TCI INTERNATIONAL, INC.
Notice of Annual Meeting of STOCKholders
To be held February 11, 1997
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
11, 1997 for the following purposes:
1. To elect three Class I directors to serve until the
2000 Annual Meeting, one Class III director to serve
until the 1999 Annual Meeting or until their successors
have been elected and qualified;
2. Ratify the selection of KPMG Peat Marwick LLP as
independent public accountants for the fiscal year
ending September 30, 1997; and
3. 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 6, 1997 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 15, 1997
Stockholders Should Read the Entire Proxy Statement
Carefully Prior to Returning Their Proxies
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held February 11, 1997
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 11, 1997 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 three
operating subsidiaries, Technology for Communications
International ("TCI"), BR Communications ("BR"), and TCI
Wireless, Inc. ("TCIW"). 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
15, 1997.
VOTING rights AND SOLICITATION
The close of business on January 6, 1997 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 3,183,730 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", and For ratification of the
selection of accountants as described herein under
"Proposal 2 - 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 four 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 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 mail, 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, or
until successors of such class have been elected and
qualified. In August 1, 1996 the Board of Directors
increased the number of directors from six to eight
members, as allowed under the corporate bylaws, and
filled the two new positions with Messrs. Slobodan
Tkalcevic as a Class I Director and John W. Ballard, III
as a Class III Director. Both of the new board members
are nominated for election at this annual meeting. 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.
<TABLE>
Nominees to Board of Directors
Class and Year
in which Term
Name Principal Occupation Will Expire Age
<S> <C> <C> <C>
Asaph H. Hall Retired Class I; 2000 63
E. M. T. Jones Retired, Chairman of
the Board of
TCI International, Inc. Class I; 2000 72
Slobodan Tkalcevic Vice President Advanced
Development of
TCI International, Inc. Class I; 2000 43
John W. Ballard, III General Manager of
TCI International, Inc. Class III; 1999 38
</TABLE>
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, III joined the Company in 1988 serving
in numerous capacities in the Engineering and
Administration Departments of the Information System
Division. In 1990, he was appointed Deputy General
Manager and later was appointed Vice President and
General Manager of the Information System Division. In
1992, he was appointed President of BR Communications.
In 1993, he was appointed Chief Financial Officer, Chief
Operating Officer, and Vice President and General
Manager of the Company. John W. Ballard, III is the son
of John W. Ballard, President and CEO of the Company.
Slobodan Tkalcevic joined the Company in 1978. He was
named Senior System Engineer in 1986, became Technical
Advisor to General Manager in 1990, and has served as
the Company's Vice President for Advanced Development
since 1993.
<TABLE>
Directors Not Standing For Election
Class and Year
Director in which Term
Name Principal Occupation Since Will Expire Age
<S> <C> <C> <C> <C>
John W. Ballard President and CEO of
TCI International, Inc. 1987 Class II; 1998 63
Hamilton W. Budge Retired. Of counsel to
Brobeck, Phleger &
Harrison, LLP 1987 Class II; 1998 68
Donald C. Cox Professor, Electrical
Engineering, Stanford
University 1995 Class III; 1999 59
C. Alan Peyser President and CEO of
Cable & Wireless, Inc. 1995 Class III; 1999 63
</TABLE>
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, LLP, 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.
Donald C. Cox, a professor of Electrical Engineering at
Stanford University, has held the Harold Trap Friis
Professor of Engineering chair 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 the President and CEO of
Cable & Wireless, Inc. He was the President of Cable
and Wireless, Inc. from 1980 to 1993. He has been a
Director of Cable and Wireless since 1981. Mr. Peyser
also serves as a Director of Tridex, Inc., Network
Imaging, CWI, Mercury Comm. Ltd, and Spaceworks.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of
four meetings during the fiscal year ended September 30,
1996. 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. Hall,
Peyser and Cox, 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.
Budge, Cox and Hall, held three meetings during the last
fiscal year.
The Stock Option Committee has responsibility for
administering the Company's 1981 Stock Option Plan with
respect to all individuals in the Company's employ or
service, other than the Company's executive officers.
This Committee, which currently consists of Messrs.
Ballard and Jones, held two meetings during the
Company's last fiscal year. The Board of Directors has
responsibility for administering the 1981 Stock Option
Plan with respect to the Company's executive officers
and met one time during the Company's last fiscal year
for purposes of making option grants under the 1981
Stock Option Plan.
Director remuneration
Each non-officer member of the Board of Director was
paid an annual retainer fee of $10,800 in fiscal 1996
(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. Hall received an
additional annual retainer fee of $2,025 (for 3 quarters
during the year) 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.
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"). The Director Plan was established on September
1, 1995, and on that date each of the following non-
employee Board members received an initial stock option
grant under the Director Plan for 10,000 shares of the
Company's common stock: Messrs. Budge, Cox, Hall and
Peyser. Each option has an exercise price per share of
$7.63, the closing selling price per share of the
Company's common stock on the grant date, as reported on
the Nasdaq National Market, and the shares subject to
each option will vest as follows: one-third immediately
upon grant, an additional one-third upon the optionee's
completion of one year of Board service measured from
the grant date, and the remaining one-third upon the
optionee's completion of two years of Board service
measured from the grant date.
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 6, 1997 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.
<TABLE>
Shares Percent
Name and Address of Beneficial Owner Beneficially Owned Of Class
<S> <C> <C>
TCI International Inc. Employee Stock Ownership Plan 591,978(1) 18.6%
c/o Charles Schwab Trust Company, Trustee
1 Montgomery Street, 7th Floor., San Francisco, California 94104
John W. Ballard 448,091(2) 14.1%
c/o TCI International, Inc.
222 Caspian Drive, Sunnyvale, California 94089
Athena Capital Management, Inc. 158,650(3) 5.0%
75 James Way, Southampton, Pennsylvania 18966
E.M.T. Jones 155,102(2) 4.9%
c/o TCI International, Inc.
222 Caspian Drive, Sunnyvale, California 94089
Hamilton W. Budge(4) 10,667 *
Donald C. Cox(4) 7,167 *
Asaph H. Hall(4) 14,667 *
C. Alan Peyser(4) 7,167 *
John W. Ballard III(2)(4) 51,519 1.6%
Slobodan Tkalcevic(2)(4) 39,382 1.2%
All directors and executive officers as a group
(8 persons) (1)(2)(4) 733,762 23.1%
</TABLE>
(1) Each of approximately 199 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, 1996. 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 158,650 shares according to
information contained in its Schedule 13G filed on
January 29, 1996.
(4) Includes shares subject to options which are
currently exercisable or will become exercisable prior
to March 31, 1997.
* 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,
1996, 1995 and 1994 to the Chief Executive Officer, and
the other executive officers of the Company whose salary
and bonus for the fiscal ended September 31, 1996
exceeded $100,000 (the "Named Officers").
<TABLE>
Summary Compensation Table
Long Term
Annual Compensation Compensation
Fiscal Securities Underlying All Other
Name and Principal Position Year Salary(1) Bonus Options/SARs (#) Compensation (2)
<S> <C> <C> <C> <C> <C>
John W. Ballard, President and 1996 $153,271 $ --- --- $8,533
Chief Executive Officer of the 1995 153,171 30,000 --- 7,452
Company and TCI 1994 153,784 19,000 --- 6,999
John W. Ballard III,
Vice President Finance of the
Company; 1996 123,049 25,000 7,500 8,012
President BR Communications 1995 122,969 25,000 25,000 6,930
and General Manager TCI 1994 123,458 17,000 --- 5,550
Slobodan Tkalcevic
Vice President of Advanced
Development of the Company 1996 110,530 20,000 15,000 6,306
1995 105,300 25,000 25,000 5,907
1994 104,763 15,000 --- 3,953
(1) Salary amounts include amounts deferred 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>
<TABLE>
Section 401(k) Employee Stock
Plan/Profit Sharing Plan Ownership Plans
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995 1994
John W. Ballard $5,766 $6,052 $3,476 $2,767 $1,400 $3,523
John W. Ballard III 5,691 5,647 2,819 2,330 1,283 2,731
Slobodan Tkalcevic 5,210 4,854 2,095 1,096 1,053 1,858
</TABLE>
Stock Options
The following table sets forth certain information
concerning stock options granted in fiscal 1996 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.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
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 1996 Share(2) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
John W. Ballard III 7,500 4% $6.75 8/16/06 $31,838 $80,683
Slobodan Tkalcevic 15,000 8% $6.75 8/16/06 $63,676 $161,366
</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
August 16, 1996 grant date. The option has a maximum
term of 10 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 3 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 1996 fiscal year and the unexercised
options held by such individuals at the end of the 1996
fiscal year. No stock options or SARs were exercised
during the 1996 fiscal year, nor were any SARs
outstanding at the end of such fiscal year.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FY-END OPTION/SAR VALUE
Shares Number of Unexercised Value of Unexercised In-the-Money
Acquired on Value Options/SARs at FY-End (#) Options/SARs at FY-End (1)
Name Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
John W. Ballard III None None 33,400/42,100 $70,375/$86,500
Slobodan Tkalcevic None None 20,500/44,500 $50,875/$73,500
</TABLE>
(1) Value based upon the closing selling price of the
Company's Common Stock on September 30, 1996 on the
Nasdaq National Market ($6.625 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 officers. 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 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 create common interests for 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 1996 ranged from the 23th to 60th
percentile of the base salary paid by companies in the
peer group survey taken into consideration for
comparative compensation purposes. In fiscal 1996
Messrs. John W. Ballard and John W. Ballard, III base
salaries were the same as their salary levels paid in
fiscal 1995, and Slobodan Tkalcevic received a 5%
increase in base salary compensation over his salary
level paid in fiscal 1995. In December 1996, Messrs.
John W. Ballard, John W. Ballard, III and Slobodan
Tkalcevic received an increase of 14%, 20%, and 27%,
respectively, over salary levels paid in fiscal 1996.
As a result of these increases, the base salary levels
of the Company's executive officers now range from the
35th to 99th percentile of the base salary paid for
comparable positions by companies in the peer group
survey taken into consideration for comparative
compensation purposes.
For fiscal 1996, 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 1996, the Compensation
Committee recommended to the full Board of Directors
that Messrs. John W. Ballard III and Slobodan Tkalcevic
receive bonuses of $25,000 and $20,000 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 for
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 option grants made
under the 1981 Stock Option Plan to the Company's
executive officers are authorized by the Board of
Directors 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 1996, Messrs. John W. Ballard III and
Slobodan Tkalcevic received an option to purchase 7,500
and 15,000 shares, respectively, of Company stock at
$6.75, exercisable as to one-third of the option shares
after August 16, 1997 and as to an additional one-third
of the optioned shares after each August 16 thereafter
through August 16, 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 1996 and 1997, the CEO's salary component of
compensation was at the 28th and 35th percentile,
respectively, 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. 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 1997 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
Hamilton W. Budge John W. Ballard
Asaph H. Hall John W. Ballard, III
Donald C. Cox Hamilton H. Budge
Donald C. Cox
Asaph H. Hall
E.M.T. Jones
Alan C. Peyser
Slobodan Tkalcevic
Performance Graph (on file)
Comparison of Five Year Cumulative Total Return
Among Company, S&P 500 INDEX and S&P Aerospace/Defense
INDEX
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.
section 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 ended September
31, 1996 with all Section 16(a) filing requirements
applicable to its officers, directors and greater than
ten-percent beneficial stockholders.
Proposal 2
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 audit for the year ended
September 30, 1995 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 year ended September 30,
1995 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 ending September 31, 1997. 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 1997. 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
1998 Annual Meeting must be received by the Company no
later than September 24, 1997. 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
/s/ John W. Ballard
John W. Ballard
President and Chief Executive Officer
January 15, 1997
Sunnyvale, California