<PAGE>
PENRIL DATACOMM NETWORKS, INC.
Corporate Headquarters
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
The Annual Meeting of the Shareholders of Penril DataComm Networks,
Inc. (the "Company") will be held at the office of the Company, 1300
Quince Orchard Boulevard, Gaithersburg, Maryland, on Wednesday,
April 10, 1996, at 2:00 P.M., local time, for the following purposes:
1. To elect two Class III directors of the Company;
2. To approve the Company's 1995 Long-Term Incentive Plan which
will replace the expiring 1986 Incentive Plan and is a
necessary inducement to attract and retain qualified
employees; and
3. To transact such other business as may properly come before
the Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on February 19,
1996 as the record date for determining shareholders entitled to
notice of and to vote at the Meeting and any adjournment thereof.
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD. AT ANY TIME
PRIOR TO THEIR BEING VOTED, PROXIES ARE REVOCABLE BY WRITTEN NOTICE TO
THE SECRETARY OF THE COMPANY OR BY APPEARANCE AT THE MEETING TO VOTE
IN PERSON. THE IMMEDIATE RETURN OF YOUR PROXY WILL BE OF GREAT
ASSISTANCE IN PREPARING FOR THE MEETING AND IS THEREFORE URGENTLY
REQUESTED.
By Order of the Board of Directors
RICHARD D. MARGOLIS, Secretary
Gaithersburg, Maryland
February 26, 1996
<PAGE>
PENRIL DATACOMM NETWORKS, INC.
Corporate Headquarters
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878
(301)417-0552
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be held on April 10, 1996
INTRODUCTION
The accompanying proxy, which is first being mailed on or about
February 26, 1996, is solicited by the Board of Directors of Penril
DataComm Networks, Inc. (the "Company") for use at the Annual Meeting
of Shareholders of the Company (the "Meeting") to be held at 2:00
P.M., local time, on April 10, 1996, at the office of the Company,
1300 Quince Orchard Boulevard, Gaithersburg, Maryland.
Shareholders of record at the close of business on February 19,
1996, will be entitled to notice of and to vote at the Meeting and any
adjournment thereof. On that date there were outstanding 10,036,702
shares of Common Stock, par value $.01 per share of the Company
("Common Stock"). Each share is entitled to one vote on all matters
to come before the Meeting. The Company has no other class of voting
securities outstanding.
Shares cannot be voted at the Meeting unless the holder of record
is present or represented by proxy. When proxies in the accompanying
form are returned properly executed, the shares represented thereby
will be voted as specified thereon. Unless otherwise indicated on the
enclosed proxy, all votes represented by such proxy will be cast in
favor of the two nominees named therein and in favor of approving the
Company's 1995 Long-Term Incentive Plan. Any shareholder giving a
proxy has the right to revoke it at any time prior to its exercise,
either in writing delivered to the Secretary of the Company, or in
person at the Meeting.
A majority of the outstanding shares of Common Stock will
constitute a quorum at the Meeting. Abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a
quorum for the transaction of business. Abstentions are counted in
the tabulations of the votes cast on proposals presented to the
shareholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
<PAGE>
ELECTION OF DIRECTORS
At the Meeting, two directors of Class III are to be elected for
terms expiring at the 1998 Annual Meeting and until their successors
shall have been duly elected and qualified. Set forth below are the
names of, and certain information with respect to, the persons
nominated by the Board of Directors of the Company for election as
directors of Class III, as well as the continuing directors in Class I
and Class II. The information has been provided by the individuals.
Pursuant to the Company's By-Laws, directors are elected by a
majority of the votes cast in the election. Unless otherwise
specified, the shares represented by the enclosed proxy will be voted
"FOR" the election of the two nominees named below. A proxy cannot be
voted for more than two persons. The Board of Directors is not aware
that either of the nominees will be unavailable for service, but if a
nominee should become unavailable, the shares represented by the
enclosed proxy will be voted for such substitute as may be nominated
by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES
NAMED BELOW.
NOMINEES
Name, Age and Positions
with the Company other
than Director Business Experience
- ----------------------- -------------------------------
Class III - Term Expiring at the 1998 Annual Meeting:
Henry David Epstein, 68 Mr. Epstein was named President,
Chairman of the Board, Chief Executive Officer and a director
President and Chief of the Company by the Board of Directors
Executive Officer in March 1987, and was named Chairman of the
Board in December 1987. He has headed
Ideonics, his own Florida-based financial and
technology consulting firm since 1985. From
1977 to 1985 he was employed by Loral
Corporation, a manufacturer of military
electronics equipment, most recently as
Senior Group Vice President.
Howard M. Schneider, 52 Mr. Schneider has been a director of the
Company since April 1988. For more than the
past five years, he has been President of BT
Securities Corporation, an affiliate of
Bankers Trust Company of New York.
<PAGE>
CONTINUING DIRECTORS
Class I - Term Expiring at the 1996 Annual Meeting:
Richard D. Margolis, 57 Mr. Margolis has been a director of
Secretary the Company since 1980. He was elected
Secretary of the Company in May 1987. For
more than the past five years, Mr. Margolis
has been a partner in the law firm of
Benesch, Friedlander, Coplan & Aronoff,
P.L.L. in Cleveland, Ohio.
Norman G. Einspruch, 63 Dr. Einspruch has been a director of the
Company since September 1993. He has been a
Professor of Electrical and Computer
Engineering at the University of Miami since
1977 and has been Chairman of the Department
of Industrial Engineering since June 1994.
In addition, Dr. Einspruch has been Senior
Fellow in Science and Technology since 1990
and was Dean of the College of Engineering at
the University of Miami from 1977 to 1990.
Dr. Einspruch is also a director of Ogden
Corporation.
Ronald A. Howard, 40 Mr. Howard has been a director of the Company
Executive Vice President since October 1995. Mr. Howard was named
President of Datability Networks Division in
November 1994, having served as Co-President
of the division from May 1993 until November
1994. He has held the position of Executive
Vice President of the Company since May 1993.
Mr. Howard was President of Datability Inc.
from its founding in 1977 until it was
acquired by the Company in May 1993.
Class II - Term expiring at the 1997 Annual Meeting:
John P. Lowe, Jr., 44 Mr. Lowe has been a director of the Company
since March 1987. Mr. Lowe has been Of
Counsel to the Adair Law Firm in Rochester,
New York and at the law firm of Bureau
Francis Lefebvre in New York, New York since
January 1995. Prior to January 1995 Mr. Lowe
had been a member of the law firm of Bureau
Francis Lefebvre since 1989.
<PAGE>
Michael H. Newlin, 69 Mr. Newlin has been a director of the Company
since December 1991. Since April 1994, Mr.
Newlin has served as a consultant to Jupiter
Corporation of Wheaton, MD and Meridan
Corporation of Alexandria, VA. He was Acting
Deputy Assistant Secretary of State, Bureau
of Political-Military Affairs, Department of
State from November 1992 to February 1994.
From February 1992 through October 1992 he
was Deputy Executive Chairman, UN Special
Commission on Iraq-UN Headquarters New York.
From October 1991 through January 1992, Mr.
Newlin was a consultant to the United States
Department of State. From 1988 through 1991,
Mr. Newlin was United States Ambassador to
United Nations Organization in Vienna and
served as United States Ambassador to Algeria
from 1981 to 1985.
The Board of Directors held eight meetings and took action by
unanimous written consent on one occasion during its fiscal year ended
July 31, 1995. Each director attended all of the meetings of the
Board and of all committees of the Board on which he served. Board
members receive an annual stipend of $9,000 and fees of $1,000 per
Board meeting attended, $500 for attendance at a telephonic Board
meeting and $250 for attending a meeting of a committee of the Board
on the same day as a Board meeting. The fee for attending a meeting
of a Board committee on a day other than a day on which the Board is
meeting is $500. Directors who are employed by the Company are
eligible for the annual Board stipend, but are ineligible for the per
meeting fee paid to outside directors. In addition, non-employee
directors participate in the Non-Employee Directors' Stock Option Plan
(the "Directors' Plan"). Under the Directors' Plan, an option to
purchase 24,000 shares of the Company's Common Stock is automatically
granted on the first day of each director's initial term and options
to purchase additional shares are granted automatically in each of the
next seven years. No director may receive options to purchase more
than 51,000 shares of Common Stock in the aggregate. The exercise
price for all options granted under the Directors' Plan is the fair
market value of the Common Stock on the date of grant; the options
vest over a period of three years and may not be exercised more than
ten years from the date of grant.
The Board has an Audit Committee consisting of Mr. Schneider, Mr.
Newlin and Dr. Einspruch. The primary functions of the Audit
Committee are the review and consideration of matters relating to the
internal and external audits of the Company's accounts and its
financial affairs, and the maintenance of communications between the
Board and the Company's independent auditors. The Audit Committee met
twice in fiscal 1995.
The Board also has a Stock Option/Compensation Committee
consisting of Mr. Margolis, Mr. Schneider, Mr. Lowe, Mr. Newlin and
Dr. Einspruch. The primary functions of the Stock Option/Compensation
Committee are to consider and award stock options, to determine the
compensation and benefits of the Chief Executive Officer of the
Company and to review and approve, or modify if deemed appropriate,
the recommendations of the Chief Executive Officer with respect to the
compensation and benefits of the other executive officers. The Stock
Option/Compensation Committee met three times during fiscal 1995 and
took action by unanimous written consent on five occasions.
<PAGE>
The Board of Direction does not have a nominating committee.
COMMON STOCK OWNERSHIP
The following table sets forth, as of February 5, 1996, based in
part on information provided to the Company by the persons named in
the table, the number of shares of Common Stock beneficially owned by
each director, each executive officer named in the Summary
Compensation Table on page 10 of this Proxy Statement and by the
directors and executive officers of the Company as a group, and by the
persons or groups of persons known to management to be the beneficial
owners of more than 5% of the Common Stock.
Amount and
Name and Address Nature of Beneficial Percentage
of Beneficial Owner Ownership (1) Ownership
- ------------------------- ------------------- -------------
Directors and Executive Officers:
Henry David Epstein
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878 848,149 (2) 8.7%
Norman G. Einspruch
P.O. Box 248581
Coral Gables, Florida 33124 16,000 (3) (4)
John P. Lowe, Jr.
30 Corporate Woods
Suite 200
Rochester, New York 14623 42,000 (3) (4)
Richard D. Margolis
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378 42,000 (3) (4)
Michael H. Newlin
6517 Wilmett Road
Bethesda, Maryland 20817 30,000 (3) (4)
<PAGE>
Amount and
Name and Address Nature of Beneficial Percentage
of Beneficial Owner Ownership (1) Ownership
- ------------------------- ------------------- -------------
Howard M. Schneider
130 Liberty Street
New York, New York 10006 42,000 (3) (4)
Ronald A. Howard
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878 621,614 (5) 6.4%
Richard D. Rose
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878 25,667 (6) (4)
C.P. Houston
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878 42,667 (6) (4)
David L. Johnson
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878 151,400 (6) 1.6%
All directors and executive officers
as a group
(10 individuals) 1,861,497 (7) 18.3%
Five Percent Shareholders:
Pequot Partners Fund, L.P.,
Pequot Endowment Fund, L.P. and
Pequot International Fund Inc.
354 Pequot Avenue
Southport, CT 06490 1,465,000 (8) 15.2%
J.J. Cramer & Co.
56 Beaver Street, Suite 701
New York, New York 10004 950,050 (9) 9.9%
(1) Includes, in certain instances, shares held in the name of an
executive officer's or director's spouse or minor children, the
reporting of which is required by applicable rules of the
Securities and Exchange Commission, but as to which shares the
executive officer or director may have disclaimed beneficial
ownership.
(2) This figure is composed of 726,029 shares owned directly by Mr.
Epstein, and 72,000 shares which may be acquired from the Company
within 60 days of February 5, 1996 pursuant to the exercise of
options granted under the Company's 1986 Incentive Plan. This
figure also includes 53,120 shares Mr. Epstein transferred to
Henriette Wenkart Epstein but has the right to vote so long as
she is the beneficial owner of such shares, pursuant to a seven
year, irrevocable proxy.
(3) Includes 16,000 shares for Dr. Einspruch, 42,000 shares for
Messrs. Lowe, Schneider, and Margolis and 30,000 shares for Mr.
Newlin which may be acquired from the Company within 60 days of
February 5, 1996, pursuant to the exercise of stock options
granted under the Directors' Plan.
<PAGE>
(4) Less than 1%.
(5) Includes, in addition to shares owned directly by Mr. Howard,
63,000 shares which may be acquired from the Company within 60
days of February 5, 1996 pursuant to the exercise of options
granted under the Company's 1986 Incentive Plan.
(6) Includes only shares which may be acquired from the Company
within 60 days of February 5, 1996, pursuant to the exercise of
options granted under the Company's 1986 Incentive Plan.
(7) Includes, in addition to shares owned by members of the group,
528,734 shares which certain members of the group have the right
to acquire from the Company within 60 days of February 5, 1996
pursuant to the exercise of stock options.
(8) Includes 636,000 shares of Common Stock owned by Pequot Partners
Fund, L.P., a Delaware limited partnership, whose general partner
and investment manager is Pequot General Partners, a Connecticut
general partnership ("General Partners"), 260,000 shares of
Common Stock owned by Pequot Endowment Fund, L.P., a Delaware
limited partnership whose general partner and investment manager
is Pequot Endowment Partners, L.P., a Delaware limited
partnership("Endowment Partners") and 569,000 shares of Common
Stock owned by Pequot International Fund, Inc., a British Virgin
Islands corporation, whose investment manager is DS International
Partners, L.P., a Delaware limited partnership ("International
Partners"). (Pequot Partners Fund, L.P., Pequot Endowment Fund,
L.P. and Pequot International Fund Inc. are collectively referred
to as the "Funds"). General Partners, Endowment Partners and
International Partners (collectively, the "Partners") are the
beneficial owners (as such term is used in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the "Act")) of the
shares of Common Stock owned by the Fund for which they act as
investment manager, respectively. The Partners may be deemed to
constitute a group as such term is used in Section 13(d)(3) of
the Act. Each of the Partners disclaims beneficial ownership of
the Common Stock beneficially owned by the other partners.
(9) Includes 817,550 shares owned by Cramer Partners, L.P. (the
"Partnership") and 132,500 owned by Global Assets Management
("GAM"). J.J. Cramer & Co. acts as an investment adviser and
manager of the Partnership and GAM, and has sole voting and
dispositive power over the 817,550 shares held by the Partnership
and shared dispositive power over the 132,500 shares held by GAM.
GAM has sole voting power and shared dispositive power with
respect to the 132,500 shares it holds.
<PAGE>
James J. Cramer, President of J.J. Cramer & Co. and Karen Cramer,
Vice President of J.J. Cramer & Co. have shared voting and
dispositive power with respect to the 817,550 shares held by the
Partnership and shared dispositive power with respect to the
132,500 shares held by GAM.
Section 16(b) of the Exchange Act requires the Company's
directors, executive officers and persons who own more than 10% of the
Company's Common Stock to file with the SEC initial reports of
ownership and reports of changes in ownership of the Common Stock.
Such persons are required by SEC regulations to provide the Company
with Copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, all Section 16(a)
filing requirements during fiscal year 1995 were complied with, except
that one report covering an open market sale of shares by Mr. Houston
was filed two days late, and two reports covering the open market sale
of shares by Mr. Johnson were filed four days and twenty-one days
late.
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
b. Executive Officers
Set forth below is certain information concerning the executive
officers of the Company other than Messrs. Epstein and Howard.
Name, Age and Position
with the Company Business Experience
- ---------------------- -------------------
Richard D. Rose, 41, Mr. Rose was named Chief Financial
Vice President and Officer of the Company in November 1994.
Chief Financial Officer He has held the position of Vice
President Finance of the Company since
February 1994 and Corporate Controller
since 1988. Mr. Rose was named Vice
President-Controller and Principal
Accounting Officer in December 1990.
C.P. Houston, 54, Mr. Houston was named Vice President-
Vice President Operations of the Penril Datability
Networks Division in November 1994. Mr.
Houston was Vice President-Administrator
of Penril Datability Networks Division,
from 1988 until November 1994. Mr.
Houston was named a Vice President of
the Company in September 1992.
David L. Johnson, 58, Mr. Johnson was Executive Vice President
Executive Vice President of the Company from September 1991 until
January 11, 1996 and until that date
held the office of President of Penril
Electronics, Inc., a wholly owned
subsidiary, from November 1994. Mr.
Johnson resigned from his positions with
the Company and its subsidiary on
January 11, 1996 and left the Company on
January 31, 1996.
<PAGE>
Employment and Other Severance Agreements
The Company entered into an employment agreement with Henry D.
Epstein in 1989 pursuant to which Mr. Epstein is serving as Chairman
of the Board, President and Chief Executive Officer at a salary of
$275,000 per year. In the event that there should be a change in
control of the Company or Mr. Epstein is removed or forced to resign
his position with the Company against his will, other than for cause,
the agreement entitles him to a severance payment equal to two times
Mr. Epstein's cash compensation for the last full fiscal year prior to
termination of his employment.
Ronald A. Howard entered into an employment agreement with the
Company in May 1993 in connection with the Company's acquisition of
Datability, Inc. Mr. Howard is serving as Executive Vice President of
the Company and President of the Penril Datability Networks Division.
In the event Mr. Howard's employment is terminated for any reason
other than death, disability or for cause, the agreement requires the
Company to pay Mr. Howard his annual salary for the remainder of the
term of the agreement. Mr. Howard's employment agreement was amended
effective September 15, 1995 to (i) increase his annual salary from
$200,000 a year to $225,000, (ii) extend the expiration date for one
year to April 30, 1997 and (iii) provide that if the Company is sold
during the term of the employment agreement, Mr. Howard will be
entitled to an amount equal to 2-1/2 times his annual salary.
In January 1995, the Company entered into an agreement with
Richard D. Rose which provides that the Company will pay Mr. Rose a
bonus of $120,000 and guarantee payment of his salary for a period of
one year if the Company is sold while Mr. Rose is an employee of the
Company and if Mr. Rose agrees to remain under the new ownership for a
period of at least one year at his current position or similar
position.
<PAGE>
Compensation
The following tables show information with respect to the annual
compensation for services in all capacities to the Company for the
fiscal years ended July 31, 1995, 1994 and 1993 of those persons who
were, at July 31, 1995 (i) the chief executive officer and (ii) the
other four most highly compensated executive officers of the Company
(the "named executive officers").
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
Name and Restricted Stock Options/ All Other
Principal Position Year Salary Stock Awards(1) SARs(2) Compensation(3)
- ------------------ ---- -------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Henry D. Epstein 1995 $274,997 $ -- -- $11,428
Chairman of the Board 1994 274,997 -- -- 12,018
President and Chief 1993 265,595 -- 120,000 9,942
Executive Officer
Ronald A. Howard (4) 1995 200,000 -- 30,000 5,458
Executive Vice President 1994 203,333 -- -- 250
1993 46,154 -- 90,000 --
Richard D. Rose 1995 125,848 -- 20,000 4,547
Vice President and 1994 115,335 -- 5,000 4,311
Chief Financial Officer 1993 84,235 2,640 15,000 3,646
C.P. Houston 1995 120,290 -- 10,000 250
Vice President 1994 116,847 -- 5,000 250
1993 104,021 3,520 5,000 --
David L. Johnson (5) 1995 200,000 -- -- 26,646
Executive Vice President 1994 200,000 -- -- 1,011
1993 193,752 4,800 90,000 1,004
</TABLE>
(1) On October 1, 1992 a restricted stock award was granted for
1,200 shares to Mr. Johnson, for 880 shares to Mr. Houston,
and for 660 shares to Mr. Rose. The table reflects the fair
market value of such shares on the date of grant. All such
shares vested as to 50% after one year from date of grant
and as to 100% after two years from date of grant, provided,
in each case, the recipient was still employed by the
Company on the vesting dates.
(2) Number of shares granted under the 1986 Incentive Plan. The
options are exercisable at prices ranging from $2.31 to
$4.375 per share, the fair market value at the date of
grant. The Company does not grant SARs.
(3) Includes for fiscal 1995, $250 paid for the benefit of each
of the named executives pursuant to the Company's 401(k)
Plan, except for Mr. Johnson for which the amount paid was
$175. Also includes for Mr. Epstein, Mr. Johnson, and Mr.
Rose, $4,040, $783, $280 respectively, paid under the
Company's Split-Dollar Life Insurance Program and for Mr.
Epstein, Mr. Johnson, Mr. Howard, and Mr. Rose, $7,338,
$1,188, $5,208 and $4,017, respectively, paid to the Exec-U-
Care Medical Insurance Trust. Includes $24,500 paid to Mr.
Johnson as a commission.
(4) Mr. Howard joined the Company in May 1993.
(5) Mr. Johnson left the Company on January 31, 1996.
<PAGE>
<TABLE>
Option/SAR Grants In Last Fiscal Year
% of Total Potential Realizable
Options Value At Assumed Annual Rates
Granted to of Stock Price Appreciation
Option/SARs Employees in Exercise or Market Price on For Option Term(1)
Name Granted Fiscal Year Base Price Date of Grant Expiration Date 5% 10%
- ------------ ----------- -------------- ----------- --------------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry D. Epstein -- -- -- -- -- -- --
Ronald A. Howard 30,000 8.6% $2.875 $2.875 03/02/2005 54,242 137,460
C.P. Houston 10,000 2.9% 2.310 2.310 12/02/2004 14,527 36,815
Richard D. Rose 20,000 5.7% 2.310 2.310 12/02/2004 29,055 73,631
David L. Johnson -- -- -- -- -- -- --
(1) Assumed annual appreciation rates are set by the SEC and are not a forecast of future appreciation. The actual realized
value depends on the market value of the Common Stock on the exercise date, and no gain to the optionees is possible without
an increase in the price of the Common Stock. All assumed values are pre-tax and do not include dividends.
</TABLE>
<PAGE>
Aggregated Option/SAR Exercises In Last Fiscal Year
And Fiscal Year-end Option/SAR Values
<TABLE>
Per Share Value of Unexercised In-
Number of Unexercised Exercise Price The-Money Options/SARs
Shares Options at Fiscal of Unexercised at Fiscal Year-End
Acquired on Value Year-End Exercisable/ Options at Fiscal Exercisable/
Name Exercise Realized Unexercisable(1) Year-End Unexercisable(2)
- -------------- ---------- -------- ---------------------- --------------- -----------------------
<S> <C> <C> <C> <C> <C>
Henry D. Epstein -- -- 72,000/48,000 $4.38 $63,000/42,000
Ronald A. Howard(3) -- -- 54,000/66,000 2.875-4.375 47,250/102,750
Richard D. Rose -- -- 37,167/29,500 2.31-7.50 17,333/62,300
C.P. Houston -- -- 41,167/15,550 2.31-7.50 5,250/35,400
David L. Johnson 25,600 79,303 172,400/36,000 $2.31-4.375 301,846/40,000
(1) Based on the year-end per share closing price of $5.25 (as reported on the National Association of Securities Dealers
Automated Quotation System on July 31, 1995), 10,000 options held by Mr. Houston and 10,000 options held by Mr. Rose were
not in-the-money.
(2) Represents the difference between the option exercise price (if less than $5.25) and $5.25.
(3) On September 8, 1995, Mr. Howard was granted an option under the 1986 Incentive Plan for 250,000 shares
at $7.875 per share.
</TABLE>
Retirement and Savings Plan
The Company's Retirement and Savings Plan ("401(k) Plan") is a defined
contribution plan including provisions of Section 401(k) of the Internal Revenue
Code. Employees of the Company who have completed 90 days of eligibility
service ("Participants") are eligible to participate in the 401(k) Plan. The
401(k) Plan permits, but does not require the Company to make matching
contributions. In addition, the Company may make discretionary contributions to
the 401(k) Plan which will be allocated to each Participant based on the ratio
of such Participant's eligible compensation to the total of all Participants'
eligible compensation. Amounts contributed by the Company vest as to 30% after
1 year of eligible service, 60% after 2 years of eligible service and 100% after
3 years of eligible service. Participants may elect to direct the investment of
their contributions in accordance with the provisions of the 401(k) Plan.
<PAGE>
Report of Stock Option/Compensation Committee
The Company's executive compensation program is administered by the Stock
Option/Compensation Committee (the "Committee") of the Board of Directors.
During fiscal 1995 the Committee was composed of the five non-employee
directors. The primary functions of the Committee are to consider and award
stock options, to determine the compensation and benefits of the Chief Executive
Officer and to review and approve, or modify if deemed appropriate, the
recommendations of the Chief Executive Officer with respect to the compensation
and benefits of the other executive officers.
The Company's compensation program consists of both cash and equity
components. Compensation determinations are guided by the following principles:
(1) the compensation program should provide motivation by emphasizing
performance; (2) the compensation of the Company's executive officers should be
reasonably comparable to and competitive with that offered by similarly situated
companies, and (3) the compensation program should seek to align the interests
of the Company's executive officers with the long-term interests of the
Company's shareholders principally through the granting of stock options. The
goals of the Company's compensation policy are to attract and retain qualified
personnel and to motivate them to enhance the long-term performance of the
Company.
Chief Executive Officer. Henry D. Epstein is serving as the Company's
Chairman of the Board, President and Chief Executive Officer pursuant to an
employment agreement entered into in 1989. The employment agreement provides
that Mr. Epstein's salary may be fixed by the Board of Directors from time to
time and he will be paid such bonus compensation as may be determined by the
Board in its discretion. Since the Committee consists of all of the non-
employee members of the Board, the Board has delegated the determination of Mr.
Epstein's salary and bonus to the Committee. In September 1991 Mr. Epstein's
salary was fixed at $275,000 per year and it remains at that level.
Executive Officers. The Company's salary and bonus program for its
executive officers other than the Chief Executive Officer is presented by the
Chief Executive Officer to the Committee each year and final determinations are
generally made by the Chief Executive Officer with the advice and consent of the
Committee. Factors considered by the Chief Executive Officer in determining
salaries are typically subjective, such as his perception of the individual's
performance, level of responsibility, the Company's financial performance and
compensation in the industry for comparable positions. No specific quantitative
formula is used.
Bonus Plan. Part of the cash component of the Company's compensation
program consists of bonuses paid under the Company's Incentive Bonus Plan.
Availability of awards under the Incentive Bonus Plan are based on increasing
percentages of executives' base salaries, as determined by the achievement of
the percentages of certain goals set forth in the Company's annual budgeted
profit and cash plan. At the beginning of each fiscal year, the Chief Executive
Officer presents to the Committee for its approval his recommendation of the
specific goals and realization formulas for the Incentive Bonus Plan for the
forthcoming fiscal year. The Chief Executive Officer is not a participant in
the Incentive Bonus Plan. At the end of the fiscal year, additional awards may
be made by the Committee if it is determined that an executive has made an
unusual contribution to the Company's success. The Committee did not make any
grants under the Incentive Bonus Plan for fiscal 1995 because the operating
performance of the Company did not meet the specified goals.
<PAGE>
Option Plan. The principal purposes of the 1986 Incentive Plan are to
motivate key employees to increase the Company's profitability and to encourage
them to obtain and hold the Company's stock, thereby aligning the interests of
the employees with those of the shareholders. The 1986 Incentive Plan may also
be used by the Committee in cases where it is believed that due to extraordinary
performance an executive's cash compensation should be supplemented with an
option or restricted stock grant. The Committee, generally on the
recommendation of the Chief Executive Officer, selects those key employees of
the Company and its subsidiaries who are eligible to receive awards.
The number of options granted is determined by a number of subjective
criteria including the optionee's ability to influence the Company's long-term
growth and profitability as well as contributions made by the optionee and the
number and terms of the options already held by the optionee. All options are
granted at the current market price. Since the value of an option bears a
direct relationship to the Company's stock price, it is an effective incentive
for managers to create value for shareholders.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code denies a tax deduction to a
public company for annual compensation in excess of $1 million paid to its chief
executive officer or any of its four other most highly compensated executive
officers unless specified requirements are met. The Committee does not expect
that Section 162(m) will have an effect on the Company in fiscal 1995. The
Committee will from time to time review the potential effects of Section 162(m)
on the Company and in the future may decide to restructure one or more
components of the Company's executive compensation program to comply with the
requirements for deductibility established by Section 162(m).
Respectfully submitted,
John P. Lowe, Jr. Michael H. Newlin Norman G. Einspruch
Richard D. Margolis Howard M. Schneider
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was, during fiscal 1995, an officer
or employee of the Company or of any of its subsidiaries, or formerly an officer
of the Company or of any of its subsidiaries, except that Richard D. Margolis, a
member of the Compensation Committee, is Secretary (but not an employee) of the
Company. Mr. Margolis is a partner in the law firm of Benesch, Friedlander,
Coplan & Aronoff, which firm has performed legal services for the Company since
1974. John P. Lowe, Jr., also a member of the Compensation Committee, has been
Of Counsel to the Adair Law Firm and at the law firm of Bureau Francis Lefebvre-
New York. Mr. Lowe's firm performed a limited amount of legal services for the
Company in fiscal 1995.
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph is a comparison of the cumulative total returns during
the preceding five fiscal year period for the Company, the NASDAQ Stock Market
(U.S. Companies) Index and the Hambrecht & Quist Technology Index assuming an
initial investment of $100 of July 31, 1990 and the reinvestment of all
dividends when received.
Years Ended Penril Datacomm H&Q NASDAQ
July 31, Networks, Inc. Technology Stock Market
- ------------- --------------- ----------- ------------
1990 100.00 100.00 100.00
1991 140.00 115.12 118.07
1992 75.56 129.89 138.72
1993 68.89 143.94 168.67
1994 71.11 159.68 173.65
1995 93.33 279.97 242.94
<PAGE>
APPROVAL OF 1995 LONG-TERM INCENTIVE PLAN
The Board of Directors of the Company adopted the 1995 Long-Term Incentive
Plan (the "Plan") on December 13, 1995 subject to shareholder approval. The
plan is intended to encourage ownership of the Company's common stock ("Common
Stock") by officers and other key employees of the Company, to encourage their
continued employment with the Company and to provide them with additional
incentives to promote the success of the Company. The Board of Directors
believes that the availability of options under a long term incentive plan is an
important factor in attracting, retaining and motivating qualified officers and
employees in high technology companies and is essential to the successful future
of the Company. The Plan is intended to replace the Company's 1986 Incentive
Plan which expires in October 1996. At the date hereof no Awards have been
issued under the Plan.
The Plan authorizes the grant to officers and key employees of the Company
and its subsidiaries of awards ("Awards") consisting of "incentive stock
options," as that term is defined under the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended, (the "Code"), non-qualified stock
options and restricted stock awards. There are 1,000,000 shares of Company
Stock available for granting Awards under the Incentive Plan. The Stock
Option/Compensation Committee of the Board of Directors of the Company (the
"Committee") will administer the Plan and will have sole discretion to determine
those employees to whom Awards will be granted, the number of Awards granted,
the provisions applicable to each Award and the time period during which Awards
may be exercisable.
Stock Options
The Committee may grant incentive stock options, non-qualified stock
options, or a combination of the two. The exercise price of each incentive
stock option granted under the Plan may not be less than the fair market value
of the Company Stock on the date of grant. The exercise price of each incentive
stock option granted to any shareholder possessing more than 10% of the combined
voting power of all classes of capital stock of the Company, or, if applicable,
a parent or subsidiary of the Company (a "10% Shareholder"), on the date of
grant must not be less than 110% of the fair market value on that date. Unless
the Committee determines otherwise, the option price per share of any non-
qualified stock option will be the fair market value of the shares of Company
Stock on the date the option is granted. Under the Plan, fair market value is
generally the closing price of the Company Stock on NASDAQ on the last business
day prior to the date of which the value is to be determined.
Options granted will be exercisable for a term of not more than ten years
from the date of grant, five years in the care of a 10% Shareholder. In
addition, no employee may be granted an incentive stock option to the extent the
aggregate fair market value, as of the date of grant, of the stock with respect
to which incentive stock options are first exercisable by such employee during
any calendar year exceeds $100,000.
<PAGE>
Restricted Stock
Restricted stock awards are rights granted by the Committee to receive
shares of Company Stock subject to forfeiture and other restrictions determined
by the Committee. Until the restrictions with respect to any restricted stock
award lapse, the shares will be held by the Company and may not be sold or
otherwise transferred by the employee. Except as otherwise determined by the
Committee, (a) until the restrictions lapse, the shares will be forfeited if the
employee's employment is terminated for any reason other that death, disability
or retirement on or after the employee's attainment of 65 years of age and (b)
all restrictions will lapse upon the earliest of the death, disability or
retirement of the recipient employee on or after the employee's attainment of 65
years of age.
Award, Generally
Awards granted under the Plan will be subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend, or other similar event affecting the
Company Stock. An Award will not be transferable, other than by will or the
laws of descent and distribution or, in certain circumstances, pursuant to a
qualified domestic relations order, and an Award may be exercised, during the
lifetime of the holder of the Award, only by the holder, or the holder's
personal representative in the event of disability.
In the case of a "change in control" of the Company (as defined in the
Plan), each Award granted under the Plan will terminate 90 days after the
occurrence of such change in control, but, in the event of any such termination
(i) an option holder will generally have the right, commencing at least five
days prior to the change in control and subject to any other limitation on the
exercise of the option in effect on the date of exercise other than vesting, to
immediately exercise any options in full to the extent they previously have not
been exercised and (ii) restricted stock awards will vest.
Amendment and Termination of the Plan
The Plan may be amended by the Board of Directors of the Company, provided
that stockholder approval will be necessary as required under Section 422 of the
Code or Rule 16b-3 of the regulations under the Exchange Act, and provided
further that no amendment may impair any rights of any holder of an Award
previously granted under the Plan without the holder's consent.
The Plan will terminate on December 13, 2005, and Awards may not be granted
under the Plan after that date, although the terms of any Award may be amended
in accordance with the Plan at any date prior to the end of the term of such
Award. As is the case with the 1986 Incentive Plan, any Awards outstanding at
the time of termination of the Plan will continue in full force and effect
according to the terms and conditions of the Award and the Plan.
<PAGE>
Certain Federal Income Tax Consequences
The following is a brief summary of certain of the federal income tax
consequences of the grant and exercise or vesting of Awards to the Company and
participants in the Plan under currently applicable provisions of the Code.
This summary is not intended to be exhaustive and does not describe the special
rules that may apply to persons subject to Section 16 of the Exchange Act.
Non-Qualified Stock Options. The issuance of a non-qualified stock
option under the Plan will not result in any taxable income to the
recipient employee or a tax deduction to the Company at the time of grant.
The employee would generally recognize ordinary income in the year the
option is exercised in an amount equal to the difference between the option
price and the fair market value of the Company Stock on the exercise date.
The Company would generally receive an equivalent deduction for federal
income tax purposes for the year in which the employee recognizes such
income. If the employee later sells the stock, any further gain would be
capital gain an any subsequent loss would be capital loss.
Incentive Stock Options. In general, no income to an employee results
for federal income tax purposes upon either the granting or the exercise of
an incentive stock option under the Plan. However, the difference between
the fair market value of the Company Stock on the date of exercise and the
option price is a tax preference item which may cause the employee to
recognize an alternative minimum tax liability in the year of exercise. If
the employee later sells the acquired stock at least two years after the
date the option is granted and at least one year after the transfer of the
acquired stock to the employee, the employee would generally recognize
capital gain or loss equal to the difference between the option price and
the proceeds of the sale. In such case, the Company would not be entitled
to any tax deduction with respect to the grant or exercise of the option.
If the employee disposes of the acquired stock before the end of the
required holding periods, the employee would generally recognize ordinary
income in the year of disposition equal to the lesser of:(i) the difference
between the option price and the fair market value of the Company Stock on
the exercise date; or (ii) if the disposition is a taxable sale or
exchange, the amount of gain realized. Any remaining gain would be taxed
to the employee as capital gain. In this event, the Company would
generally receive an equivalent deduction for federal income tax purposes
for the year in which the employee recognizes such income.
Restricted Stock Awards. Unless a recipient of a restricted stock
Award elects to be taxed on the date of grant, the employee would generally
recognize ordinary income in the year the shares of Company Stock covered
by the Award first become transferable or are no longer subject to a
substantial risk of forfeiture, in an amount equal to the excess of the
fair market value of the shares on that date and the amount if any, paid
for the shares. The Company would generally receive an equivalent
deduction for federal income tax purposes for the year in which the
employee recognizes such income. If the employee later sells the stock,
any further gain would be capital gain and any loss would be capital loss.
<PAGE>
Limitation on Company Deduction. Section 162(m) of the Code will
generally limit to $1.0 million the Company's federal income tax deduction
for compensation paid in any year to its chief executive officer and its
four highest paid executive officers, to the extent that such compensation
is not "performance based." A stock option will, in general, qualify as
"performance based" compensation if it (i) has an exercise price of not
less than the fair market value of the underlying stock on the date of
grant, (ii) is granted under a plan that limits the number of shares for
which options may be granted to an employee during any one year, which plan
is approved by a majority of the shareholders entitled to vote thereon, and
(iii) is granted by a compensation committee consisting solely of at least
two independent directors. The terms of the Plan are intended to comply
with the requirements relating to stock options. Restricted stock Awards,
however, will not generally qualify as "performance based" compensation
unless the vesting or purchase of the restricted stock Award is solely
contingent upon satisfying a separate performance goal. If an Award of a
stock option or restricted stock to an executive referred to above is not
"performance based," the amount that would otherwise be deductible by the
Company in respect of such Award will be disallowed to the extent that the
executive's aggregate non-performance based compensation paid in the
relevant year exceeds $1.0 million.
The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote at the Meeting is
required for the approval of the Company's 1995 Long-Term Incentive Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE IN FAVOR OF THE
PROPOSAL TO APPROVE THE COMPANY'S 1995 LONG-TERM INCENTIVE PLAN, WHICH IS
DESIGNATED IN THE PROXY AS ISSUE 2.
INDEPENDENT PUBLIC ACCOUNTANTS
The public accounting firm of Deloitte & Touche was selected by the Board
of Directors to be the Company's independent public accountants for fiscal 1995,
and has been appointed to continue in such capacity for the current fiscal year.
A representative of Deloitte & Touche is expected to be present at the Annual
Meeting, and will have an opportunity to respond to appropriate questions and
make a statement if he or she so desires.
<PAGE>
OTHER MATTERS
All expenses of the Company in connection with this solicitation will be
borne by the Company. Solicitation will be made principally by mail, but
officers and regular employees may solicit proxies by telephone or personal
contact with nominal expense to the Company. The Company will request brokers
and other nominees who hold Common Stock in their names to solicit proxies from
the beneficial owners and will pay the standard charges and expenses associated
therewith.
The Company intends to hold its 1996 Annual Meeting in March 1997. In
order for a shareholder proposal to be included in next year's proxy statement,
it must be received by the Secretary of the Company at its executive offices,
1300 Quince Orchard Boulevard, Gaithersburg, Maryland 20878, not later than
October 17, 1996.
The Management of the Company knows of no other matter that may come before
the Meeting. If other matters properly come before the Meeting, it is intended
that proxies in the accompanying form will be voted thereon in accordance with
the best judgment of the person voting the proxies.
By Order of the Board of Directors
RICHARD D. MARGOLIS, Secretary
Gaithersburg, Maryland
February 26, 1996
PENRIL DATACOMM NETWORKS, INC.
This Proxy is solicited on Behalf of the Board of Directors
Annual Meeting of Shareholders To Be Held April 10, 1996
The undersigned appoints each of C.P. Houston and Richard D. Rose, each
with the power to appoint his substitute, as proxies of the undersigned, and
hereby authorizes them to represent and to vote, as designated below, all of
the shares of Common Stock of Penril DataComm Networks, Inc. held of record by
the undersigned on February 19, 1996, at the Annual Meeting of Shareholders of
Penril DataComm Networks, Inc. to be held on April 10, 1996.
The Board of Directors recommends a vote FOR both nominees for director
named below and FOR approval of the adoption of the Company's 1995
Long-Term Incentive Plan.
1. Election of Directors FOR Henry David Epstein WITHHOLD AUTHORITY
and for each nominee whose
Howard M. Schneider[ ] name is written on the
line below[ ]
2. To approve the adoption of the Company's 1995 Long-Term Incentive Plan.
FOR [ ] AGAINST [ ]
3. In their discretion, the proxies are authorized to vote on such other
business as may properly come before the meeting and any adjournment
thereof.
(continued and to be signed on reverse side)
(continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR BOTH NOMINEES FOR DIRECTOR, AND FOR
APPROVAL OF THE 1995 LONG-TERM INCENTIVE PLAN.
Please sign exactly as name appears at left. When shares are held by
joint tenants, both should sign. When signed as 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 partnership
name by any authorized person.
- ----------------------------
Signature
- ----------------------------
Signature, if held jointly
Dated: , 1996
---------------------------------
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
