<PAGE>
NETWORK EQUIPMENT
TECHNOLOGIES
800 SAGINAW DRIVE
REDWOOD CITY, CALIFORNIA 94063
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 13, 1996
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Network
Equipment Technologies, Inc. (the "Company"), a Delaware corporation, will be
held on Tuesday, August 13, 1996, at 10:00 a.m., local time, at the principal
offices of the Company, 800 Saginaw Drive, Redwood City, California, for the
following purposes:
1. To elect James K. Dutton as a Class III Director to serve for the term
specified in the accompanying Proxy Statement and until his successor is
elected and qualified.
2. To ratify the appointment of Deloitte & Touche LLP as independent
accountants of the Company for the fiscal year ending March 31, 1997.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on June 17, 1996, are
entitled to notice of and to vote at the meeting and at any continuation or
adjournment thereof.
By order of the Board of Directors
/s/ CRAIG M. GENTNER
CRAIG M. GENTNER
Secretary
Redwood City, California
June 21, 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE,
SIGN, AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
<PAGE>
NETWORK EQUIPMENT
TECHNOLOGIES
800 SAGINAW DRIVE
REDWOOD CITY, CALIFORNIA 94063
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
AUGUST 13, 1996
The enclosed proxy is solicited by the Board of Directors of Network
Equipment Technologies, Inc. (the "Company"), a Delaware corporation, for use at
the Annual Meeting of Stockholders to be held at 10:00 a.m. on August 13, 1996,
and at any postponement or adjournment thereof (the "Annual Meeting") at the
principal offices of the Company located at 800 Saginaw Drive, Redwood City,
California 94063. Stockholders of record on June 17, 1996, will be entitled to
notice of and to vote at the Annual Meeting.
The Company intends to mail this Proxy Statement and accompanying proxy card
(the "Proxy"), together with the Annual Report to stockholders on approximately
June 21, 1996. On June 17, 1996, there were outstanding and entitled to vote
20,899,102 shares of Common Stock of the Company ("Common Stock").
VOTING
By properly marking, dating, signing and returning the enclosed proxy card,
the shares represented on the card will be voted at the Annual Meeting in
accordance with the instructions of the stockholder. Each stockholder is
entitled to one vote for each share of Common Stock held by such stockholder.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes will be
counted in determining whether a quorum is present at the Annual Meeting. In
addition, abstentions will be counted toward the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
determining whether a proposal has been approved or not.
Any person giving a proxy has the power to revoke it at any time before its
exercise at the Annual Meeting. It may be revoked by filing with the Secretary
of the Company at the Company's principal executive offices, 800 Saginaw Drive,
Redwood City, California 94063, written revocation or a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy and any additional
soliciting material furnished to stockholders. The Company does not presently
intend to solicit proxies other than by mail. The Company reserves the right to
have an outside solicitor conduct the solicitation of proxies and to pay such
solicitor for its services.
1
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
ELECTION OF DIRECTORS
The Certificate of Incorporation of the Company provides for a classified
Board of Directors. The Board is divided into three classes, designated Class I,
Class II and Class III, whose respective current terms expire at the 1997, 1998,
and 1996 Annual Meetings of Stockholders. The terms of Messrs. Francesconi and
Gill as Class I Directors, and Messrs. Doll and Wolf as Class II Directors
continue beyond the Annual Meeting. Pursuant to the retirement policy of the
Board, Mr. Arnold and Mr. Vigilante are retiring as Class III directors as of
the 1996 Annual Meeting. The Bylaws of the Company authorize the Board to
consist of between five and eight directors, and authorize the Board to
determine the exact number of directors within the specified limits. The number
of directors is currently set at seven but will be reduced to five (5)
immediately prior to the Annual Meeting.
The nominee for Class III Director is Mr. Dutton. He has agreed to serve if
elected, and management has no reason to believe that Mr. Dutton will be unable
to serve. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for Mr. Dutton. The candidate receiving the highest number of
affirmative votes of the shares entitled to vote at the Annual Meeting will be
elected Class III Director of the Company. The recipient of the highest number
of votes will hold office until the 1999 Annual Meeting of Stockholders and
until a successor, if any, is elected or appointed or until death, resignation
or removal.
DIRECTORS
Set forth below is information regarding the nominee for director, Mr.
Dutton, and other Directors of the Company.
<TABLE>
<CAPTION>
CLASS AND
DIRECTOR YEAR TERM
NAME OF NOMINEE AGE SINCE EXPIRES
- --------------------- --- -------- --------------
<S> <C> <C> <C>
James K. Dutton 63 1995 Class III-1999
<CAPTION>
CLASS AND
DIRECTOR YEAR TERM
NAME OF INCUMBENT AGE SINCE EXPIRES
- --------------------- --- -------- --------------
<S> <C> <C> <C>
John B. Arnold 73 1983 Class III-1996
Dixon R. Doll 53 1984 Class II-1998
Joseph J. Francesconi 53 1994 Class I-1997
Walter J. Gill 61 1991 Class I-1997
Frank S. Vigilante 66 1992 Class III-1996
Hans A. Wolf 67 1992 Class II-1998
</TABLE>
John B. Arnold has served as a Director of the Company since August 1983,
and as Chairman of the Board since March 1994. From January 1, 1994, to March 9,
1994, he served as Acting Chief Executive Officer. He is retiring from the Board
as of this year's Annual Meeting. He was Vice President of Harris Corporation
from 1981 until his retirement in 1986.
Dr. Dixon R. Doll has served as a Director of the Company since April 1984.
He is actively engaged in venture capital activities as a private investor. Dr.
Doll has served as Chairman of The DMW Group, an international strategic
consulting firm, serving the computer and networking industries since January
1973.
2
<PAGE>
From September 1985 to September 1994, Dr. Doll was a partner of Accel Partners,
a venture capital firm. Dr. Doll holds a Master of Science and Ph.D. in
electrical engineering from the University of Michigan. Dr. Doll is also a
Director of Racotek, Inc., a public company.
James K. Dutton has been a Director of the Company since October 1995. He is
currently a consultant and private investor. From 1981 to May 1994 Mr. Dutton
was a consultant to and President of Andor America Corporation. He was a
Director at System Industries, Inc. from 1985 to July 1993, and served as
Chairman of the Board from March 1992 to July 1993. He is currently a Director
of Caere Corporation and ECCS, Inc., each a public company.
Joseph J. Francesconi has served as a Director and as President and Chief
Executive Officer since March 1994. From 1977 until he joined the Company, Mr.
Francesconi served in a number of management capacities at Amdahl Corporation, a
leading mainframe manufacturer, most recently as Executive Vice President. Prior
to joining Amdahl Corporation, Mr. Francesconi spent 12 years with IBM
Corporation.
Walter J. Gill, a founder of the Company, has served as a Director since
January 1991 and from May to August 1983. From 1983 until October 1994 he served
as Vice President and Chief Technology Officer. He has also held several senior
management positions, including Vice President and General Manager, Private
Network Division, Chief Technical Officer from April 1987 to February 1988 and
Vice President, Engineering from July 1983 until April 1987.
Frank S. Vigilante has served as a Director of the Company since April 1992.
Since his retirement from AT&T in February 1987, Mr. Vigilante has served as a
telecommunications management consultant. Before his retirement, Mr. Vigilante
served in various capacities with AT&T over a period of 29 years. He is retiring
from the Board as of this year's Annual Meeting.
Hans A. Wolf has served as a Director of the Company since August 1992. Mr.
Wolf retired on December 31, 1992, as Vice Chairman of the Board of Syntex
Corporation, a worldwide pharmaceutical company, and he retired from the Syntex
Board in December 1993. He headed several of Syntex's business units and served
as Chief Administrative Officer from 1975 until his retirement. Previously, Mr.
Wolf spent 20 years at Texas Instruments where he held a number of positions,
including Vice President and Treasurer.
STOCK OWNERSHIP OF FIVE PERCENT STOCKHOLDERS, DIRECTORS, AND OFFICERS
The following table sets forth certain information, as of May 30, 1996,
regarding ownership of the Company's Common Stock by (i) each director and
nominee, (ii) each person known by the Company to be the beneficial owner of 5%
or more of the Company's Common Stock, (iii) each executive officer named in the
Summary Compensation Table, and (iv) all executive officers and directors as a
group. Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws where applicable.
3
<PAGE>
<TABLE>
<CAPTION>
FIVE PERCENT STOCKHOLDERS, APPROXIMATE
DIRECTORS, NAMED OFFICERS, PERCENTAGE OF
AND ALL DIRECTORS AND NUMBER OF OUTSTANDING
OFFICERS AS A GROUP SHARES SHARES
- -------------------------------------------------- ----------- -----------------------
<S> <C> <C>
Kopp Investment Advisors (1)...................... 3,560,748 17%
6600 France Avenue South, #672
Edina, Minnesota 55435
RCM Capital Management (1)........................ 1,914,200 9%
4 Embarcadero Center
San Francisco, California 94111
AIM Capital Management (1)........................ 1,211,176 6%
11 Greenway Plaza #1919
Houston, Texas 77046
John B. Arnold (2)................................ 30,663 *
Roger A. Barney (3)............................... 28,179 *
Dixon R. Doll (4)................................. 139,795 *
James K. Dutton................................... 4,000 *
Joseph J. Francesconi (5)......................... 163,541 *
Craig M. Gentner (6).............................. 18,312 *
Walter J. Gill (7)................................ 82,500 *
Raymond E. Peverell (8)........................... 31,666 *
G. Michael Schumacher (9)......................... 5,462 *
Frank S. Vigilante (10)........................... 15,164 *
Hans A. Wolf (11)................................. 24,831 *
All officers & directors as a group
(seventeen persons) (12).......................... 698,950 3%
Identified stockholders are "beneficial" owners as defined in Securities and Exchange
Commission regulations, except as noted in the notes.
</TABLE>
* Represents less than 1% of the outstanding shares
1/ This information is acquired from publicly available information filed with
the Securities and Exchange Commission as of March 31, 1996. The Company has
been advised that: Kopp Investment Advisors has shared dispositive power
with respect to 3,443,748 of the shares, and sole dispositive and sole
voting power with respect to 117,000 of the shares shown opposite its name;
RCM Capital Management has sole voting and investment power with respect to
1,545,250 of the shares, and no investment power with respect to 368,950 of
the shares shown opposite its name. AIM Capital Management has sole voting
and investment power with respect to all of the shares shown opposite its
name. The Company has not independently verified the accuracy of this
information.
4
<PAGE>
2/ Includes 30,663 shares issuable within 60 days of May 30, 1996, upon
exercise of outstanding options.
3/ Includes 22,778 shares issuable within 60 days of May 30, 1996, upon
exercise of outstanding options.
4/ Includes the following shares as to which Dr. Doll disclaims beneficial
ownership: 200 shares owned by a son and 4,800 shares owned by International
Synergies, Ltd., a corporation in which Dr. Doll has a beneficial interest.
Includes 52,998 shares issuable within 60 days of May 30, 1996, upon
exercise of outstanding options.
5/ Includes 143,541 shares issuable within 60 days of May 30, 1996, upon
exercise of outstanding options.
6/ Includes 10,312 shares issuable within 60 days of May 30, 1996, upon
exercise of outstanding options.
7/ Includes 7,500 shares issuable within 60 days of May 30, 1996, upon exercise
of outstanding options.
8/ Includes 21,666 shares issuable within 60 days of May 30, 1996, upon
exercise of outstanding options.
9/ Includes 2,916 shares issuable within 60 days of May 30, 1996, upon exercise
of outstanding options.
10/ Includes 13,164 shares issuable within 60 days of May 30, 1996, upon
exercise of outstanding options.
11/ Includes 24,331 shares issuable within 60 days of May 30, 1996, upon
exercise of outstanding options.
12/ See notes (2) through (11) above. Includes 446,699 shares issuable within 60
days of May 30, 1996, upon exercise of outstanding options and 43,500 shares
purchased under the 1988 Restricted Stock Award Plan that are unvested as of
May 30, 1996.
BOARD COMMITTEES, MEETINGS, AND REMUNERATION
Committees of the Board include the Audit and Compensation Committees, for
which compensation is paid and stock options are granted to members, all of whom
are non-employee directors. The other committees are the Finance and Nominating
Committees, for which no compensation is paid and no stock options are granted
to members. The Audit Committee consists of Messrs. Arnold, Doll and Wolf, and
the Compensation Committee consists of Messrs. Doll, Dutton and Vigilante. The
Finance Committee consists of Messrs. Dutton, Vigilante and Wolf, and the
Nominating Committee consists of Messrs. Doll and Wolf.
The functions of the Audit Committee include review with the independent
accountants of the audit plan and results of each audit and review with
management of the scope and quality of internal accounting and financial
reporting controls in effect. The functions of the Compensation Committee
include determining remuneration for senior officers and directors and the
administration of the Company's stock plans. The functions of the Finance
Committee include review of the Company's cash management and investment
strategies. The functions of the Nominating Committee include establishment of
criteria and procedures for the selection of new directors.
During the fiscal year ended March 31, 1996, the Board of Directors held
four meetings, the Audit Committee held four meetings, the Compensation
Committee held four meetings, the Finance Committee held three meetings, and the
Nominating Committee held one meeting in preparation for the Annual Meeting.
Each director attended 75% or more of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings of
committees on which he served during the fiscal year. There are no family
relationships among executive officers or directors of the Company.
Each non-employee Board member receives $18,000 per year and $1,000 for
attendance at each meeting of the Board and of any active standing committee of
the Board for which compensation is paid and on which the director serves;
committee chairmen receive a $2,000 fee for attending a meeting of such
committee. Non-employee directors are eligible for reimbursement of expenses for
attending meetings of the Board of Directors or any committees thereof. The
Chairman of the Board receives $2,000 per Board Meeting and annually is granted
an option for 4,000 shares of Common Stock under the Automatic Grant Program. In
addition, until the Annual Meeting, the Chairman of the Board of Directors will
receive $3,000
5
<PAGE>
per month for services rendered. The Company entered into an Employment
Agreement with Walter J. Gill in October of 1994. Mr. Gill will provide services
to the Company as directed by the CEO for up to an average of twenty (20) hours
per month. Mr. Gill will continue to receive employee medical, dental, group
life and disability insurance coverages and his employee stock options will
continue to vest. He will not accrue vacation, holiday, or sick leave. To
October, 1996, Mr. Gill shall be compensated $7,000 per month, and will receive
$3,500 per month from October, 1996, to October, 1999, but Mr. Gill will not
receive either non-employee Board member compensation or stock options under the
Automatic Grant Program during the term.
Non-employee directors are also eligible to participate in the Automatic
Grant Program of the Company's 1993 Stock Option Plan, which authorizes the
granting of options to non-employee members of the Board. At each Annual Meeting
of Stockholders, each non-employee Board member who is first elected or
re-elected at that meeting will automatically be granted an option to purchase
12,000 shares of Common Stock. A pro-rated number of shares will be awarded to
each non-employee Board member who is first elected or appointed other than on
the date of an Annual Meeting. In addition, the Chairman of the Board will
receive an annual grant of 4,000 shares, and each non-employee Board member who
serves on the Audit or the Compensation Committee will automatically be granted
options to purchase 4,000 shares of Common Stock annually for each committee on
which he or she serves. An additional annual option grant of 4,000 shares will
be made to the Chairmen of the Audit and Compensation Committees. A pro-rated
number of shares is awarded to each non-employee Board member who is first
appointed to such committees or to such chairmanship other than on the date of
an Annual Meeting. The option price per share for each automatic grant will be
the fair market value per share of Common Stock on the date of grant, and the
option price for purchased shares will be payable in cash or shares of Common
Stock or through a cashless exercise procedure.
Automatic option grants become exercisable as to one-third of the
purchasable shares after one year and as to the remainder of the shares in
monthly installments over the following twenty-four (24) months, provided the
optionee remains a member of the Board. Automatic option grants to directors who
have served for at least three (3) years as non-employee Board members and who
are at least age 65 at the time of retirement from the Board continue to vest
and remain exercisable until the expiration or sooner termination of the
applicable option agreement. However, full and immediate vesting will occur upon
a Corporate Transaction and Change in Control (as such terms are defined in the
Option Plan). Also, each automatic option grant will be automatically cancelled
upon the occurrence of a Hostile Take-Over (as defined in the Option Plan),
whether or not the option is then exercisable; in return, the optionee will be
entitled to a cash distribution as provided in the Option Plan.
If a non-employee Board member or retiree dies, options vested at the time
of death may subsequently be exercised by the personal representative of the
optionee's estate or by the persons to whom such options are transferred by the
optionee's will or by the laws of inheritance within twelve (12) months of the
optionee's death.
Pursuant to a policy adopted by the Board in 1992, non-employee directors
first elected to the Board after the 1992 Annual Meeting must retire at age 72.
All other non-employee directors must retire at age 75.
6
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
The Company is asking the stockholders to ratify the selection of Deloitte &
Touche LLP as the Company's independent public accountants for the fiscal year
ending March 31, 1997. The affirmative vote of the holders of a majority of the
shares represented and voting at the Annual Meeting will be required to ratify
the selection of Deloitte & Touche LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such a
change would be in the best interest of the Company and its stockholders.
Deloitte & Touche LLP has audited the Company's financial statements since
inception. Its representatives are expected to be present at the Annual Meeting,
will have the opportunity to make a statement if they desire to do so, and will
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP TO SERVE AS THE
COMPANY'S INDEPENDENT ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING MARCH 31, 1997.
7
<PAGE>
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION AND RELATED INFORMATION
- --------------------------------------------------------------------------------
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's four (4) other most highly compensated
executive officers ("corporate officers") for services rendered in all
capacities to the Company for each of the last three (3) fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------------
----------------------------------- RESTRICTED SECURITIES
NAME AND FISCAL STOCK UNDERLYING
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) AWARDS($)(2) OPTIONS(#)
- ------------------------------------------------------------------ ------ ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Joseph J. Francesconi............................................. 1996 $389,305 $400,000 $464,800 80,000
President and Chief 1995 344,615 486,700 0 0
Executive Officer 1994 18,846 0 0 225,000
Raymond E. Peverell............................................... 1996 224,240 180,000 232,400 20,000
Senior Vice President, 1995 210,009 243,000 0 0
Sales and Support 1994 209,763 90,000 0 25,000
G. Michael Schumacher............................................. 1996 199,516 170,000 0 0
Senior Vice President, 1995 34,615 25,000 119,325 35,000
Engineering and Operations 1994 0 0 0 0
Craig M. Gentner.................................................. 1996 199,506(3) 120,000(3) 185,920 15,000
Senior Vice President, 1995 189,932 206,550 0 0
Chief Financial Officer, and 1994 189,381 70,200 0 15,000
Corporate Secretary
Roger A. Barney................................................... 1996 169,272 120,000 116,200 10,000
Vice President, Human Resources 1995 155,112 120,390 0 0
and Corporate Services 1994 148,046 58,700 0 19,000
</TABLE>
- ---------
1/ Salary includes amounts deferred pursuant to the Company's 401(k) Plan.
2/ Shares awarded to and purchased by individuals under the Restricted Stock
Award Plan may not be sold until they vest over periods of up to four years.
All amounts listed in the table are calculated based on the closing price of
the Company's Common Stock on the date of grant to each individual officer.
As of March 31, 1996, the number of shares and value of Restricted Stock
held, including unvested shares, is as follows: Mr. Francesconi held 20,000
shares, valued at $607,300.00; Mr. Peverell held 10,000 shares, valued at
$303,650.00; Mr. Schumacher held 2,500 shares, valued at $75,912.50; Mr.
Gentner held 8,000 shares, valued at $242,920.00; and Mr. Barney held 5,000
shares, valued at $151,825.00. All of the shares of Restricted Stock held as
of March 31, 1996, were awarded in fiscal year 1996 (other than for an award
of 5,000 shares in fiscal year 1995 to Mr. Schumacher), and vest as follows:
for Mr. Schumacher 50% on each anniversary of the award date over two years,
and for Messrs. Francesconi, Peverell, Gentner, and Barney, 25% on each
anniversary of the award date over four years.
3/ Mr. Gentner's annual compensation includes fifty percent (50%) of his cash
compensation earned in calendar year 1996, receipt of which has been
deferred by him until January of 1998 per the terms of the Officer Deferred
Compensation Plan.
8
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options to the named corporate
officers in fiscal year 1996 under the 1993 Stock Option Plan. Pursuant to SEC
rules, the table also shows the value of options granted at the end of the
option terms (ten years) if the stock price were to appreciate annually by 5%
and 10%, respectively. There is no assurance that the stock price will
appreciate at the rates shown in the table. The table also indicates that if the
stock price does not appreciate, there will be no increase in the potential
realizable value of the options granted.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
- ----------------- ----------------- --------------- ------------- ----------- --- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Francesconi...... 80,000 8.7498% $ 23.25 4-18-05 $ 0 $1,169,744 $2,964,360
Peverell......... 20,000 2.1874 23.25 4-18-05 0 292,436 741,090
Schumacher....... 0 0 0 -- 0 0 0
Gentner.......... 15,000 1.6405 23.25 4-18-05 0 219,327 555,817
Barney........... 10,000 1.0937 23.25 4-18-05 0 146,218 370,545
</TABLE>
The following table sets forth information concerning the exercise of
options during fiscal year 1996 and unexercised options held as of the end of
such year by the corporate officers of the Company named in the Summary
Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
AGGREGATE
VALUE REALIZED NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES (SALE PRICE AT UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED EXERCISE LESS OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
ON EXERCISE EXERCISE PRICE) -------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ------------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francesconi.... 0 0 112,500 192,500 $2,545,312 $ 3,115,312
Peverell....... 20,000 $ 436,775 13,125 41,875 278,781 604,218
Schumacher..... 8,750 90,781 1,458 24,791 9,479 161,145
Gentner........ 65,000 1,588,625 5,625 19,375 118,984 209,140
Barney......... 6,000 140,275 19,278 17,208 424,852 227,713
</TABLE>
COMPENSATION COMMITTEE REPORT
INTRODUCTION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for the administration of the compensation programs for the
Company's corporate officers. These programs have been designed to ensure that
the compensation paid to the corporate officers is linked to both Company and
individual performance. Accordingly, a substantial portion of the compensation
paid to each officer is comprised of components based upon individual
achievement and Company performance, such as operating profit, attainment of
predetermined goals, and the improvement in the market price of the Company's
stock. As such, it is the Committee's responsibility to set the base salaries
and to approve the individual variable compensation and incentive awards to such
officers during the year. In addition, the Committee administers the Company's
1993 Stock Option Plan and Related Plans.
9
<PAGE>
For fiscal year 1996, the Committee approved the compensation payable to Mr.
Francesconi, President and Chief Executive Officer. The base salary and
incentive compensation of the Company's executives, other than CEO compensation,
are established by the CEO with the assistance of the Company's human resources
staff and an independent consultant and are subject to approval by the
Committee.
COMPENSATION PHILOSOPHY
Under the supervision of the Committee, the Company implements a
compensation philosophy which is designed to attract and retain qualified
corporate officers critical to the Company's success and to provide such
executives with performance-based incentives tied to the profitability of the
Company and stockholder value. Under this philosophy, as an officer's level of
responsibility and accountability within the Company increases over time, base
salary is intended to become proportionately less significant and a greater
portion of the officer's compensation is intended to be dependent upon the
Company's performance, the individual's contribution to the success of the
Company as measured by individual performance, and stock price appreciation.
Accordingly, each officer's compensation package is comprised of three
fundamental elements: (i) base salary which reflects individual responsibilities
and expertise; (ii) annual and long-term variable performance awards payable in
cash and tied to the individual's and the Company's performance and achievement
of certain goals; and (iii) long-term stock-based incentive awards, which
strengthen the mutuality of interests between the officer and the Company's
stockholders.
COMPENSATION PRINCIPLES
The design and implementation of the Company's executive compensation
programs is based on a series of guiding principles derived from Company values,
business strategy and management requirements. These principles can be
summarized as follows:
- Attract and retain key executives essential to the long-term success of
the Company;
- Reward executives for long-term corporate success by facilitating their
ability to acquire an ownership interest in the Company;
- Provide direct linkage between the compensation payable to executives and
the attainment by the executives and the Company of annual and long-term
objectives and financial goals and targets;
- Emphasize reward for performance at the individual, team and corporate
levels.
COMPENSATION FACTORS
Several important factors which were considered in establishing the
components of each officer's compensation for fiscal year 1996 are summarized
below. In setting officer compensation for future fiscal years, additional
factors may also be taken into account and the Committee may in its discretion
apply entirely different factors, particularly different measures of individual
and company performance. All compensation decisions are designed to further the
Company's compensation philosophy described above.
An integral part of the data and analysis the CEO and the Committee use in
determining how to implement the overall compensation philosophy is provided by
independent compensation surveys and consultants. These sources focus primarily
on Silicon Valley companies that are either similar to the Company in size and
business complexity or that compete with the Company in the recruitment and
retention of senior personnel.
BASE SALARY. At the time an officer is first hired and annually thereafter,
base compensation is established primarily based on competitive market rates
through comparisons with companies of similar size and complexity. The base
salary level for corporate officers is generally at the fiftieth (50th)
percentile level determined for such individuals on the basis of the external
salary data provided the Committee by the independent compensation surveys. The
Committee believes that the Company's most direct competitors
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for executive talent are not necessarily the companies that the Company would
use in a comparison for stockholder returns. Therefore, the compensation
comparison group is not the same as the industry group index in the STOCK
PERFORMANCE GRAPH, on page 13.
VARIABLE COMPENSATION. The Company's officers and all employees are
eligible to participate in the Company's annual Variable Compensation Plan.
Officers also participate in a Long-Term Variable Compensation Plan. Awards to
officers under these plans are based primarily on achievement of financial and
individual performance objectives which support the Company's goals. Individual
objectives typically include elements of leadership, financial and personnel
management, innovation and planning. Each officer's individual performance is
measured against objectives established early in the fiscal year. During the
year these objectives are reviewed periodically and are modified or new
objectives are established if it is determined by the CEO or the Committee that
to do so is in the Company's interest. The weight assigned to each objective and
performance related to that objective varies from individual to individual.
Potential and actual awards to officers of the Company under these plans are
intended to be consistent with awards made by companies of similar size and
complexity to the Company. Actual awards are subject to decrease or increase on
the basis of the Company's core business performance and the individual's
performance and at the discretion of the Committee. In fiscal year 1996,
corporate officers were eligible for receipt of Variable Compensation payouts
early in fiscal year 1997 of between 0% and 80% to 110% of base salary
(depending on the officer's level) and long-term variable compensation awards of
up to half of the variable compensation payout actually received by the
individual officer. Variable compensation payouts with respect to fiscal year
1996 were based on Company performance as well as individual performance against
their objectives. Provided the officer remains an employee of the Company or one
of its subsidiaries, long-term variable compensation will be paid to the officer
in four equal annual installments commencing the year after its award. The
Company's performance for fiscal year 1996 was measured on the basis of
operating income goals, which goals were exceeded. The Company's performance was
factored into variable compensation payouts and long-term variable compensation
awards to individual officers.
LONG-TERM INCENTIVES
Long-term incentives are provided primarily through annual option grants, as
well as by supplemental option grants and restricted stock awards. These
incentives are intended to motivate the officer to improve long-term Company
performance. All options currently outstanding were granted with an exercise
price equal to the market price on the grant date and will be of no value unless
the market price of the Company's Common Stock has appreciated since the grant
date, thereby aligning that portion of the officer's compensation with the
return realized by stockholders.
STOCK OPTIONS. The Company has adopted the 1993 Stock Option Plan and 1988
Restricted Stock Award Plan to provide corporate officers and other key
employees with incentives to maximize long-term stockholder values. Awards under
the 1993 Stock Option Plan can take the form of stock options and stock
appreciation rights, and awards under the 1988 Restricted Stock Award Plan take
the form of restricted stock, all of which are designed to give the recipient a
significant equity stake in the Company and thereby closely align their interest
with those of the Company's stockholders. In addition to linking officer
compensation directly to stockholder value, the Committee believes that stock
options and restricted stock awards, through staged vesting provisions, perform
an important role in motivating and retaining key executives. The Committee has
established general guidelines for making option grants to corporate officers
based upon the individual's position with the Company and their existing
holdings of vested and unvested options. However, the Committee does not adhere
strictly to these guidelines and will occasionally vary the size of the option
grant made to each officer as circumstances warrant.
RESTRICTED STOCK. Awards of restricted stock are not made by reference to
formulas or guidelines. They are provided to promote long-term stockholder value
and retention of key executives, solely at the Committee's discretion.
Restricted stock is therefore awarded only under limited circumstances, such as
to recognize a significant contribution to the Company's long-term performance,
to provide an incentive to achieve
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performance objectives, or in connection with a significant promotion. The
vesting schedules for restricted stock awards are tailored to meet the
particular purposes of the awards, and therefore may be different from the more
uniform vesting schedules utilized for stock option grants.
CEO COMPENSATION
Joseph J. Francesconi was appointed President, Chief Executive Officer and a
Director of the Company as of March 9, 1994. As noted above, Mr. Francesconi's
salary in fiscal year 1996 was $389,305 and he received $400,000 in variable
compensation. Under the Long-term Variable Compensation Program Mr. Francesconi
will be eligible to receive a total of $200,000, to be paid in four equal annual
installments commencing in 1997. Also in fiscal year 1996 he was awarded an
option to purchase 80,000 shares of common stock and was awarded 20,000 shares
of restricted stock, with both awards vesting over a four year period. In
structuring the compensation, independent compensation advice was obtained. The
Company's performance in fiscal year 1996 exceeded revenue, profitability, cash
generation and other goals. In October of 1995, Mr. Francesconi entered into an
agreement with the Company that provides that in the event of his termination
resulting from a Corporate Transaction, Change of Control or Hostile Take-Over
(as those terms are defined in the 1993 Stock Option Plan, collectively referred
to in this Agreement as "Change of Control") or from involuntary termination for
reasons other than cause, the Company will provide severance benefits as
follows: one year of base salary continuance; one year of variable compensation
at the mid-point of the range; medical, dental, life and disability insurance
and continued vesting of stock options and restricted stock during salary
continuance (vesting of options and restricted stock shall accelerate if
termination is in conjunction with a Change of Control). In order to receive the
foregoing severance benefits, Mr. Francesconi has agreed to execute the
Company's release and non-competition agreement at the time of any such
termination.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
The cash compensation to be paid to each of the Company's corporate officers
for fiscal year 1996 is not expected to exceed the $1 million limit on the tax
deductibility of such compensation imposed under federal tax legislation enacted
in 1993. In addition, any compensation deemed paid to an officer upon the
exercise of an outstanding option under the 1993 Stock Option Plan or the 1988
Restricted Stock Award Program is intended to qualify as performance-based
compensation and not be subject to the $1 million limitation on tax
deductibility.
We conclude our report with the acknowledgment that no member of the
Compensation Committee is a former or current officer or employee of the Company
or any of its subsidiaries.
Compensation Committee
Dixon R. Doll, chairman
James K. Dutton
Frank S. Vigilante
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STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested over the five (5) year period beginning on April 1, 1991,
along with the composite prices of companies listed in the S&P 500 Index and H&Q
Technology Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS AMONG
NETWORK EQUIPMENT TECHNOLOGIES, INC., S&P 500 INDEX &
H&Q TECHNOLOGY INDEX
[CHART]
<TABLE>
<CAPTION>
Mar 91 Mar 92 Mar 93 Mar 94 Mar 95 Mar 96
<S> <C> <C> <C> <C> <C> <C>
NETWORK EQUIPMENT TECH INC. $ 100 $ 172 $ 75 $ 105 $ 317 $ 380
S & P 500 $ 100 $ 108 $ 120 $ 119 $ 130 $ 171
H&Q TECHNOLOGY INDEX $ 100 $ 118 $ 129 $ 144 $ 185 $ 254
</TABLE>
Assumes $100 invested on 3/29/91 in Network Equipment Technologies stock,
the S&P 500 Index, and the H&Q Technology Industry Index. Assumes
reinvestment of all dividends. Stockholder returns over the indicated
period should not be considered indicative of future stockholder returns.
13
<PAGE>
EMPLOYMENT CONTRACTS
The Company's Employment Agreement with Mr. Francesconi is described above
in the Compensation Committee Report. Each of the Company's other corporate
officers named in the Summary Compensation Table (Messrs. Barney, Gentner,
Peverell, and Schumacher) entered into substantially identical agreements.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's directors,
executive officers and any persons holding more than ten percent (10%) of the
Common Stock are required to report initial ownership of the Common Stock and
any subsequent changes in ownership to the Securities and Exchange Commission
("SEC"). Specific due dates have been established by the SEC and the Company is
required to disclose in this Proxy Statement any failure to file by these dates.
Based upon (i) the copies of Section 16(a) reports which the Company received
from such persons for their fiscal year 1996 transactions, and (ii) the written
representations received from one or more of such persons, the Company has
concluded that none of the Company's Directors or Executive Officers failed to
file timely Forms 4 or Forms 5 regarding changes in ownership.
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OTHER BUSINESS
- --------------------------------------------------------------------------------
The Board of Directors knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying Proxy Card to vote the shares represented thereby on such
matters in accordance with their best judgment.
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STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
Proposals of stockholders that are intended to be presented at the Company's
Annual Meeting of Stockholders to be held in 1997 must be received by the
Company no later than February 20, 1997, in order to be included, if
appropriate, in the Proxy Statement and Proxy relating to that meeting.
In addition, pursuant to the Company's bylaws, in order for any stockholder
to propose any business (including nominations for director) at an annual
meeting, such stockholder is required to provide the Company with advance
written notice at least sixty (60) days prior to such meeting (no later than
June 13, 1997, with respect to the Annual Meeting to be held August 12, 1997).
The notice must contain certain information regarding such stockholder (and any
nominee for director), any arrangements between the stockholder and the nominee,
and any other information regarding such nominee or each matter of business
proposed by the stockholder that would be required to be disclosed in a proxy
statement filed with the Securities and Exchange Commission for solicitations of
proxies to approve such proposed business.
Any such proposals or notices should be directed to the attention of the
Secretary, Network Equipment Technologies, Inc., 800 Saginaw Drive, Redwood
City, California 94063.
By order of the Board of Directors
/s/ CRAIG M. GENTNER
CRAIG M. GENTNER
Secretary
June 21, 1996
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<PAGE>
PROXY NETWORK EQUIPMENT TECHNOLOGIES, INC. PROXY
800 Saginaw Drive, Redwood City, CA 94063
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
NETWORK EQUIPMENT TECHNOLOGIES, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of Annual Meeting of Stockholders and the Proxy Statement and appoints
Joseph J. Francesconi and Craig M. Gentner and each of them, the Proxy of the
undersigned, with full power of substitution, to vote all shares of Common
Stock of Network Equipment Technologies, Inc. (the "Company") held of record
by the undersigned on June 17, 1996, either on his or her own behalf or on
behalf of any entity or entities, at the Annual Meeting of Stockholders of
the Company to be held August 13, 1996, and at any adjournment or postponement
thereof, with the same force and effect as the undersigned might or could do
if personally present. The shares represented by this Proxy shall be voted
in the manner set forth below.
1. To elect James K. Dutton as a Director to serve until the 1999 Annual
Meeting of Stockholders and until his successors is elected and qualified.
James K. Dutton / / FOR / / WITHHOLD AUTHORITY TO VOTE
2. To ratify the Board of Director's selection of Deloitte & Touche to serve
as the Company's independent accountants for the fiscal year ending
March 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
<PAGE>
This Proxy, when properly executed, will be voted in the manner directed
herein. THIS PROXY WILL BE VOTED FOR THE PROPOSALS IF NO SPECIFICATION IS MADE.
Please sign exactly as your name(s) is (are) shown on the share certificate to
which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or
guardian, please give full title, as such. If a corporation, please sign in
full corporate name by the President or other authorized officer. If a
partnership, please sign in the partnership name by an authorized person.
Dated: , 1996
----------------------------
---------------------------------------
Signature
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Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
