 162(m) of the Internal
Revenue Code, enacted in 1993, generally disallows a tax deduction to publicly
held corporations for compensation exceeding $1 million paid to certain
executive officers. It is not expected that the compensation to be paid to the
Company's executive officers for fiscal year 1996 will exceed the $1 million
limit per officer. Accordingly, the Compensation Committee has not
at this time instituted any changes to its compensation policies to take into
account the new $1 million limitation.
The Compensation Committee The Board of Directors
Barry J. Shillito John W. Ballard
Hamilton W. Budge Hamilton H. Budge
Asaph H. Hall Donald C. Cox
Donald C. Cox Asaph H. Hall
Arthur H. Hausman
Alan C. Peyser
Barry J. Shillito
E.M.T. Jones
Performance Graph
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG COMPANY, S&P 500 INDEX AND S&P AEROSPACE/DEFENSE INDEX
(on file)
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 that might incorporate future filings of the Company,
including this Proxy Statement in whole or in part, the preceding Performance
Graph and Report of Compensation Committee and Board of Directors shall not be
incorporated by reference into any such filings, nor shall such graph
or report be incorporated by reference into any future filings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a former or current officer or
employee of the Company or any of its subsidiaries. However, two members of
the Board of Directors, Messrs. Ballard and Jones, are executive
officers of the Company. No executive officer of the Company serves as a member
of the Board of Directors or Compensation Committee of any entity which has an
executive officer serving as a member of the Company's Board
of Directors or Compensation Committee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company'
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock. Officers, directors and greater than
ten-percent stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely upon review of the copies of such reports furnished to the Company
and written representation that no other reports were required, the Company
believes that there was compliance for the fiscal year ended September 31, 1995
with all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten-percent beneficial stockholders.
PROPOSAL 2
APPROVAL OF THE TCI INTERNATIONAL, INC. 1995 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
The stockholders are being asked to vote on a proposal to approve the
implementation of the 1995 Non-Employee Director Stock Option Plan
(the "Director Plan") pursuant to which eligible non-employee members
of the Company's Board of Directors will receive automatic option grants made
at designated intervals over their period of continued service on the Board.
The Director Plan became effective on September 1, 1995, and the initial
option grants under the Director Plan were made on that date, subject to
stockholder approval of the Director Plan at the 1996 Annual Meeting.
The Director Plan is an equity incentive program designed to attract and retain
highly-qualified individuals to serve as non-employee members of the Company's
Board of Directors. The following is a summary of the principal features of the
Director Plan. The summary, however, does not purport to be a complete
description of all the provisions of the Director Plan. Any stockholder who
wishes to obtain a copy of the actual plan document may do so by written request
to the Corporate Secretary at the Company's executive offices.
Eligibility
Eligibility for automatic option grants under the Director Plan is limited to
(i) those individuals serving as non-employee Board members on September 1, 1995
and (ii) those individuals first elected or appointed as non-employee Board
members after such date. In no event, however, will any non-employee Board
member be eligible to participate in the Director Plan if such individual has
previously been in the Company's employ.
As of January 5, 1996, there were six (6) non-employee Board members eligible
to participate in the Director Plan.
Issuable Shares
Shares of the Company's common stock will be issuable under the Director Plan
and will be drawn from either the Company's authorized but unissued shares of
common stock or from reacquired shares of common stock, including shares
repurchased by the Company on the open market. The total number of shares of
common stock issuable in the aggregate under the Director Plan and the Company's
1981 Stock Option Plan (the "1981 Plan") may not exceed the 1,100,000 shares
which have been reserved for issuance over the term of the 1981 Plan, and only
292,885 shares of this reserve remained available for issuance in the aggregate
under the two plans after August 31, 1995. Accordingly, the implementation of
the new Director Plan will not effect any increase in the number of shares
of common stock already reserved for issuance to officers, employees and
non-employee Board members through the 1981 Plan and will not result in any
additional dilution of stockholder interests.
Should one or more outstanding options under the Director Plan or the 1981 Plan
expire or terminate for any reason prior to exercise in full, then the shares of
common stock subject to the portion of each option not so exercised will be
available for subsequent option grant under either the Director Plan or the
1981 Plan.
In the event any change is made to the common stock issuable under the Director
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding common
stock as a class without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable in the aggregate under the Director Plan and the 1981 Plan, (ii) the
number and/or class of securities for which automatic option grants are to be
subsequently made under the Director Plan to newly-elected or continuing
non-employee Board members, and (iii) the number and/or class of securities and
price per share in effect under each option outstanding under the Director
Plan.
Automatic Option Grants
Each individual who was serving as an eligible non-employee Board member on the
September 1, 1995 effective date of the Director Plan automatically received on
that date an option to purchase 10,000 shares of common stock. Each individual
who first becomes an eligible non-employee Board member after September 1,
1995, whether through election by the Company's stockholders or appointment by
the Board, will automatically receive, at the time of such initial election
or appointment, a similar option grant to purchase 10,000 shares of
common stock.
Additional grants will automatically be made under the Director Plan as
follows:
- At the Annual Stockholders Meeting held in the calendar year in which
occurs the third anniversary of the grant date of the initial
10,000-share automatic option grant made to the non-employee Board member,
that individual will automatically be granted an option to
purchase an additional 6,000 shares of common stock, provided such
individual is continuing to serve as a Board member.
- At every third Annual Stockholders Meeting following the Stockholders
Meeting at which the non-employee Board member receives his or her first
6,000-share option grant, such individual will automatically be granted an
additional option to purchase 6,000 shares of common stock, provided
such individual is continuing to serve as a Board member.
There will be no limit on the number of such 6,000-share option grants any one
non-employee Board member may receive over his or her period of Board service.
New Plan Benefits
On the September 1, 1995 effective date of the Director Plan, each of the
following non-employee Board members received an automatic option grant for
10,000 shares of common stock with an exercise price of
$7.63 per share: Messrs. Budge, Cox, Hall, Hausman, Peyser and Shillito. None
of these options, however, will become exercisable in whole or in part unless
the stockholders approve the Director Plan at the Annual Meeting.
Price and Exercisability
The exercise price per share of common stock subject to each automatic option
grant will be equal to one hundred percent (100%) of the fair market value per
share on the automatic grant date. For such purpose, the
fair market value per share will be deemed equal to the closing selling price
per share of common stock on the Nasdaq National Market on the date in question.
On January 5, 1996, the fair market value per share determined on such basis
was $8.63.
The exercise price is payable in cash or in shares of common stock. The
exercise price may also be paid through a same-day sale program pursuant to
which a designated brokerage firm will effect an immediate sale of
the shares purchased under the option and pay over to the Company, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
exercise price of the purchased shares.
Each automatic grant will be immediately exercisable for any or all of the
option shares. However, any shares purchased under the option will be subject
to repurchase by the Company, at the exercise price paid per
share, upon the optionee's cessation of Board service prior to vesting in those
shares. The shares subject to each option will vest, and the Company's
repurchase right will lapse, as follows: one third of the option shares will
be fully-vested on the grant date of the option, and the balance of the option
shares will vest in two (2) successive equal annual installments over the
optionee's period of continued service as a Board member, with the first such
installment to vest upon the optionee's completion of one (1) year of Board
service measured from the grant date. In no event will any additional option
shares vest after the optionee's cessation of Board service.
Non-Transferability.
During the optionee's lifetime, each automatic option grant will generally be
exercisable only by the optionee and will not be assignable or transferable
other than by will or by the laws of descent and distribution
following the optionee's death or in connection with the optionee's divorce or
other marital separation proceedings.
Option Term.
Each automatic grant will have a maximum term of ten (10) years, subject to
earlier termination upon the optionee's cessation of Board service.
Should the optionee die or become permanently disabled while serving as a
Board member, then the shares of common stock at the time subject to each
automatic option grant held by such individual will immediately
vest in full (and the Company's repurchase right with respect to such shares
will terminate), and the optionee (or the representative of the optionee's
estate or the person or persons to whom the option is transferred upon the
optionee's death) will have a twelve (12)-month period following the date of
the optionee's cessation of Board service in which to exercise such option for
any or all of those vested shares.
Stockholder Rights.
The holder of an automatic option grant will have no stockholder rights with
respect to any shares subject to such option until such individual exercises the
option and pays the exercise price for the purchased shares.
Change in Control Provisions
In the event of any of the following transactions (a "Change in Control"):
(i) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the State in which the Company is incorporated,
(ii) the sale, transfer or other disposition of all or substantially all of
the Company's assets in complete liquidation or dissolution of the
Company,
(iii) any reverse merger in which the Company is the surviving entity but in
which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are
transferred to person or persons different from the persons
holding those securities immediately prior to such merger, or
(iv) the acquisition by any person or related group of persons (other than
the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company) of
beneficial ownership of securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders,
the shares of common stock at the time subject to each outstanding automatic
option but not otherwise vested will automatically vest in full so that each
such option will, immediately prior to the specified effective date for the
Change in Control, become fully exercisable for all of the shares of common
stock at the time subject to that option and may be exercised for all or any
portion of those shares as fully-vested shares. Immediately following the
consummation of the Change in Control, each automatic option grant will
terminate and cease to be outstanding, except to the extent one or more such
grants are assumed by the successor entity or its parent corporation.
The automatic option grants outstanding under the Director Plan will in no way
affect the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
Plan Amendments
The Board has complete and exclusive power and authority to amend or modify the
Director Plan in any or all respects whatsoever. However, the Director Plan,
together with the option grants outstanding thereunder, may not in general be
amended at intervals more frequently than once every six (6) months. In
addition, the Board may not, without the approval of the Company's stockholders,
amend the Director Plan to (i) materially increase the maximum number of shares
issuable in the aggregate under the Director Plan and the 1981 Plan or the
number of shares for which an option is to be granted to each newly-elected or
continuing non-employee Board member, except for permissible adjustments in the
event of certain changes in the Company's capital structure, (ii) materially
modify the eligibility requirements for plan participation or (iii) materially
increase the benefits accruing to plan participants.
Effective Date and Term of Director Plan
The Director Plan became effective on September 1, 1995, and the initial
automatic option grants under the Director Plan were made on that date. The
Director Plan will terminate upon the earlier of (i) August 31, 2005 or (ii) the
date on which all shares available for issuance under the Director Plan and the
1981 Plan have been issued pursuant to the exercise of outstanding options. If
the date of termination is determined under clause (i) above, then all option
grants outstanding on such date will thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing those
grants.
Tax Consequences
Options granted under the Director Plan will be nonstatutory options which do
not satisfy the requirements of Section 422 of the Internal Revenue Code. No
taxable income will be recognized by an optionee upon the grant of the
nonstatutory option, but the optionee will normally recognize ordinary income
in the year in which the option is exercised. The amount of such ordinary
income will be equal to the excess of the fair market value of the purchased
shares on the exercise date over the option exercise price paid for the shares.
Special provisions of the Internal Revenue Code apply to the acquisition of
unvested shares of the Company's common stock under a nonstatutory option.
These special provisions may be summarized as follows:
- If the shares acquired upon exercise of the nonstatutory option are subject
to repurchase by the Company at the original option exercise price in the
event of the optionee's termination of Board service prior to vesting in
those shares, then the optionee will not recognize any taxable income at the
time of exercise but will have to report as ordinary income, as and when
the optionee vests in the shares, an amount equal to the excess of (i) the
fair market value of the shares on the date the optionee vests in those
shares over (ii) the option exercise price paid for such shares.
- The optionee may, however, elect under Section 83(b) of the Internal Revenue
Code to include as ordinary income in the year of exercise of the
nonstatutory option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii)
the option exercise price paid for such shares. If the Section 83(b)
election is made, the optionee will not recognize any additional income as
and when he or she vests in such shares.
The Company will be entitled to a business expense deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
nonstatutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the
optionee.
Stockholder Approval
The affirmative vote of the majority of shares of the Company's common stock
present or represented by proxy at the Annual Meeting and entitled to vote on
Proposal 2 is required for approval of the implementation of the Director Plan.
If such stockholder approval is not obtained, then all options previously
granted under the Director Plan will terminate without ever becoming exercisable
for any of the option shares, and no further options will be granted under the
Director Plan. However, non-employee Board members would continue to remain
eligible to receive discretionary option grants from time to time under the
1981 Plan.
Because the Board believes that an equity incentive program is necessary to
attract and retain the services of highly-qualified non-employee Board members,
the Board recommends that the stockholders vote IN FAVOR of Proposal 2.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of Registrant, at its meeting held on January 16, 1996,
and upon the prior recommendation of its Audit Committee, retained KPMG Peat
Marwick LLP, independent public accountants, to replace the firm of Deloitte &
Touche LLP as independent public accountants for Registrant, effective
January 16, 1996.
In connection with its audits for the years ended September 30, 1995 and 1994
and in subsequent interim period preceding the engagement with KPMG Peat
Marwick LLP, there have been no disagreements with Deloitte & Touche LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the satisfaction of
Deloitte & Touche LLP, would have been referred to in their report.
Deloitte & Touche LLP's report on the Registrant's financial statements for the
years ended September 30, 1995 and 1994 contained no adverse opinion or
disclaimer of opinion nor was it qualified as to uncertainty, audit
scope, or accounting principles.
The firm of KPMG Peat Marwick LLP was selected to serve as independent public
accountants for the Company for the fiscal year ending September 31, 1996.
Although the selection of KPMG Peat Marwick LLP is not required to be submitted
to a vote of the stockholders, the Board of Directors believes it appropriate
as a matter of policy to request that the stockholders ratify the selection of
the independent public accountants for fiscal year 1996. In the event that
stockholders fail to ratify the selection of KPMG Peat Marwick LLP, the Board of
Directors would reconsider such selection.
The Company anticipates that a representative of KPMG Peat Marwick LLP will be
present at the Annual Meeting to respond to appropriate questions and to make a
statement if such representative desires to do so.
STOCKHOLDER PROPOSALS
Stockholders proposals intended to be considered at the 1997 Annual Meeting must
be received by the Company no later than September 18, 1996. The proposal must
be mailed to the Company's principal executive offices, 222 Caspian Drive,
Sunnyvale, California 94089, Attention: John W. Ballard III. Such proposals
may be included in next year's Proxy Statement if they comply with certain rules
and regulations promulgated by the SEC.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual Meeting
other than those set forth herein and in the Notice accompanying this Proxy
Statement.
It is important that your shares be represented at the meeting, regardless of
the number of shares which you hold. YOU ARE, THEREFORE, URGED TO EXECUTE
PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE WHICH HAS BEEN
ENCLOSED FOR YOUR CONVENIENCE. Stockholders who are present at the meeting
may revoke their proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
BY ORDER OF THE BOARD OF DIRECTORS
John W. Ballard
President and Chief Executive Officer
January 22, 1996
Sunnyvale, California
