TCI
TCI INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 9, 1999
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-Sunnyvale, 1100 N. Mathilda Avenue, Sunnyvale,
California at 8:30 a.m. on February 9, 1999 for the following
purposes:
1. To elect two Class II directors to serve until the 2001
Annual Meeting and two Class III directors to serve
until the 2002 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, 1999; 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, 1999 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, III
President
Sunnyvale, California
January 8, 1999
Stockholders Should Read the Entire Proxy Statement
Carefully Prior to Returning Their Proxies
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held February 9, 1999
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 9, 1999 at the Sheraton-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, 1999.
VOTING RIGHTS AND SOLICITATION
The close of business on January 5, 1999 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
3,211,715 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 and entitled to vote 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 (other than the
election of Directors), 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.
Nominees to Board of Directors
<TABLE>
Name Principal Occupation Class and Year Age
in which Term
Will Expire
<S> <C> <C> <C>
Donald C. Cox Professor, Electrical Class II; 2001 61
Engineering, Stanford
University
C. Alan Peyser President and CEO Emeritus Class II; 2001 65
of Cable & Wireless, Inc.
John W. Ballard, III President and CEO of TCI Class III;2002 40
International, Inc.
John L. Anderson President of Celerity Class III;2002 46
Systems, Inc.
</TABLE>
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.
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.
On October 3, 1998, he was appointed President and CEO of the
Company.
John L. Anderson is the President of Celerity Systems, Inc.
He founded Celerity Systems, Inc. in 1994 and is responsible for
product definition and development. From 1981 to 1994, he was
Chief Engineer of New Products Group at TRW/ESL in Sunnyvale.
Mr. Anderson was appointed to the Board on December 16, 1998 as a
Class III Director to replace Mr. Hamilton Budge who resigned
from the Board on October 2, 1998.
Directors Not Standing For Election
<TABLE>
Name Principal Occupation Director Class and Year Age
Since in which Term
will expire
<S> <C> <C> <C> <C>
Asaph H. Hall Retired. Chairman of 1992 Class I; 2000 65
the Board of TCI
International, Inc.
E. M. T. Jones Retired. Chairman of 1987 Class I; 2000 74
the Board of TCI
International, Inc.
Slobodan Tkalcevic Vice President of 1996 Class I; 2000 45
Advanced Development
of TCI International,
Inc.
</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.
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.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of six
meetings during the fiscal year ended September 30, 1998. 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 and a Compensation
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 two 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. Cox and Hall, held
one meeting during the last fiscal year.
The Compensation Committee also 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. The Board of Directors has
responsibility for administering the 1981 Stock Option Plan with
respect to the Company's executive officers.
DIRECTOR REMUNERATION
Each non-employee member of the Board of Directors was paid
an annual retainer fee of $10,800 in fiscal 1998 (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.
Messrs. Budge, Cox, Hall and Peyser each received a 6,000-share
option grant at the 1998 Annual Meeting of Stockholders. Mr.
John Anderson received an option grant for 10,000 shares in
connection with his appointment to the Board of Directors on
December 16, 1998. 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, 1999 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 494,254 (1) 15.4%
Ownership Plan c/o Charles Schwab
Trust Company, Trustee
1 Montgomery Street, 7th Floor.,
San Francisco, California 94104
John W. Ballard 447,391 (2) 13.9%
c/o TCI International, Inc.
222 Caspian Drive, Sunnyvale,
California 94089
ROI Capital Management 366,000 (3) 11.4%
3018 Willow Pass Road, Ste 210,
Concord, Ca. 94519
Athena Capital Management, Inc. 210,550 (4) 6.6%
621 East Germantown Pike, Ste 105
Plymouth Valley, Ca. 19401
Dimensional Fund Advisors Inc. 171,920 (5) 5.4%
1299 Ocean Ave., 11th Floor,
Santa Monica, Ca. 90401
E.M.T. Jones 155,016 (2) 4.8%
c/o TCI International, Inc.
222 Caspian Drive
Sunnyvale, California 94089
John L. Anderson (6) 10,000 *
Donald C. Cox (6) 15,500 *
Asaph H. Hall (6) 20,000 *
C. Alan Peyser (6) 15,500 *
John W. Ballard III (2)(6) 74,780 2.3%
Slobodan Tkalcevic (2)(6) 64,324 2.0%
Mary Ann W. Alcon (2)(6) 13,027 *
Mansour Moussavian (2)(6) 44,231 1.4%
All directors and executive officers
as a group (9 persons) (2)(6)(7) 412,378 12.8%
</TABLE>
1) Each of approximately 153 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 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, 1998.
The shares allocated to officers and directors totaled
189,286. Such shares are included in the aggregate holdings
of the Employee Stock Ownership Plan (see footnote (1)).
3) ROI Capital Management, Inc. is an investment advisor
registered under Section 203 of the Investment Advisors Act of
1940 owns 366,000 shares according to information contained in
its Schedule 13G filed on June 16, 1998.
4) Athena Capital Management, Inc., an investment advisor
registered under Section 203 of the Investment Advisors Act of
1940 owns 210,550 shares according to information contained in
its Schedule 13G filed on January 26, 1998.
5) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, has advised the Company that Dimensional
is deemed to have beneficial ownership of 171,920 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.
6) Includes shares subject to options which are currently
exercisable or will become exercisable prior to March 31,
1999. The exercisable stock option shares for officers and
directors totaled 234,500.
7) Does not include John W. Ballard who resigned from the Board
on October 2, 1998 and also resigned as President and CEO as
of that date.
* 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, 1998,
1997 and 1996 to the Chief Executive Officer, and the other
executive officers of the Company whose salary and bonus for the
fiscal year ended September 30, 1998 exceeded $100,000 (the
"Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation Long Term
------------------- Compensation
Fiscal Securities All Other
Name and Principal Position Year Salary(2) Bonus Underlying Compenstions (3)
Options/SARs (#)
<S> <C> <C> <C> <C> <C>
John W. Ballard (1) 1998 $175,090 $--- --- $7,589
President and Chief Executive 1997 174,671 --- --- 6,627
Officer of the Company and TCI 1996 153,271 --- --- 8,533
John W. Ballard III, 1998 148,092 --- --- 7,044
President and Chief Executive 1997 147,610 --- --- 6,627
Officer of the Company and TCI 1996 123,049 25,000 7,500 8,021
Slobodan Tkalcevic 1998 144,105 10,000 --- 7,589
Vice President of Advanced 1997 139,538 20,000 --- 6,627
Development of the Company 1996 110,530 20,000 15,000 6,306
Mary Ann W. Alcon 1998 105,297 5,000 --- 5,109
Chief Financial Officer 1997 87,926 7,165 --- 4,356
1996 78,749 6,000 --- 4,206
Mansour Moussavian 1998 127,375 5,000 --- 6,269
General Manager of the 1997 120,321 6,899 --- 5,246
Broadcast & Communications 1996 106,118 5,000 7,500 5,978
Division
</TABLE>
(1) Resigned October 2, 1998
(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
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
John W. Ballard $7,323 $6,627 $5,766 $ 266 $ --- $2,767
John W. Ballard III 6,778 6,627 5,691 266 --- 2,330
Slobodan Tkalcevic 7,323 6,627 5,210 266 --- 1,096
Mary Ann W. Alcon 4,934 4,356 3,534 175 --- 672
Mansour Moussavian 6,059 5,246 4,911 210 --- 1,067
</TABLE>
Stock Options
No Named Officer received an option
grant in fiscal year 1998, and no stock appreciation rights
("SARs") were granted during such fiscal year to any Named
Officer.
Option/SAR Exercises and Holdings
The following table provides information with respect to the
Named Officers concerning the unexercised options held by such
individuals at the end of the 1998 fiscal year. No stock options
or SARs were exercised during the 1998 fiscal year by the Named
Officers, 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>
Shares Number of Unexercised Value of Unexercised In-the-
Acquired on Value Options/SARs at FY-End (#) Money Options/SARs at FY-End
Name Exercise (#) Realized Exercisable/Unexercisable (1)
Exercisable/Unexercisable
<S> <C> <C> <C> <C>
John W. Ballard III None None 63,000/12,500 None
Slobodan Tkalcevic None None 49,500/15,500 None
Mary Ann W. Alcon None None 13,000/0 None
Mansour Moussavian None None 41,000/13,500 None
</TABLE>
_________________
(1) Value based upon the closing selling price of the Company's
Common Stock on September 30, 1998 on the Nasdaq National
Market ($3.063 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. The shares subject to outstanding option grants 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.
Officer Loan
In December 1997, the Company loaned Mr. Moussavian, the
General Manager of the Broadcast & Communications Division,
$200,000 to assist him in the purchase of new primary residence.
The loan bears interest at the rate of 6.02% per annum,
compounded annually, and is currently secured by his former
residence. At such time as Mr. Moussavian sells that former
residence, he will be obligated to secure the loan with a deed of
trust on his new residence. Accrued interest on the loan is
payable annually, up to an amount not to exceed the greater of
$10,000 or 50% of the annual bonus paid to Mr. Moussavian for
each year the loan remains outstanding. The entire principal
balance, together with all accrued and unpaid interest, will
become payable in full upon the earlier of (i) December 19, 2002
or (ii) Mr. Moussavian's termination of employment with the
Company. The largest amount outstanding on this loan during the
1998 fiscal year was $209,401, and as of January 5, 1999, the
outstanding unpaid balance was $202,731.
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 1998 ranged from the 28th to 95th percentile of the
base salary paid by companies in the peer group survey taken into
consideration for comparative compensation purposes. In December
1997, Messrs. John W. Ballard and John W. Ballard III did not
receive any salary increase for fiscal 1998. Messrs. Slobodan
Tkalcevic and Mansour Moussavian and Mrs. Mary Ann W. Alcon
received an increase of 3%, 16% and 27%, respectively, over
salary levels paid in fiscal 1997.
For fiscal 1998, 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, marketing and product development
milestones were attained. For fiscal 1998, the Compensation
Committee recommended to the full Board of Directors that Messrs.
Slobodan Tkalcevic and Mansour Moussavian and Mrs. Mary Ann W.
Alcon receive a bonus of $10,000, $5,000 and $5,000,
respectively.
For fiscal 1999, 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
Mr. John W. Ballard, the Company's CEO, for the 1998 fiscal year,
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 Mr. Ballard 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 1998, Mr. Ballard's salary
component of compensation was at the 37th 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.
On October 2, 1998, Mr. John W. Ballard resigned as
President and CEO and Mr. John W. Ballard, III was appointed as
his successor as of October 3, 1998. In connection with his
appointment as President and CEO, Mr. Ballard, III received an
increase of 18% over the salary paid to him in fiscal 1998.
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 1999 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
Donald C. Cox John W. Ballard III
Asaph H. Hall John L. Anderson
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
LINE GRAPH ILLUSTRATING THE FOLLOWING TABLE:
<TABLE>
SEPT 30, SEPT 30, SEPT 30, SEPT 30, SEPT 30, SEPT 30,
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
S&P 500 $100.00 $103.69 $134.53 $161.88 $227.36 $247.92
S&P AERO/DEF 100.00 111.81 172.41 236.03 292.06 217.23
COMPANY 100.00 106.25 203.13 165.63 153.13 76.58
</TABLE>
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
Under the securities laws of the United States, the
Company's directors, executive officers, and any persons holding
more than ten percent of the Company's Common Stock are required
to report their initial ownership of the Companys Common Stock
and any subsequent changes in their ownership to the Securities
and Exchange Commission (SEC). Specific due dates have been
established by the SEC, and the Company is required to disclose
any failure to file by those dates. Based upon (i) the copies of
Section 16(a) reports that the Company received from such persons
for 1998 fiscal year transactions and (ii) the written
representations received from one or more of such persons that no
annual Form 5 reports were required to be filed for them for the
1998 fiscal year, the Company believes that there has been
compliance with all Section 16(a) filing requirements applicable
to such officers, directors, and ten-percent beneficial owners
for such fiscal year, except that a late Form 5 report was filed
for each on the following non-employee Board members with respect
to the option grant for 6,000 shares of the Company's common
stock with an exercise price of $4.50 per share made to each of
them on February 10, 1998 under the automatic option grant
program in effect for such non-employee Board members: Messrs.
Hamilton W. Budge, Donald C. Cox, Asaph H. Hall and C. Alan
Peyser.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
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, 1999. 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 1999.
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 2000
Annual Meeting must be received by the Company no later than
September 11, 1999. Proposals must be mailed to the Company's
principal executive offices at 222 Caspian Drive, Sunnyvale,
California 94089, Attention: Mary Ann Alcon. Such proposals may
be included in next year's Proxy Statement if they comply with
certain rules and regulations promulgated by the SEC.
In addition, the proxy solicited by the Board of Directors
for the 2000 Annual Stockholders Meeting will confer
discretionary authority on any stockholder proposals represented
at that meeting, unless the Company is provided with notice of
such proposal no later than December 1, 1999.
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, III
John W. Ballard, III
President and Chief Executive Officer
January 8, 1999
Sunnyvale, California
