<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
NETWORK EQUIPMENT TECHNOLOGIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
NETWORK EQUIPMENT
TECHNOLOGIES
800 SAGINAW DRIVE
REDWOOD CITY, CALIFORNIA 94063
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 12, 1997
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 12, 1997, 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 Joseph J. Francesconi and Walter J. Gill as Class I Directors
to serve for the term specified in the accompanying Proxy Statement and
until their successors are elected and qualified.
2. To approve amendments to the Company's 1993 Stock Option Plan (the
"Option Plan") to increase the number of shares available for issuance
thereunder by 2,000,000 and to reflect changes to the stockholder
approval requirements of Securities and Exchange Commission Rule 16b-3.
3. To ratify the appointment of Deloitte & Touche LLP as independent public
accountants of the Company for the fiscal year ending March 31, 1998.
4. 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 13, 1997 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 23, 1997
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 12, 1997
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 12, 1997,
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 13, 1997 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 23, 1997. On June 13, 1997, there were outstanding and entitled to vote
21,073,858 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 (1) 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 by delivering to the Secretary of the Company at
800 Saginaw Drive, Redwood City, California 94063, a 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 materials 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
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PROPOSAL NO. 1 - ELECTION OF DIRECTORS
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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 as Class
I, Class II and Class III, whose respective current terms expire at the 1997,
1998, and 1999 Annual Meetings of Stockholders. The terms of Messrs. Doll and
Wolf as Class II Directors, and Mr. Dutton as a Class III Director, continue
beyond this 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 five.
The nominees for Class I Directors are Messrs. Francesconi and Gill. They
have agreed to serve if elected, and management has no reason to believe that
Messrs. Francesconi and Gill will be unable to serve. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for Messrs.
Francesconi and Gill. The candidates receiving the highest number of affirmative
votes of the shares entitled to vote at the Annual Meeting will be elected Class
I Directors of the Company. The recipients of the highest number of votes will
hold office until the Annual Meeting of Stockholders in the year 2000 and until
a successor, if any, is elected or appointed, or until death, resignation or
removal.
DIRECTORS
Set forth below is information regarding the Directors of the Company,
including nominees for Director, Messrs. Francesconi and Gill.
<TABLE>
<CAPTION>
CLASS AND
DIRECTOR YEAR TERM
NAME OF NOMINEE AGE SINCE EXPIRES
- ------------------------------ --- -------- --------------
<S> <C> <C> <C>
Joseph J. Francesconi......... 54 1994 Class I-2000
Walter J. Gill................ 62 1991 Class I-2000
<CAPTION>
NAME OF INCUMBENT AGE SINCE EXPIRES
- ------------------------------ --- -------- --------------
<S> <C> <C> <C>
Dixon R. Doll................. 54 1984 Class II-1998
James K. Dutton............... 64 1995 Class III-1999
Hans A. Wolf.................. 68 1992 Class II-1998
</TABLE>
Dixon R. Doll has been a Director of the Company since April 1984. In
December 1996, he founded Doll Capital Management, a private venture capital
firm that invests in entrepreneurial companies in the information technology and
communications markets, where he serves as Managing General Partner. From
September 1994 to December 1996, Dr. Doll was actively engaged in venture
capital activities as a private investor. From September 1985 to September 1994,
Dr. Doll was a partner of Accel Partners, a private venture capital firm. Dr.
Doll holds a Bachelor of Science degree in electrical engineering from Kansas
State University and Master of Science and Ph.D. degrees in electrical
engineering from the University of Michigan. Dr. Doll is also a Director of
Racotek, a public company, and several private companies.
James K. Dutton has been a Director of the Company since October 1995. He is
currently a consultant and private investor and a Director of Caere Corporation
and ECCS, Inc., each a public company. From 1981 to 1994, Mr. Dutton was a
consultant to and President of Andor America Corporation. He was a Director at
System Industries, Inc. from 1985 to 1993, and served as Chairman of its Board
from 1992 to 1993.
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Joseph J. Francesconi has served as a Director and as President and Chief
Executive Officer since joining the Company in 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 most recently served as a
Director since January 1991. From 1983 until October 1994 when he retired from
his full-time management position, he served as Vice President and Chief
Technology Officer. He has also held several senior management positions within
the Company, 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.
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 of Directors 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. Mr. Wolf is also a
Director of Hyal Pharmaceutical Corporation and Hyal Pharmaceutical Australia
Ltd., and is Chairman of the Board of Tab Products Co., Inc., all of which are
public companies.
STOCK OWNERSHIP OF FIVE PERCENT STOCKHOLDERS, DIRECTORS, AND CORPORATE OFFICERS
The following table sets forth certain information, as of May 30, 1997
(except as otherwise noted), regarding ownership of the Company's Common Stock
by (i) each person known by the Company to be the beneficial owner of five
percent (5%) or more of the Company's Common Stock, (ii) each Director and
nominee, (iii) each Executive Officer ("Corporate Officer") named in the Summary
Compensation Table, and (iv) all Corporate 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.
<TABLE>
<CAPTION>
FIVE PERCENT (5%) STOCKHOLDERS, APPROXIMATE
DIRECTORS, NAMED CORPORATE PERCENTAGE OF
OFFICERS, AND ALL DIRECTORS NUMBER OF OUTSTANDING
AND CORPORATE OFFICERS AS A GROUP SHARES SHARES
- ----------------------------------------------------------------------------- ---------- --------------
<S> <C> <C>
Kopp Investment Advisors, Inc. (1)........................................... 3,992,455 19.08%
6600 France Avenue South #672
Edina, MN 55435
State of Wisconsin Investment Board (1)...................................... 1,908,200 9.12%
121 East Wilson Street
Madison, WI 53702
Lazard Freres Asset Management (1)........................................... 1,279,090 6.11%
30 Rockefeller Plaza
New York, NY 10020
RCM Capital Management (1)................................................... 1,106,750 5.29%
Four Embarcadero Center
San Francisco, CA 94111
Dixon R. Doll (2)............................................................ 157,125 *
James K. Dutton (3).......................................................... 11,739 *
Samuel H. Ezekiel (4)........................................................ 5,000 *
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIVE PERCENT (5%) STOCKHOLDERS, APPROXIMATE
DIRECTORS, NAMED CORPORATE PERCENTAGE OF
OFFICERS, AND ALL DIRECTORS NUMBER OF OUTSTANDING
AND CORPORATE OFFICERS AS A GROUP SHARES SHARES
- ----------------------------------------------------------------------------- ---------- --------------
<S> <C> <C>
Joseph J. Francesconi (5).................................................... 198,125 *
Craig M. Gentner (6)......................................................... 18,000 *
Walter J. Gill (7)........................................................... 85,000 *
Raymond E. Peverell (8)...................................................... 40,833 *
G. Michael Schumacher (9).................................................... 788 *
Hans A. Wolf (10)............................................................ 39,495 *
All Corporate Officers and Directors as a group
(thirteen persons) (11)...................................................... 680,930 3.23%
</TABLE>
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* 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, 1997. The Company has
been advised that: Kopp Investment Advisors, Inc. has sole voting and
investment power with respect to 244,500 of the shares, and no voting power
or economic ownership with respect to 3,747,955 of the shares shown opposite
its name; State of Wisconsin Investment Board has sole voting and investment
power with respect to all of the shares shown opposite its name; Lazard
Freres Asset Management has sole voting and investment power with respect to
1,271,690 of the shares, and no investment power with respect to 7,400 of
the shares shown opposite its name; RCM Capital Management has sole voting
and investment power with respect to 954,750 of the shares, and no
investment power with respect to 152,000 of the shares shown opposite its
name. The Company has not independently verified the accuracy of this
information.
(2) 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 70,328 shares issuable within 60 days of May 30, 1997, upon
exercise of outstanding options.
(3) Includes 7,739 shares issuable within 60 days of May 30, 1997, upon
exercise of outstanding options.
(4) Includes zero shares issuable within 60 days of May 30, 1997, upon exercise
of outstanding options.
(5) Includes 178,125 shares issuable within 60 days of May 30, 1997, upon
exercise of outstanding options.
(6) Includes 10,000 shares issuable within 60 days of May 30, 1997, upon
exercise of outstanding options.
(7) Includes 10,000 shares issuable within 60 days of May 30, 1997, upon
exercise of outstanding options.
(8) Includes 30,833 shares issuable within 60 days of May 30, 1997, upon
exercise of outstanding options.
(9) Includes zero shares issuable within 60 days of May 30, 1997, upon exercise
of outstanding options.
(10) Includes 38,995 shares issuable within 60 days of May 30, 1997, upon
exercise of outstanding options.
(11) See notes (2) through (10) above. Includes 437,906 shares issuable within
60 days of May 30, 1997, upon exercise of outstanding options and 29,000
shares purchased under the 1988 Restricted Stock Award Plan that are
unvested as of May 30, 1997.
4
<PAGE>
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. Doll and Wolf, and the
Compensation Committee consists of Messrs. Doll and Dutton. The Finance
Committee consists of Messrs. Dutton and Wolf, and the Nominating Committee
consists of Messrs. Doll, Gill 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 Corporate Officers and Directors and the
administration of the Company's stock plans and variable compensation programs.
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, 1997, the Board of Directors held six
meetings, the Audit Committee held four meetings, the Compensation Committee
held five meetings, and the Finance Committee held two meetings. On April 14,
1997, 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 Corporate 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 Option Grant
Program section of the Company's 1993 Stock Option Plan (the "Option Plan"). In
addition, the Chairman of the Board of Directors receives $3,000 per month for
services rendered. The Company entered into an Employment Agreement with Walter
J. Gill in October 1994 under which Mr. Gill will provide services to the
Company as directed by the CEO for up to an average of 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. Until October 1996,
Mr. Gill was compensated $7,000 per month, and from October 1996 to October
1999, he will receive $3,500 per month. Mr. Gill will not receive either
non-employee Board member compensation or stock options under the Automatic
Option Grant Program during the term of the Agreement.
Non-employee Directors are eligible to participate in the Automatic Option
Grant Program 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.
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<PAGE>
Automatic option grants become exercisable as to one-third (1/3) of the
purchasable shares after one (1) 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 canceled
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 person(s) 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>
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PROPOSAL NO. 2 - APPROVAL OF AMENDMENTS TO THE 1993 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
The Board of Directors believes that a competitive employee stock option
plan is crucial to the Company's ability to recruit and retain highly qualified
technical and management employees and Directors. Traditionally, stock option
plans provide a significant incentive to managers and other key personnel to
perform their responsibilities in ways that increase return on equity to
stockholders. The Board of Directors is recommending approval of the amendments
to the Company's 1993 Stock Option Plan to increase the number of shares
available for issuance under the Option Plan by 2,000,000 shares and to reflect
changes to the stockholder approval requirements of Securities and Exchange
Commission ("SEC") Rule 16b-3. As discussed in more detail below, failure to
approve this Proposal No. 2 will result in curtailment of the Company's ability
to offer competitive stock Option Plan grants to prospective employees and to
current employees.
APPROVAL OF OPTION PLAN AMENDMENTS
SHARE INCREASE. Option grants are a critical component of the Company's
employee compensation structure. As of March 31, 1997, only 778,296 shares
remained available for grant under the Option Plan. Without approval of the
amendment to the Option Plan to increase the authorized number of shares by
2,000,000, the Company would be unable to make future competitive option grants
from the Option Plan to employees and new hires and the Company would be at a
significant disadvantage in its recruitment and retention of employees.
STOCKHOLDER APPROVAL REQUIREMENTS. The requirements of the "old" Rule 16b-3
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
reflected in the current Option Plan requirements for stockholder approval of
amendments. Rule 16b-3 was amended in August 1996 to eliminate certain
stockholder approval requirements. Consistent with these amendments and subject
to stockholder approval, the Board has adopted an amendment to require
stockholder approval for future Option Plan amendments where: (a) required by
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), for
incentive stock options, (b) required by other applicable laws, regulations or
rules (such as stock exchange rules), or (c) otherwise deemed advisable by the
Board. Stockholder approval will continue to be required to increase the number
of shares of Common Stock available for issuance under the Option Plan under
Rule 422 of the Code.
DESCRIPTION OF OPTION PLAN
THE CURRENT TERMS AND PROVISIONS OF THE OPTION PLAN ARE SUMMARIZED BELOW.
THE SUMMARY DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE OPTION PLAN.
COPIES OF THE ACTUAL OPTION PLAN DOCUMENT AND PROPOSED AMENDMENTS MAY BE
OBTAINED BY ANY STOCKHOLDER UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY
AT THE CORPORATE OFFICE IN REDWOOD CITY, CALIFORNIA.
As of March 31, 1997, approximately 3,577,247 shares of Common Stock were
subject to outstanding options under the Option Plan and "Related Plans" (as
defined below) and 778,296 shares of Common Stock were available for future
option grants and awards. The Option Plan provides that options may be granted
to purchase shares of Common Stock in excess of the number of shares then
available for issuance under the Option Plan, provided that such options are not
to become exercisable at any time before stockholder approval of sufficient
shares issuable under the Option Plan. By the terms of the vesting schedule in
option agreements, initial vesting requires the lapse of one (1) year after the
grant date of the option. As part of the Company's normal annual review of
employee and Company performance, the Compensation Committee, at its meeting on
April 14, 1997, made annual merit option grants totaling 1,003,315 shares of
Common Stock to approximately 550 Company employees (including Corporate
Officers). Failure to approve this Proposal No. 2 will result in some key
employees not getting the potential benefit of such option grants. Assuming
approval of the 2,000,000 shares covered by this Proposal No. 2, approximately
1,630,361 shares of Common Stock (the "Share Pool") will be available for future
option
7
<PAGE>
grants under the Option Plan as of May 30, 1997. Future Option Plan grants will
be curtailed if the stockholders do not approve Proposal No. 2.
As of May 30, 1997, over 550 employees (including nine [9] Corporate
Officers) were eligible to participate in the Option Plan, and three (3)
non-employee Board members were eligible for option grants under the Automatic
Option Grant Program section of the Option Plan. The Option Plan is administered
by the Compensation Committee ("Committee") comprised of at least two (2)
members of the Board of Directors, neither of whom is an employee of the
Company.
Related to the Option Plan are the Company's 1983 Stock Option Plan (which
was replaced by the Option Plan), 1988 Restricted Stock Award Plan, 1988 U.K.
Stock Option Scheme, and the 1989 U.K. Stock Option Plan (collectively "Related
Plans"). Should any stock option or award under the Option Plan or Related Plans
expire or terminate prior to exercise, repurchase of awards or surrender in
full, the shares subject to the portion of the option or award not so exercised
or surrendered will be available for subsequent option grants or awards. Shares
subject to any option surrendered in accordance with the option surrender
provisions of the Option Plan and all share issuances under the Option Plan,
whether or not the shares are subsequently repurchased by the Company pursuant
to its repurchase rights under the Option Plan, will reduce on a share-for-share
basis the number of shares available for subsequent option grants.
The Automatic Option Grant Program under the Option Plan authorizes the
grant of options to non-employee members of the Board and is described above at
pages 5 and 6. Options granted to non-employee members of the Board of Directors
of the Company are issued from the same pool of shares as are employee options.
The exercise price of options issued under the Option Plan may not be less
than the fair market value of the Common Stock on the grant date, and the
maximum period during which any option may remain outstanding may not exceed ten
(10) years. Options issued under the Option Plan may become exercisable in
cumulative increments over a period of months or years as determined by the
Committee. Options are not assignable or transferable other than by will or by
the laws of inheritance and, during the optionee's lifetime, the option may be
exercised only by the optionee. Outstanding options under the Option Plan will
terminate within a specified period (generally not in excess of twelve [12]
months) following cessation of service, unless the Committee determines that
such exercise period should be further extended. The number of shares with
respect to which options may be granted is limited to no more than a total of
350,000 shares to any one (1) participant in any one (1) year period.
The option exercise price may be paid in cash or in shares of Common Stock
valued at fair market value on the exercise date. The Committee may also assist
any optionee (including a Corporate Officer) in the exercise of outstanding
options under the discretionary option grant program by authorizing a loan from
the Company or permitting the optionee to pay the option price in installments
over a period of years.
The Option Plan includes a stock appreciation rights feature whereby the
Committee has the authority to accept the surrender of one (1) or more
outstanding option(s) under the Option Plan and authorize in exchange the
payment by the Company of an appreciation distribution equal to the excess of
(i) the fair market value (on the date of surrender) of the vested shares of
Common Stock for which the surrendered option is at the time exercisable over
(ii) the option price payable for such vested shares. Such payment may be made,
at the discretion of the Committee, in shares of Common Stock valued at fair
market value on the date of surrender or in cash.
Corporate Officers of the Company subject to the short-swing profit
restrictions of the federal securities laws are granted limited stock
appreciation rights as part of any stock option grants made to such Corporate
Officers under the Option Plan. Any option with such a limited stock
appreciation right in effect for at least six (6) months shall automatically be
canceled in exchange for a cash distribution from the Company upon the
occurrence of a Hostile Take-Over (as defined in the Option Plan), whether or
not the option is otherwise at the time exercisable for such shares. In
addition, outstanding stock appreciation
8
<PAGE>
rights granted before May 1993 to employees, Corporate Officers, and certain
Directors of the Company under the 1983 Option Plan and incorporated into the
Option Plan allow such persons to surrender the underlying options to the
Company for a cash distribution, in the event of certain changes in control of
the Company.
In the event of a "Change of Control" of the Company or certain "Corporate
Transactions" (each as defined in the Option Plan), the Committee may, in
certain circumstances and subject to limitations set forth in the Option Plan,
accelerate the vesting of outstanding options.
The Committee has the authority to effect the cancellation of outstanding
options under the Option Plan (except for options granted to non-employee
Directors under the Automatic Option Grant Program) and to grant replacement
options covering the same or different numbers of shares of Common Stock but
having an option price per share not less than the fair market value of the
Common Stock on the new grant date. It is anticipated that the option price in
effect under the replacement grant will in all instances be less than the option
price in effect under the canceled option.
The Board of Directors may terminate the Option Plan at any time, and the
Option Plan will in all events terminate no later than August 10, 2003. Any
options outstanding at the time of the Option Plan termination will continue to
remain outstanding and exercisable in accordance with the terms and provisions
of the instruments evidencing those grants.
FEDERAL INCOME TAX CONSEQUENCES
The following is a description of the federal income tax consequences of the
grant and exercise of stock options under the Option Plan.
An option granted to an employee who is a citizen or resident of the United
States ("U.S. employee") will be either an incentive stock option ("ISO") or a
non-qualified option ("NQO"). In general, an employee who is a U.S. employee
will not have taxable income (and the Company will receive no deduction) upon
the grant or exercise of an ISO. However, exercise of an ISO by a U.S. employee
may subject a U.S. employee to the federal alternative minimum tax.
A U.S. employee generally will be entitled to long-term capital gain
treatment upon the sale of shares ("Option Shares") acquired upon the exercise
of an ISO if the shares have been held for more than two (2) years after the
grant date and for more than one (1) year after the exercise date. If the Option
Shares are disposed of before both of these holding periods have expired, the
U.S. employee will have taxable ordinary income and/or capital gain (or loss) in
the year of sale determined as if the option had been an NQO (see below), except
that the amount of ordinary income will not exceed the actual gain on the sale,
and the Company will be entitled to a corresponding deduction.
In general, a U.S. employee will not have taxable income upon the grant of
an NQO. Upon exercise of an NQO, the U.S. employee will generally have ordinary
income subject to income and employment tax withholding (and the Company will be
entitled to a corresponding deduction) in the amount by which the fair market
value of the stock at that time exceeds the purchase price. In general, unless
he or she makes the election described below, a U.S. employee will not have
taxable income upon the grant of restricted (vesting) stock, but will have
taxable income upon the lapse of any vesting restrictions. A U.S. employee
receiving restricted stock, however, may make an election to be taxable at the
time of the grant on any excess of fair market value over the amount paid, in
which case the lapse of vesting restrictions will not be a taxable event. If
shares are held at least one (1) year after the date the U.S. employee has
taxable income from acquiring them, then upon sale of the shares, the U.S.
employee will have long-term capital gain or loss equal to the difference
between the sale price and the fair market value of the shares on the date
taxable income is recognized. Under current federal income tax law, long-term
capital gain is taxable at a minimum stated rate of 28%, while ordinary income
is taxable at a maximum stated rate of 39.6% (disallowances of deductions at
certain income levels may result in a higher implicit rate).
9
<PAGE>
The tax consequences to non-U.S. employees are governed by foreign law,
which typically does not offer the same tax advantages as United States law.
Special rules apply to participants who are Corporate Directors or Corporate
Officers.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation
right will have taxable ordinary income subject to income and employment tax
withholding, if an optionee is a U.S. employee in the year of exercise, equal to
the amount of the appreciation distribution. The Company will be entitled to a
business expense deduction equal to the appreciation distribution for the
taxable year of the Company in which the ordinary income is recognized by the
optionee.
PARACHUTE PAYMENTS. If the exercisability of an option or stock
appreciation right is accelerated as a result of a Change of Control, all or a
portion of the value of the option or stock appreciation right at that time may
be a "parachute payment" for purposes of the "excess parachute payment"
provisions of the Internal Revenue Code. Those provisions generally provide that
if parachute payments to Corporate Officers, highly compensated employees or
employee shareholders exceed three (3) times such an employee's average
compensation for the five (5) tax years preceding the Change of Control, the
employer corporation may not deduct, and the recipient is subject to a 20%
excise tax, for the amount of the parachute payments in excess of one (1) times
such average compensation.
NOTE FORGIVENESS. If any promissory note delivered in payment of shares
acquired under the Option Plan is forgiven in whole or in part, the amount of
such forgiveness will be taxable to the participant as ordinary compensation
income subject to income and employment tax withholding if the participant is a
U.S. employee. The Company will be entitled to a business expense deduction
equal to the amount of ordinary income taxable to the participant in connection
with the acquisition of the shares and any note forgiveness. The deduction will
be allowed for the taxable year of the Company in which the ordinary income is
taxable to the participant.
10
<PAGE>
The following table shows the number of options granted under the Option
Plan to the persons and the groups named below during the fiscal year ended
March 31, 1997, excluding options that were granted and subsequently canceled
during the fiscal year.
PLAN BENEFITS
OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
NAMED CORPORATE OFFICERS AND GROUPS OPTIONS GRANTED PRICE
- -------------------------------------------------------------------------------------- --------------- ---------
<S> <C> <C>
Name and Position:
Joseph J. Francesconi, President & CEO............................................ 120,000 $ 12.375
Raymond E. Peverell, Senior VP, Sales & Support................................... 55,000 $ 12.375
G. Michael Schumacher, Senior VP, Product Operations.............................. 76,250 $ 12.375
Craig M. Gentner, Senior VP & CFO................................................. 50,000 $ 12.375
Samuel H. Ezekiel, Senior VP, Marketing........................................... 35,000 $ 12.375
Corporate Officers as a Group......................................................... 330,000 $ 12.375
Non-Employee Director Group........................................................... 40,000 $ 12.125
Non-Officer Employee Group............................................................ 1,418,375 $ 13.991*
</TABLE>
- ---------
* Average exercise price per share.
The closing price of the Common Stock on the New York Stock Exchange on May
30, 1997 was $17.25 per share.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Company's voting Common Stock represented and voted at the 1997 Annual Meeting
is required for approval of the above described amendments to the Company's
Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO 2.
- --------------------------------------------------------------------------------
PROPOSAL NO. 3 - 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, 1998. 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, 1998.
11
<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 each of the Company's four (4) other most highly
compensated Corporate Officers during fiscal 1997 (the "Named 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>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------------------------- -----------------------------------------
BONUS RESTRICTED SECURITIES
NAME AND FISCAL SALARY (VARIABLE VARIABLE STOCK UNDERLYING
PRINCIPAL POSITION YEAR ($)(1) COMP.)($) COMP.($) AWARDS($)(2) OPTIONS(#)
- ------------------------------------------ -------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Francesconi..................... 1997 $401,547 $110,000 $ 50,000 $ 0 60,000(3)
President and Chief Executive 1996 389,305 400,000 0 464,800 60,000(3)
Officer 1995 344,615 486,700 0 0 0
Raymond E. Peverell....................... 1997 $225,865 $ 50,000 $ 22,500 $ 0 35,000(4)
Senior Vice President, Sales 1996 224,240 180,000 0 232,400 20,000(4)
and Support 1995 210,009 243,000 0 0 0
G. Michael Schumacher..................... 1997 $215,827 $ 50,000 $ 21,250 $ 0 50,000(4)
Senior Vice President, 1996 199,516 170,000 0 0 0
Product Operations 1995 34,615 25,000 0 119,325 35,000(5)
Craig M. Gentner.......................... 1997 $200,221 $ 45,000 $ 15,000 $ 0 35,000(4)
Senior Vice President, 1996 199,506(6) 120,000(6) 0 185,920 15,000(4)
Chief Financial Officer, and 1995 189,932 206,550 0 0 0
Corporate Secretary
Samuel H. Ezekiel......................... 1997 $169,538 $ 90,000(7) $ 0 $ 139,950 35,000(4)
Senior Vice President, 1996 0 0 0 0 0
Marketing 1995 0 0 0 0 0
</TABLE>
- ---------
(1) Salary includes amounts deferred pursuant to the Company's 401(k) Plan.
(2) Shares awarded to and purchased by individuals under the 1988 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
Corporate Officer. As of March 31, 1997, the number of shares and value of
restricted stock held, including unvested shares, is as follows: Mr.
Francesconi held 20,000 shares valued at $269,800; Mr. Peverell held 10,000
shares valued at $134,900; Mr. Schumacher held 0 shares; Mr. Gentner held
8,000 shares valued at $107,920; and Mr. Ezekiel held 5,000 shares valued at
$67,450. All of the shares of restricted stock held as of March 31, 1997
were awarded in fiscal year 1996 (other than for an award of 5,000 shares in
fiscal year 1995 to Mr. Schumacher, which are vested) and vest 25% on each
anniversary of the award date over four years.
(3) An option for 80,000 shares was canceled and a new option for 60,000 shares
was issued, with a new four-year vesting schedule on July 24, 1996. See the
Compensation Committee Report below regarding option cancellation and
issuance of replacement options.
(4) These options were canceled and a new option for an equal number of shares
was issued, with a new four-year vesting schedule on July 24, 1996.
12
<PAGE>
(5) As of July 24, 1996 there were 26,250 shares unexercised under this option.
On that date, this option was canceled and a new option for an equal number
of shares was issued, with a new four-year vesting schedule.
(6) Mr. Gentner's annual compensation includes 50% of his cash compensation
earned in calendar year 1996, receipt of which has been deferred by him
until January 1998 per the terms of the Officer Deferred Compensation Plan.
(7) Mr. Ezekiel's bonus was guaranteed in his offer of employment. In subsequent
years, he will be eligible to receive variable compensation as discussed in
the Compensation Committee Report.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options to the Named Corporate
Officers in fiscal year 1997 under the Option Plan. Pursuant to SEC rules, the
table also shows the value of options granted at the end of the option terms
(ten [10] 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
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM ($)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
- --------------------------- -------------- ------------ ----------- ----------- --- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Francesconi................ 120,000 3.4780% $ 12.375 07-24-06 $ 0 $ 933,908 $ 2,366,707
Peverell................... 55,000 1.5940% $ 12.375 07-24-06 $ 0 $ 428,041 $ 1,084,740
Schumacher................. 76,250 2.2100% $ 12.375 07-24-06 $ 0 $ 593,421 $ 1,503,845
Gentner.................... 50,000 1.4491% $ 12.375 07-24-06 $ 0 $ 389,128 $ 986,128
Ezekiel.................... 35,000 1.0144% $ 12.375 07-24-06 $ 0 $ 272,389 $ 690,289
</TABLE>
- ---------
(1) Excludes options granted in fiscal year 1997 and subsequently canceled upon
issuance of replacement options on July 24, 1996 and includes options that
were granted in fiscal years 1996 or 1995 and were canceled upon issuance of
replacement options on July 24, 1996 (see Summary Compensation Table,
footnotes 3, 4 and 5). As discussed below in the Compensation Committee
Report, option cancellation and issuance of replacement options was offered
to all option holders, except non-employee Directors, subject to the vesting
schedule starting anew.
13
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value of
unexercised options held as of the end of fiscal 1997 by the Named Corporate
Officers. None of the Named Corporate Officers exercised options during fiscal
1997.
<TABLE>
<CAPTION>
AGGREGATE
VALUE
REALIZED
(SALE PRICE
AT NUMBER OF SECURITIES VALUE OF UNEXERCISED
EXERCISE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES LESS OPTIONS AT FY-END (#)(1) AT FY-END ($)
ACQUIRED ON EXERCISE ----------------------------- -----------------------------
NAME EXERCISE (#) PRICE) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ------------ ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francesconi........... 0 0 168,750 176,250 $ 970,312 $ 458,437
Peverell.............. 0 0 29,791 60,208 129,692 82,057
Schumacher............ 0 0 0 76,250 0 85,781
Gentner............... 0 0 9,375 50,625 48,437 60,312
Ezekiel............... 0 0 0 35,000 0 39,375
</TABLE>
- ---------
(1) Excludes options granted and subsequently canceled upon issuance of
replacement options (see Summary Compensation Table, footnotes 3, 4 and 5).
10-YEAR OPTION REPLACEMENT TABLE
The following table summarizes stock options granted to the Corporate
Officers of the Company that have had options canceled and new options issued
with new vesting schedules and exercise prices during the past ten (10) fiscal
years.
<TABLE>
<CAPTION>
SECURITIES MARKET PRICE EXERCISE LENGTH OF ORIGINAL
UNDERLYING OF STOCK AT PRICE AT TIME NEW OPTION TERM
OPTIONS TIME OF OF REPRICING EXERCISE REMAINING AT DATE OF
REPRICED OR REPRICING OR OR AMENDMENT PRICE REPRICING OR
NAME DATE AMENDED (#) AMENDMENT ($) ($) ($) AMENDMENT
- -------------------------------- ---------- ----------- ------------- ------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
NAMED CORPORATE OFFICERS
Joseph J. Francesconi........... 07-24-96 60,000 12.375 23.250 12.375 8 Years, 268 Days
07-24-96 60,000 12.375 30.000 12.375 9 Years, 265 Days
Raymond E. Peverell............. 07-24-96 20,000 12.375 23.250 12.375 8 Years, 268 Days
07-24-96 35,000 12.375 30.000 12.375 9 Years, 265 Days
G. Michael Schumacher........... 07-24-96 26,250 12.375 23.875 12.375 8 Years, 183 Days
07-24-96 50,000 12.375 30.000 12.375 9 Years, 265 Days
Craig M. Gentner................ 08-14-90 20,000 6.625 23.750 6.625 9 Years, 1 Day
07-24-96 15,000 12.375 23.250 12.375 8 Years, 268 Days
07-24-96 35,000 12.375 30.000 12.375 9 Years, 265 Days
Samuel H. Ezekiel............... 07-24-96 35,000 12.375 28.000 12.375 9 Years, 314 Days
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SECURITIES MARKET PRICE EXERCISE LENGTH OF ORIGINAL
UNDERLYING OF STOCK AT PRICE AT TIME NEW OPTION TERM
OPTIONS TIME OF OF REPRICING EXERCISE REMAINING AT DATE OF
REPRICED OR REPRICING OR OR AMENDMENT PRICE REPRICING OR
NAME DATE AMENDED (#) AMENDMENT ($) ($) ($) AMENDMENT
- -------------------------------- ---------- ----------- ------------- ------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
OTHER CURRENT CORPORATE OFFICERS
Roger A. Barney................. 10-26-87 20,000 13.250 25.000 13.250 4 Years, 341 Days
08-14-90 8,750 6.625 13.250 6.625 7 Years, 73 Days
08-14-90 8,165 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 15,000 6.625 25.000 6.625 8 Years, 275 Days
07-24-96 10,000 12.375 23.250 12.375 8 Years, 268 Days
07-24-96 25,000 12.375 30.000 12.375 9 Years, 265 Days
James B. De Golia............... 08-14-90 4,100 6.625 15.500 6.625 8 Years, 120 Days
08-14-90 10,000 6.625 25.000 6.625 8 Years, 275 Days
07-24-96 4,000 12.375 23.250 12.375 8 Years, 268 Days
07-24-96 5,000 12.375 30.000 12.375 9 Years, 265 Days
David P. Owen................... 08-14-90 10,000 6.625 10.125 6.625 9 Years, 264 Days
07-24-96 10,000 12.375 23.250 12.375 8 Years, 268 Days
07-24-96 25,000 12.375 30.000 12.375 9 Years, 265 Days
Charles S. Shiverick............ 07-24-96 25,000 12.375 23.250 12.375 8 Years, 268 Days
07-24-96 25,000 12.375 30.000 12.375 9 Years, 265 Days
FORMER CORPORATE OFFICERS
Robert D. Bressler.............. 08-14-90 25,000 6.625 33.875 6.625 9 Years, 218 Days
John K. Clary................... 08-14-90 9,850 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 10,000 6.625 25.000 6.625 8 Years, 275 Days
Jerry L. Davis.................. 08-14-90 9,844 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 7,500 6.625 14.500 6.625 8 Years, 93 Days
08-14-90 15,000 6.625 25.000 6.625 8 Years, 275 Days
07-24-96 10,000 12.375 23.250 12.375 8 Years, 268 Days
07-24-96 25,000 12.375 30.000 12.375 9 Years, 265 Days
J. Robert Forkish............... 08-14-90 26,000 6.625 13.250 6.625 7 Years, 73 Days
08-14-90 15,000 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 15,000 6.625 25.000 6.625 8 Years, 275 Days
07-24-96 10,000 12.375 23.250 12.375 8 Years, 268 Days
07-24-96 10,000 12.375 30.000 12.375 9 Years, 265 Days
Walter J. Gill.................. 08-14-90 50,000 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 25,000 6.625 25.000 6.625 8 Years, 275 Days
Charles N. Keating, Jr.......... 10-26-87 30,188 13.250 20.500 13.250 4 Years, 208 Days
10-26-87 19,812 13.250 20.500 13.250 4 Years, 208 Days
08-14-90 30,188 6.625 13.250 6.625 7 Years, 73 Days
08-14-90 19,812 6.625 13.250 6.625 7 Years, 73 Days
08-14-90 32,500 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 25,000 6.625 25.000 6.625 8 Years, 275 Days
Laurence M. Markowitz........... 08-14-90 42,500 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 20,000 6.625 25.000 6.625 8 Years, 275 Days
Barrett B. Roach................ 08-14-90 43,500 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 25,000 6.625 25.000 6.625 8 Years, 275 Days
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SECURITIES MARKET PRICE EXERCISE LENGTH OF ORIGINAL
UNDERLYING OF STOCK AT PRICE AT TIME NEW OPTION TERM
OPTIONS TIME OF OF REPRICING EXERCISE REMAINING AT DATE OF
REPRICED OR REPRICING OR OR AMENDMENT PRICE REPRICING OR
NAME DATE AMENDED (#) AMENDMENT ($) ($) ($) AMENDMENT
- -------------------------------- ---------- ----------- ------------- ------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Tony Russo...................... 08-14-90 47,500 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 30,000 6.625 25.000 6.625 8 Years, 275 Days
Steve Schlumberger.............. 08-14-90 39,500 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 25,000 6.625 25.000 6.625 8 Years, 275 Days
Bruce D. Smith.................. 08-14-90 100,000 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 100,000 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 100,000 6.625 16.000 6.625 8 Years, 52 Days
Craig S. Tysdal................. 08-14-90 18,750 6.625 16.000 6.625 8 Years, 52 Days
08-14-90 35,000 6.625 14.500 6.625 8 Years, 93 Days
08-14-90 30,000 6.625 25.000 6.625 8 Years, 275 Days
Daniel J. Warmenhoven........... 08-14-90 100,000 6.625 26.125 6.625 9 Years, 94 Days
</TABLE>
COMPENSATION COMMITTEE REPORT
INTRODUCTION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for the administration of the Company's compensation programs. 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 potentially payable to
each Corporate Officer is intended to be performance-based because it is
comprised of components based upon individual achievement and Company
performance such as operating profit, attainment of predetermined goals, the
improvement in the market price of the Company's stock, etc. 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 Corporate Officers
during the year. In addition, the Committee administers the Option Plan and
Related Plans.
For fiscal year 1997, 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 independent consultants and are also subject to approval by the
Committee.
COMPENSATION PHILOSOPHY AND PRINCIPLES
Under the supervision of the Committee, the Company implements a
compensation philosophy which is designed to attract and retain qualified
Corporate Officers and other employees critical to the Company's success and to
provide them with performance-based incentives tied to the profitability of the
Company and stockholder value. Under this philosophy, as a Corporate 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 Corporate Officer's compensation is intended to be
dependent upon the Company's performance and the individual's contribution to
the success of the Company, as measured by individual performance and stock
price appreciation.
16
<PAGE>
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; and
- Emphasize reward for performance at the individual, team and corporate
levels.
COMPENSATION FACTORS
Factors which were considered in establishing the components of each
Corporate Officer's compensation for fiscal year 1997 are summarized below. In
setting Corporate 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.
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 a Corporate 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 to the Committee by the independent compensation surveys.
The Committee believes that the Company's most direct competitors 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 20.
VARIABLE COMPENSATION. The Company's Corporate Officers and all employees
are eligible to participate in the Company's annual Variable Compensation
Program ("VCP"). Corporate Officers also participate in a Long-Term Variable
Compensation ("LTVC") Plan described below. Awards to Corporate Officers under
these programs 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 Corporate 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.
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 1997, Corporate Officers were eligible for
receipt of variable compensation payouts early in fiscal year 1998 of between 0%
and 80% to 110% of base salary (depending on the Corporate Officer's level).
Variable compensation payouts with respect to fiscal year 1997 were based on
Company performance as well as individual performance against their objectives.
The Company's performance for fiscal year 1997 was measured on the basis of
operating income goals, which goals were not met due to a shortfall in planned
revenue and continued investment in long-term development and infrastructure
improvements. The Company's performance was factored into
17
<PAGE>
variable compensation payouts and LTVC awards to individual Corporate Officers,
resulting in a substantial decrease in awards to Corporate Officers compared to
awards made in fiscal years 1996 and 1995 (see Summary Compensation Table on
page 12).
LONG-TERM INCENTIVES AND COMPENSATION
Long-term incentives are provided to eligible employees and Corporate
Officers primarily through annual stock option grants, as well as by
supplemental option grants, compensation and restricted stock awards. These
incentives are intended to motivate the Corporate 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 option holder's
compensation with the return realized by stockholders. Approximately 95% of the
professional level technical and management employees of the Company hold stock
options.
STOCK OPTIONS. The Company's broad-based Option Plan and the 1988
Restricted Stock Award Plan ("Restricted Plan") provide Corporate Officers and
other key employees with incentives to maximize long-term stockholder values.
Awards under the Option Plan can take the form of stock options and stock
appreciation rights, and awards under the Restricted 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 interests with those
of the Company's stockholders. In addition to linking compensation directly to
stockholder value, the Committee believes that stock options and restricted
stock awards, through staged vesting provisions, perform an important role in
attracting, motivating and retaining key technical and management personnel. The
Committee has established general guidelines for making option grants to
Corporate Officers and other employees 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 Corporate Officer or employee as
circumstances warrant. Following a significant decline in the market price of
N.E.T. stock during the preceding months, on July 24, 1996, the Committee
authorized the offer of option agreement cancellations and the issuance of new
option agreements ("replacement options") on a one-for-one share basis to
employees other than the CEO on currently held options with exercise prices
higher than $12.375 (the closing price of the Company's stock on July 24, 1996).
The offer was subject to cancellation of such higher priced option agreements
and execution by the employees of a new stock option agreement. The July 24,
1996 replacement options have an exercise price of $12.375 per share, vest over
four (4) years, and have a ten (10) year term. The Committee authorized the
regrant for the same reasons it authorized the initial grants, including
promoting the retention of employees crucial to the success of the Company and
motivating them to perform their duties in ways that will contribute to the
appreciation of stockholder value. In the opinion of the Committee, the regrant
was a very prudent way to reduce the risk of attrition of key employees and
thereby to reduce risks to the Company's product development and other critical
programs and projects.
LONG-TERM VARIABLE COMPENSATION. Beginning in fiscal 1996, the Company
established an LTVC Plan for Corporate Officers to promote retention and focus
on objectives that span more than one (1) fiscal year. Under the LTVC Plan,
Corporate Officers are eligible for annual awards of up to one-half (1/2) of the
amount provided under the previously described VCP. Provided the Corporate
Officer remains an employee of the Company or one of its subsidiaries, LTVC will
be paid to the Corporate Officer in four (4) equal annual installments
commencing the year after its award. The initial payout under the LTVC Plan
occurred early in fiscal 1998, when Corporate Officers received one-quarter
(1/4) of the amount of their fiscal 1996 LTVC award.
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
18
<PAGE>
achieve 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. No restricted stock
awards were made in fiscal 1997.
CEO COMPENSATION
Joseph J. Francesconi was appointed President, Chief Executive Officer and a
Director of the Company as of March 9, 1994. As noted on page 12, Mr.
Francesconi's salary in fiscal year 1997 was $401,547 and he received $110,000
in variable compensation based on fiscal 1997 performance. Under the LTVC Plan,
Mr. Francesconi will be eligible to receive a total of $55,000 based on his
fiscal 1997 variable compensation award which will be paid in four (4) equal
annual installments commencing in 1998. He received an LTVC payout of $50,000
early in fiscal 1998. Mr. Francesconi was also offered and accepted the
cancellation and subsequent issuance of replacement options with a new vesting
schedule on a three-for-four share basis and on terms otherwise the same as
those offered to other employees and described above. The Committee used
independent compensation advice in determining how to structure Mr.
Francesconi's compensation. In October 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 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
(1) year of base salary continuance; one (1) 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)
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1 million of
compensation paid to Corporate Officers named in the Summary Compensation Table
in a taxable year. Compensation above $1 million may be deducted if it is
"performance based" within the meaning of the Code.
The Compensation Committee believes that stock options granted to the
Company's Corporate Officers with an exercise price equal to or greater than the
fair market value of the Company's Common Stock on the date of grant will
qualify for the performance-based compensation to the deduction limit. The
Compensation Committee does not expect that cash compensation to any Named
Corporate Officer, together with other compensation paid to such Corporate
Officer in the 1998 fiscal year that is not exempt from the limitations of
Section 162(m) will exceed $1 million.
We conclude our report with the acknowledgment that no member of the
Compensation Committee is a former or current Corporate Officer or employee of
the Company or any of its subsidiaries.
Compensation Committee Members
Dixon R. Doll, Chairman
James K. Dutton
19
<PAGE>
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 March 31,
1992, 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 RETURN AMONG
N.E.T., S&P 500 INDEX &
H&Q TECHNOLOGY INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
N.E.T. S&P 500 H&Q TECHNOLOGY INDEX
<S> <C> <C> <C> <C>
MAR 92 $100 $100 $100
MAR 93 44 112 110
MAR 94 61 110 123
MAR 95 185 124 157
MAR 96 221 160 216
MAR 97 98 196 244
DOLLARS
PERIODS ENDING
</TABLE>
<TABLE>
<CAPTION>
Mar 92 Mar 93 Mar 94 Mar 95 Mar 96 Mar 97
<S> <C> <C> <C> <C> <C> <C>
N.E.T. $ 100 $ 44 $ 61 $ 185 $ 221 $ 98
S & P 500 $ 100 $ 112 $ 110 $ 124 $ 160 $ 196
H&Q TECHNOLOGY INDEX $ 100 $ 110 $ 123 $ 157 $ 216 $ 244
</TABLE>
Assumes $100 invested on 3/29/92 in N.E.T. 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.
EMPLOYMENT CONTRACTS
The Company's Employment Agreement with Mr. Francesconi is described in the
Compensation Committee Report. Each of the Company's other Named Corporate
Officers (Messrs. Peverell, Schumacher, Gentner, and Ezekiel) 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,
Corporate Officers and any persons holding more than ten percent (10%) of the
Company's Common Stock are required to report initial ownership of the Common
Stock and any subsequent changes in ownership to the 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 1997 transactions, and (ii) the written representations received
from one (1) or more of such persons, the Company has concluded that none of the
Company's Directors or Corporate Officers failed to file timely Forms 4 or Forms
5 regarding changes in ownership.
20
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
Proposals of stockholders that are intended to be presented at the Company's
Annual Meeting of Stockholders to be held in 1998 must be received by the
Company no later than February 25, 1998 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 12, 1998 with respect to the Annual Meeting to be held August 11, 1998).
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 SEC for solicitations of proxies to approve such
proposed business.
Any such proposals or notices should be directed to the attention of the
Secretary, N.E.T., 800 Saginaw Drive, Redwood City, California 94063.
By order of the Board of Directors,
/s/ Craig M. Gentner
CRAIG M. GENTNER
Secretary
June 23, 1997
21
<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 13, 1997, 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
12, 1997, 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 Joseph J. Francesconi and Walter J. Gill as Class I Directors to
serve for the term specified in the accompanying Proxy Statement and until their
successors are elected and qualified.
FOR WITHHELD
Joseph J. Francesconi --------- ----------
Walter J. Gill --------- ----------
2. To approve amendments to the Company's 1993 Stock Option Plan (the "Option
Plan") to increase the number of shares available for issuance thereunder by
2,000,000 and to reflect changes to the stockholder approval requirements of
Securities and Exchange Commission Rule 16b-3.
FOR AGAINST ABSTAIN
---- ---- ----
3. To ratify the appointment of Deloitte & Touche LLP to serve as the
Company's independent accountants for the fiscal year ending March 31, 1998.
FOR AGAINST ABSTAIN
---- ---- ----
4. To transact such other business as may properly come before the meeting or
any adjournment thereof.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
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: , 1997
----------------------
- -------------------------- PLEASE MARK, SIGN, DATE AND
Signature RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
- --------------------------
Signature if held jointly
