TCI
TCI INTERNATIONAL, INC.
Notice of Annual Meeting of STOCKholders
To be held February 10, 1998
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 10, 1998 for
the following purposes:
1. To elect two Class II directors to serve until the
2001 Annual Meeting or until their successors have been
elected and qualified;
2. To ratify the selection of KPMG Peat Marwick LLP as
independent public accountants for the fiscal year ending
September 30, 1998; 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 5, 1998 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 9, 1998
Stockholders Should Read the Entire Proxy Statement
Carefully Prior to Returning Their Proxies
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held February 10, 1998
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 10, 1998 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 12, 1998.
VOTING rights AND SOLICITATION
The close of business on January 5, 1998 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 3,202,815 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 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
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. 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>
John W. Ballard President and CEO of Class II; 2001 64
TCI International, Inc
Hamilton W. Budge Retired. Of counsel to Class II; 2001 69
Brobeck, Phleger & Harrison
</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.
Mr. Ballard is the father of John W. Ballard III, General
Manager of the Company.
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.
<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>
Asaph H. Hall Retired 1992 Class I; 2000 64
E. M. T. Jones Retired. Chairman of
the Board of
TCI International, Inc. 1987 Class I; 2000 73
Slobodan Tkalcevic Vice President of
Advanced Development of
TCI International, Inc. 1996 Class I; 2000 44
John W. Ballard III General Manager of
TCI International, Inc. 1996 Class III; 1999 39
Donald C. Cox Professor, Electrical
Engineering,
Stanford University 1995 Class III; 1999 60
C. Alan Peyser President and CEO of
Cable & Wireless, Inc. 1995 Class III; 1999 64
</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.
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.
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.
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. Dr. Cox is a member of the Audit Committee and the
Compensation Committee.
C. Alan Peyser was the President and CEO of Cable and
Wireless, Inc. from 1993 to 1997. 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 Network Imaging, CWI and Spaceworks.
Mr. Peyser is a member of the Audit Committee.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of
four meetings during the fiscal year ended September 30,
1997. 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 one meeting 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 currently consists of Messrs. Ballard and Jones.
The Stock Option Committee did not meet during the 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 once during the
Company's last fiscal year for purposes of making option
grants under the 1981 Stock Option Plan.
Director remuneration
Each non-employee member of the Board of Directors was
paid an annual retainer fee of $10,800 in fiscal 1997
(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 $2,700 for his service as Chairman of the Audit
Committee. The Company also pays each non-employee 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"). Each individual who
is first appointed or elected to serve as a non-employee
Board member will automatically receive on the date of his or
her initial election or appointment an option to purchase
10,000 shares of Common Stock, provided such individual has
not previously been in the employ of the Company.
Furthermore, each individual who continues to serve as a non-
employee Board member will receive an option to purchase
6,000 shares of Common Stock at (i) the Annual Stockholders
Meeting held in the calendar year in which occurs the third
anniversary of the grant date of the initial automatic option
grant, and (ii) every third Annual Stockholders Meeting
following the Annual Meeting at which the non-employee Board
member received his or her first 6,000-share option grant.
No options were granted to non-employee Board members in the
1997 fiscal year. Messrs. Budge, Cox, Hall and Peyser will
each receive a 6,000-share option grant at the 1998 Annual
Meeting of Stockholders, should such individuals continue to
serve on the Board following such meeting. Each option
granted under the Director Plan has an exercise price per
share equal to 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 5, 1998 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 555,604(1) 17.4%
Stock Ownership Plan
c/o Charles Schwab Trust Company, Trustee
1 Montgomery Street, 7th Floor.,
San Francisco, California 94104
John W. Ballard 447,557(2) 14.0%
c/o TCI International, Inc.
222 Caspian Drive, Sunnyvale,
California 94089
Dimensional Fund Advisors Inc 174,920(3) 5.5%
1299 Ocean Ave., 11th Floor,
Santa Monica, Ca. 90401
E.M.T. Jones 155,158(2) 4.8%
c/o TCI International, Inc.
222 Caspian Drive, Sunnyvale,
California 94089
Hamilton W. Budge(4) 14,000 *
Donald C. Cox(4) 11,000 *
Asaph H. Hall(4) 18,500 *
C. Alan Peyser(4) 11,000 *
John W. Ballard III(2)(4) 66,257 2.1%
Slobodan Tkalcevic(2)(4) 53,808 1.7%
All directors and executive
officers as a group
(8 persons) (1)(2)(4) 777,280 24.3%
(1) Each of approximately 181 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, 1997. Such
shares are included in the aggregate holdings of the Employee Stock
Ownership Plan (see footnote (1)).
(3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, has advised the Company that Dimensional is
deemed to have beneficial ownership of 174,920 shares of Common
Stock, all of which are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company,
or DFA Group Trust, an investment vehicle for qualified employee
benefit plans, both of which Dimensional serves as investment
manager. Dimensional disclaims beneficial ownership of all such
shares.
(4) Includes shares subject to options which are currently
exercisable or will become exercisable prior to March 31, 1998.
* 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, 1997, 1996 and
1995 to the Chief Executive Officer, and the other executive officers
of the Company whose salary and bonus for the fiscal year ended
September 30, 1997 exceeded $100,000 (the "Named Officers").
<TABLE>
Summary Compensation Table
Long Term
Annual Compensation Compensation
Fiscal Securities All Other
Name and Principal Position Year Salary(2) Bonus Underlying Compensation(3)
Options/SARs (#)
<S> <C> <C> <C> <C> <C>
John W. Ballard, President and 1997 $174,671 $0 0 $6,627
Chief Executive Officer of the 1996 153,271 0 0 8,533
Company and TCI 1995 153,171 30,000 0 7,452
John W. Ballard III,
Vice President Finance of the 1997 147,610 0 0 6,627
Company;
President BR Communications 1996 123,049 25,000 7,500 8,012
and General Manager TCI 1995 122,969 25,000 25,000 6,930
Slobodan Tkalcevic
Vice President of Advanced 1997 139,538 20,000 0 6,627
Development of the Company 1996 110,530 20,000 15,000 6,306
1995 105,300 25,000 25,000 5,907
Brendan Fitzgerald (1)
Vice President of Corporate 1997 122,740 0 0 0
Development and President 1996 0 0 0 0
Of TCI Wireless, Inc. 1995 0 0 0 0
</TABLE>
(1) Resigned on August 31, 1997
(2) Salary amounts include amounts deferred under the
Company's 401(k) Plan
(3) Represents the Company's contribution under the
Company's ESOP and 401(k) Plan as follows:
<TABLE>
Section 401(k) Employee Stock
Plan/Profit Sharing Plan Ownership Plans
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
John W. Ballard $6,627 $5,766 $6,052 $ 0 $2,767 $1,400
John W. Ballard III 6,627 5,691 5,647 0 2,330 1,283
Slobodan Tkalcevic 6,627 5,210 4,854 0 1,096 1,053
Brendan Fitzgerald 0 0 0 0 0 0
</TABLE>
Stock Options
The following table sets forth certain information concerning
stock options granted in fiscal 1997 under the Company's 1981
Stock Option Plan to the Named Officers. Only one Named Officer
received option grant in fiscal year 1997, and 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>
Brendan Fitzgerald 45,000 82% $6.75 11/5/06 $191,02 $484,099
</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 November 5, 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 three 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
1997 fiscal year and the unexercised options held by such
individuals at the end of the 1997 fiscal year. No stock options or
SARs were exercised during the 1997 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-
Acquired on Value Options/SARs at FY-End (#) Money Options/SARs at FY-End (1)
Name Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
John W. Ballard III None None 48,200/27,300 $84,750/$44,625
Slobodan Tkalcevic None None 35,000/30,000 $62,750/$39,125
Brendan Fitzgerald(2) None None None None
</TABLE>
(1) Value based upon the closing selling price of the Company's
Common Stock on September 30, 1997 on the Nasdaq National
Market ($6.125 per share) less the exercise price payable per share.
(2) Mr. Fitzgerald was granted options to purchase 45,000 shares
of the Company's Common Stock in fiscal 1997. These options
were terminated upon Mr. Fitzgerald ceasing to be employed with
the Company as of August 31, 1997.
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 1997 ranged from the 35th to 99th percentile of the base salary
paid by companies in the peer group survey taken into consideration
for comparative compensation purposes. 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.
For fiscal 1998, the base salary compensation payable to Messrs.
John W. Ballard, John W. Ballard III and Slobodan Tkalcevic will
remain at the same level as in fiscal 1997.
For fiscal 1997, 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 1997, no bonuses were paid to the Company's executive
officers except the Compensation Committee recommended to the
full Board of Directors that Slobodan Tkalcevic receive a bonus of
$20,000 in recognition of his technical contributions to new product
developments.
For fiscal 1998, 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.
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 1997, 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. 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 $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
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG COMPANY,
S&P 500 INDEX AND S&P AEROSPACE/DEFENSE INDEX
GRAPH 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.
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 year ended September 30, 1997 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 year
ending September 30, 1998. 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 1998. 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 1999
Annual Meeting must be received by the Company no later than
September 11, 1998. Proposals must be mailed to the Company's
principal executive offices at 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 9, 1998
Sunnyvale, California
