SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |_|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Network Equipment Technologies, Inc.
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
|_| $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
|_| 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: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
___________
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
(032796DTI)
<PAGE>
[LOGO]
6500 Paseo Padre Parkway
Fremont, California 94555
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
August 11, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Network Equipment Technologies, Inc. ("N.E.T." or the "Company"), a Delaware
corporation, will be held on Tuesday, August 11, 1998, at 10:00 a.m., local
time, at the principal offices of the Company, 6500 Paseo Padre Parkway,
Fremont, California, for the following purposes:
1. To elect Dixon R. Doll and Hans A. Wolf as Class II Directors to serve
for the term specified in the accompanying Proxy Statement and until
their successors are elected and qualified.
2. To ratify the appointment of Deloitte & Touche LLP as independent
public accountants of the Company for the fiscal year ending March 31,
1999.
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 12, 1998 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
Fremont, California
June 24, 1998
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>
[LOGO]
6500 Paseo Padre Parkway
Fremont, California 94555
PROXY STATEMENT
For the Annual Meeting of Stockholders
To Be Held
August 11, 1998
The enclosed proxy is solicited by the Board of Directors of Network
Equipment Technologies, Inc. ("N.E.T." or the "Company"), a Delaware
corporation, for use at the Annual Meeting of Stockholders to be held at 10:00
a.m. on August 11, 1998, and at any postponement or adjournment thereof (the
"Annual Meeting") at the principal offices of the Company located at 6500 Paseo
Padre Parkway, Fremont, California 94555. Stockholders of record on June 12,
1998 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 24, 1998. On June 12, 1998, there were outstanding and
entitled to vote 21,640,017 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
6500 Paseo Padre Parkway, Fremont, California 94555, 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.
<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 as Class
I, Class II and Class III, whose respective current terms expire at the 1998,
1999, and 2000 Annual Meetings of Stockholders. The terms of Messrs. Francesconi
and Gill, as Class I Directors, and Messrs. Dutton and Scalise, as Class III
Directors, 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 six.
The nominees for Class II Directors are Messrs. Doll and Wolf. They have
agreed to serve if elected, and management has no reason to believe that Messrs.
Doll and Wolf will be unable to serve. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for Messrs. Doll and Wolf. The
candidates receiving the highest number of affirmative votes of the shares
entitled to vote at the Annual Meeting will be elected Class II Directors of the
Company. The recipients of the highest number of votes will hold office until
the Annual Meeting of Stockholders in the year 2001 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. Doll and Wolf.
Class and
Director Year Current
Name of Nominee Age Since Term Expires
- --------------- ---- -------- --------------
Dixon R. Doll ........... 55 1984 Class II-2001
Hans A. Wolf ............ 69 1992 Class II-2001
Name of Incumbent
- -----------------
James K. Dutton ......... 65 1995 Class III-1999
Joseph J. Francesconi ... 55 1994 Class I-2000
Walter J. Gill .......... 63 1991 Class I-2000
George M. Scalise ....... 64 1997 Class III-1999
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, Inc. and International Manufacturing Services, both of which are public
companies, and several private companies.
<PAGE>
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.
Joseph J. Francesconi has served as a Director and as President and Chief
Executive Officer since joining the Company in March 1994. He has recently been
elected as a Director of Caere Corporation, a public company. 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. 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.
George M. Scalise has served as a Director of the Company since October
1997. In June 1997, he became President of the Semiconductor Industry
Association after having served as Executive Vice President at Apple Computer.
From 1991 to 1996, Mr. Scalise was at National Semiconductor Corporation where
he served as Executive Vice President and Chief Administrative Officer. Prior to
that, he was President and Chief Executive Officer of Maxtor Corporation, and
served in senior executive capacities at Advanced Micro Devices, Fairchild
Semiconductor and Motorola Semiconductor. Mr. Scalise is also a Director of
Cadence Design Systems, Inc. He has served on several other corporate,
association and community boards.
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.
<PAGE>
Stock Ownership of Five Percent Stockholders, Directors, and Corporate Officers
The following table sets forth certain information, as of May 30, 1998
(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 and Number of Outstanding
Corporate Officers as a Group Shares Shares
----------------------------- ------------ -----------
<S> <C> <C>
Kopp Investment Advisors, Inc. (1) ............................. 4,118,989 19.04%
7700 France Avenue South #500
Edina, MN 55435-1807
State of Wisconsin Investment Board (1) ........................ 2,079,400 9.61%
121 East Wilson Street
Madison, WI 53702
Merrill Lynch Asset Management (1) ............................. 1,306,100 6.04%
800 Scudders Mill Road
Plainsboro, NJ 08536
R. Elliott King & Associates (1) ............................... 1,268,225 5.86%
3000 Sand Hill Road
Building 2, Suite 245
Menlo Park, CA 94025-7195
Dixon R. Doll (2) .............................................. 172,790 *
James K. Dutton (3) ............................................ 25,956 *
Samuel H. Ezekiel (4) .......................................... 29,270 *
Joseph J. Francesconi (5) ...................................... 320,312 *
Craig M. Gentner (6) ........................................... 50,395 *
Walter J. Gill (7) ............................................. 85,000 *
Raymond E. Peverell (8) ........................................ 75,686 *
George M. Scalise (9) .......................................... 1,000 *
G. Michael Schumacher (10) ..................................... 44,652 *
Hans A. Wolf (11) .............................................. 53,827 *
All Corporate Officers and Directors as a group
(fourteen persons) (12) ........................................ 1,063,418 4.9%
</TABLE>
- --------------------------
* Represents less than 2% of the outstanding shares
(1) This information is acquired from publicly available information filed with
the Securities and Exchange Commission ("SEC") as of March 31, 1998. The
Company has been advised that Kopp Investment Advisors, Inc. has sole
voting and investment power with respect to 648,300 of the shares, and no
voting power or economic ownership with respect to 3,470,689 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; Merrill Lynch Asset Management has sole voting and
investment power with respect to all of the shares shown opposite its name;
and R. Elliott King & Associates has shared voting and investment power
with respect to 1,034,100 of the shares, and no investment power with
respect to 234,125 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 85,993 shares issuable within 60 days of May
30, 1998, upon exercise of outstanding options.
<PAGE>
(3) Includes 21,956 shares issuable within 60 days of May 30, 1998, upon
exercise of outstanding options.
(4) Includes 25,520 shares issuable within 60 days of May 30, 1998, upon
exercise of outstanding options, and 3,750 shares purchased under the 1988
Restricted Stock Award Plan that are unvested as of May 30, 1998.
(5) Includes 300,312 shares issuable within 60 days of May 30, 1998, upon
exercise of outstanding options, and 10,000 shares purchased under the 1988
Restricted Stock Award Plan that are unvested as of May 30, 1998.
(6) Includes 42,395 shares issuable within 60 days of May 30, 1998, upon
exercise of outstanding options, and 4,000 shares purchased under the 1988
Restricted Stock Award Plan that are unvested as of May 30, 1998. (7)
Includes 10,000 shares issuable within 60 days of May 30, 1998, upon
exercise of outstanding options.
(8) Includes 69,686 shares issuable within 60 days of May 30, 1998, upon
exercise of outstanding options, and 5,000 shares purchased under the 1988
Restricted Stock Award Plan that are unvested as of May 30, 1998.
(9) Includes zero shares issuable within 60 days of May 30, 1998, upon exercise
of outstanding options.
(10) Includes 44,425 shares issuable within 60 days of May 30, 1998, upon
exercise of outstanding options.
(11) Includes 53,327 shares issuable within 60 days of May 30, 1998, upon
exercise of outstanding options.
(12) See notes (2) through (11) above. Includes 824,787 shares issuable within
60 days of May 30, 1998, upon exercise of outstanding options, and 27,750
shares purchased under the 1988 Restricted Stock Award Plan that are
unvested as of May 30, 1998.
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, Dutton and Scalise. The Finance
Committee consists of Messrs. Dutton and Wolf, and the Nominating Committee
consists of Messrs. Dutton, Gill and Scalise.
The functions of the Audit Committee include reviewing the audit plan and
results of each audit with the independent accountants, and reviewing the scope
and quality of internal accounting and financial reporting controls in effect
with management. The functions of the Compensation Committee include determining
remuneration for Corporate Officers and Directors, and administering the
Company's stock plans and variable compensation programs. The functions of the
Finance Committee include reviewing the Company's cash management and investment
strategies. The functions of the Nominating Committee include establishing
criteria and procedures for the selection of new Directors. No nominations were
received from, and no procedures have been established for the consideration of
nominees recommended by, stockholders.
During the fiscal year ended March 31, 1998, the Board of Directors held
six meetings, the Audit Committee held four meetings, the Compensation Committee
held four meetings, the Finance Committee held two meetings, and the Nominating
Committee held two meetings. Each Director attended 100% 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 a $1,000 fee per Board meeting, and $3,000 per
month for services rendered. The Company entered into an Employment Agreement
with Walter J. Gill in October 1994. Until October 1999, Mr. Gill will provide
services to the Company for up to an average of 20 hours per month, for which he
will be compensated $3,500 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. Mr. Gill will not receive either non-employee Board member
compensation or stock options under the Automatic Option Grant Program of the
Company's 1993 Stock Option Plan (the "Option Plan") during the term of the
Employment Agreement.
<PAGE>
Non-employee Directors are eligible to participate in the Automatic Option
Grant Program of the 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 is
automatically granted an option to purchase 12,000 shares of Common Stock. A
pro-rated number of shares is 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 receives an annual grant of 4,000 shares,
and each non-employee Board member who serves on the Audit or the Compensation
Committee is automatically granted options to purchase 4,000 shares of Common
Stock annually for each committee on which he serves. An additional annual
option grant of 4,000 shares is 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 (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.
- --------------------------------------------------------------------------------
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, 1999. 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, 1999.
<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 1998 (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, 1998 $401,999 $220,000 $63,750 0 75,000
President and Chief 1997 401,547 110,000 50,000 0 60,000(3)
Executive Officer 1996 389,305 400,000 0 464,800 60,000(3)
G. Michael Schumacher, 1998 $225,865 $135,000 $27,500 0 35,000
Senior Vice President, 1997 215,827 50,000 21,250 0 50,000(4)
Product Operations 1996 199,516 170,000 0 0 0
Raymond E. Peverell, 1998 $225,865 $ 65,000 $28,750 0 35,000
Senior Vice President, 1997 225,865 50,000 22,500 0 35,000(4)
Sales and Support 1996 224,240 180,000 0 232,400 20,000(4)
Craig M. Gentner, 1998 $210,808 $ 60,000 $20,625 0 35,000
Senior Vice President, 1997 200,221 45,000 15,000 0 35,000(4)
Chief Financial Officer, 1996 199,506(5) 120,000(5) 0 185,920 15,000(4)
and Corporate Secretary
Samuel H. Ezekiel, 1998 $210,808 $ 60,000 $11,250 0 35,000
Senior Vice President, 1997 169,538(6) 90,000(7) 0 139,950 35,000(4)
Marketing 1996 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. 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, 1998, the number of shares and value of restricted stock held,
including unvested shares, is as follows: Mr. Francesconi held 20,000
shares valued at $324,800; Mr. Schumacher held zero shares; Mr. Peverell
held 10,000 shares valued at $162,400; Mr. Gentner held 8,000 shares valued
at $129,920; and Mr. Ezekiel held 3,750 shares valued at $60,900. All of
the shares of restricted stock held as of March 31, 1998 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 an award of 5,000 shares in
fiscal year 1997 to Mr. Ezekiel) 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.
(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. Option
cancellation and issuance of replacement options was offered to all option
holders, except non-employee Directors, subject to the vesting starting
anew.
(5) Mr. Gentner's annual compensation includes 50% of his cash compensation
earned in calendar year 1996, receipt of which was deferred by him until
January 1998 per the terms of the Officer Deferred Compensation Plan.
(6) Salary includes a $20,000 sign-on bonus.
(7) Mr. Ezekiel's 1997 bonus was guaranteed in his offer of employment.
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options to the Named Corporate
Officers in fiscal year 1998 under the Option Plan. Pursuant to SEC rules, the
table also shows the value of options granted at the end of the option terms
(ten [10] years) if the stock price were to appreciate annually by 5% and 10%,
respectively. There is no assurance that the stock price will appreciate at the
rates shown in the table. The table also indicates that if the stock price does
not appreciate, there will be no increase in the potential realizable value of
the options granted.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------------------ Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation for
Underlying Granted to Exercise or Option Term ($)
Options Employees in Base Price Expiration --------------------------------
Name Granted (#) Fiscal Year ($/Share) Date 0% 5% 10%
- ----- ---------- --------- --------- ---------- ---- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Francesconi 75,000 4.1735% $11.625 04-14-07 0 $548,318 $1,389,544
Schumacher 35,000 1.9476 11.625 04-14-07 0 255,882 648,454
Peverell 35,000 1.9476 11.625 04-14-07 0 255,882 648,454
Gentner 35,000 1.9476 11.625 04-14-07 0 255,882 648,454
Ezekiel 35,000 1.9476 11.625 04-14-07 0 255,882 648,454
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the exercise of
options during fiscal year 1998 and unexercised options held as of the end of
such year by the Named Corporate Officers.
<TABLE>
<CAPTION>
Aggregate
Shares Value Realized Number of Securities Value of Unexercised
Acquired (Sale price at Underlying Unexercised In-the-Money
On exercise less Options at FY-End (#) Options at FY-End ($)
Exercise exercise price) ------------------------------ ----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francesconi 0 0 275,000 145,000 $2,106,250 $618,125
Schumacher 0 0 31,770 79,480 123,109 334,235
Peverell 0 0 57,916 67,084 334,924 286,200
Gentner 0 0 30,833 64,167 160,728 274,897
Ezekiel 0 0 14,583 55,417 56,509 240,991
</TABLE>
COMPENSATION COMMITTEE REPORT
Introduction
The Company's compensation programs are administered by the Compensation
Committee of the Board of Directors (the "Committee"). 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, working
with the CEO, the Company's human resources staff and independent consultants to
set the base salaries and to approve the individual variable compensation and
incentive awards to the CEO and other Corporate Officers. In addition, the
Committee administers the Company's 1998 Employee Stock Purchase Plan, 1997
Stock Option Program, 1993 Stock Option Plan, and the 1989 U.K. Stock Option
Plan (collectively "Stock Plans and Programs").
<PAGE>
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. 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.
The Company's executive compensation programs are based on the following
series of guiding principles:
o Attract and retain key executives essential to the long-term success
of the Company;
o Reward executives for long-term Corporate success by facilitating
their ability to acquire an ownership interest in the Company;
o Provide direct linkage between the compensation payable to executives
and the attainment by the executives and the Company's objectives and
goals; and
o Emphasize reward for performance at the individual, team and Corporate
levels.
Compensation Factors
Factors that were considered in establishing the components of each
Corporate Officer's compensation for fiscal year 1998 are summarized below.
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. 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 12. In April 1998, the Committee conducted its
annual review of the base salaries of the Named Corporate Officers and
determined that no increases were required at that time.
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. These
objectives are reviewed periodically during the year 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 1998, Corporate Officers were eligible for
receipt of variable compensation payouts early in fiscal year 1999 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 1998 were based on
Company performance as well as individual performance against their objectives.
The Company's performance for fiscal year 1998 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 variable compensation
payouts and LTVC awards to individual Corporate Officers.
<PAGE>
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 Stock Plans and Programs are broad based and
provide Corporate Officers and other key employees with incentives to maximize
long-term stockholder values. Awards under these Plans can take the form of
stock options, restricted stock and stock appreciation rights, 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.
Long-Term Variable Compensation. The Company's LTVC Plan is intended 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 second payout under
the LTVC Plan occurred early in fiscal 1999, when Corporate Officers received
one-quarter (1/4) of the amount of their fiscal 1996 and fiscal 1997 LTVC
awards.
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 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 1998.
CEO Compensation
Joseph J. Francesconi has been President, Chief Executive Officer and a
Director of the Company since 1994. As noted on page 7, Mr. Francesconi's salary
in fiscal year 1998 was $401,998.50 and in May 1998, he received $220,000.00 in
variable compensation based on fiscal 1998 performance. Under the LTVC Plan, Mr.
Francesconi will be eligible to receive a total of $110,000 based on his fiscal
1998 variable compensation award, which will be paid in four (4) equal annual
installments commencing in 1999. He received an LTVC payout of $63,750.00 in
April 1998. The Committee used independent compensation advice in determining
the amount and structure of Mr. Francesconi's compensation.
<PAGE>
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
George M. Scalise
<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,
1993, 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
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
N.E.T S&P 500 H&Q TECHNOLOGY INDEX
----- ------- --------------------
Mar 93 $100 $100 $100
Mar 94 $140 $ 99 $115
Mar 95 $423 $111 $149
Mar 96 $506 $143 $202
Mar 97 $225 $175 $235
Mar 98 $271 $244 $350
Assumes $100 invested on 3/31/93 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
Each of the Company's Named Corporate Officers has an agreement with the
Company that provides that in the event of his termination resulting from a
Corporate Transaction, Change in Control or Hostile Take-Over (as those terms
are defined in the Option Plan, collectively referred to in this agreement as
"Change in Control") or from involuntary termination for reasons other than
cause, for limited time periods, the Company will provide severance benefits as
follows: base salary continuance; 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 in Control). In order to receive the foregoing severance benefits, each
of the Named Corporate Officers has agreed to execute the Company's release and
non-competition agreement at the time of any such termination. The applicable
limited time periods under each of these agreements is as follows: two years for
Mr. Francesconi; eighteen months for Mr. Gentner; and twelve months for Messrs.
Schumacher, Peverell and Ezekiel.
<PAGE>
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 1998 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.
- --------------------------------------------------------------------------------
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 1999 must be received by
the Company no later than February 24, 1999 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 11, 1999 with respect to the Annual Meeting to be held August 10, 1999).
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., 6500 Paseo Padre Parkway in Fremont, California 94555.
By order of the Board of Directors,
CRAIG M. GENTNER
June 24, 1998 Secretary
<PAGE>
DETACH HERE
PROXY
NETWORK EQUIPMENT TECHNOLOGIES, INC.
6500 Paseo Padre Parkway, Fremont, California 94555
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 12, 1998, 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 11, 1998, 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 on the reverse side.
- --------------------- ----------------------
SEE REVERSE SEE REVERSE
SIDE SIDE
- --------------------- ----------------------
(PLEASE DATE AND SIGN ON REVERSE SIDE)
<PAGE>
DETACH HERE
|X| Please mark
votes as in
this example.
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.
1. To elect Dixon R. Doll and Hans A. Wolf as Class II Directors to serve for
the term specified in the accompanying Proxy Statement and until their
successors are elected and qualified.
FOR WITHHELD
Dixon R. Doll |_| |_|
Hans A. Wolf |_| |_|
|_| _________________________________________
For both nominees except as noted above
2. To ratify the appointment of Deloitte & Touche LLP to serve as the
Company's independent accountants for the fiscal year ending March 31,
1999.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. To transact such other business as may properly come before the meeting or
any adjournment thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT |_|
Please mark, sign, date and return the proxy card promptly using the enclosed
envelopes.
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.
Signature: ______________________________________ Date: ______________
Signature: ______________________________________ Date: ______________
