<PAGE> 1
CONFIDENTIAL; FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
APPLIED INNOVATION INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(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 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
APPLIED INNOVATION INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
APRIL 24, 1997
AND
PROXY STATEMENT
================================================================================
IMPORTANT
PLEASE MARK, SIGN AND DATE YOUR PROXY AND
PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE> 3
APPLIED INNOVATION INC.
5800 Innovation Drive
Dublin, Ohio 43016
(614) 798-2000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 24, 1997
March 24, 1997
To the Stockholders of Applied Innovation Inc.:
NOTICE is hereby given that the Annual Meeting of Stockholders of
Applied Innovation Inc., a Delaware corporation (the "Company"), will be held at
5800 Innovation Drive, Dublin, Ohio, on Thursday, the 24th day of April, 1997,
at 9:00 a.m., local time, for the following purposes:
1. To elect two Class I directors, each for a three-year term
expiring at the Annual Meeting of Stockholders in 2000.
2. To ratify the selection of KPMG Peat Marwick LLP as the
Company's independent auditors for the 1997 fiscal year.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Owners of Common Stock of the Company of record at the close of
business on March 13, 1997, will be entitled to vote at the meeting.
Whether or not you plan to attend the meeting, please date, sign and
mail the enclosed proxy in the envelope provided.
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1996, is enclosed herewith. Thank you for your cooperation and
support.
By Order of the Board of Directors
Gerard B. Moersdorf, Jr.
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 4
APPLIED INNOVATION INC.
5800 Innovation Drive
Dublin, Ohio 43016
(614) 798-2000
March 24, 1997
PROXY STATEMENT
FOR
1997 ANNUAL MEETING OF STOCKHOLDERS
INTRODUCTION
This Proxy Statement is furnished to the stockholders of Applied
Innovation Inc., a Delaware corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company of proxies to be used at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Company's offices, 5800 Innovation Drive, Dublin, Ohio, on April 24, 1997, at
9:00 a.m., local time, and at any adjournment thereof. The Proxy Statement and
the enclosed proxy are being mailed to the stockholders on or about the date set
forth above.
All shares represented by properly executed proxies received by the
Board of Directors pursuant to this solicitation will be voted in accordance
with each stockholder's directions specified on the proxy or, in the absence of
specific instructions to the contrary, will be voted in accordance with the
Board of Directors' unanimous recommendations, which are FOR the election of
James H. Blough and Richard W. Oliver as Class I Directors of the Company; FOR
the ratification of the selection of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year 1997; and, at the discretion of the
persons acting under the proxy, to transact such other business as may properly
come before the meeting or any adjournment thereof. A proxy may be revoked,
without affecting any vote previously taken, by written notice mailed to the
Company (attention Gerard B. Moersdorf, Jr.) or delivered in person at the
meeting, by filing a duly executed, later dated proxy, or by attending the
meeting and voting in person. Proxies marked as abstaining will be treated as
present for purposes of determining a quorum at the Annual Meeting, but will not
be counted as voting on the item for which the abstention is noted. Proxies
returned by brokers on behalf of shares held in street name will not be treated
as present for purposes of determining a quorum for the Annual Meeting unless
they are voted by the broker on at least one matter on the agenda. Such
non-voted shares will not be counted as voting on any matter as to which a
non-vote is indicated on the broker's proxy.
1
<PAGE> 5
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
VOTING RIGHTS
Only stockholders of record at the close of business on March 13, 1997,
are entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. Each stockholder is entitled to one vote for each share held. At March
13, 1997, the Company had 15,772,832 outstanding shares of Common Stock, $.01
par value. There are no cumulative voting rights in the election of directors.
OWNERSHIP OF COMMON STOCK BY PRINCIPAL SHAREHOLDERS
The following table sets forth information as of March 3, 1997 (except as
noted below), relating to the beneficial ownership of Common Stock by each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF NUMBER OF SHARES OF
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) CLASS(3)
- ------------------------------------ ------------------------------ -----------------
<S> <C> <C>
Gerard B. Moersdorf, Jr. 6,552,904 (4) 41.5%
Linda S. Moersdorf 6,552,904 (4) 41.5%
</TABLE>
- ------------------------------------
(1) The address of Gerard B. Moersdorf, Jr. and Linda S. Moersdorf is c/o
Applied Innovation Inc., 5800 Innovation Drive, Dublin, Ohio 43016.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to those securities.
(3) "Percentage of Class" is calculated by dividing the number of shares
beneficially owned by the total number of outstanding shares of the
Company on March 3, 1997 plus the number of shares such person has the
right to acquire within 60 days of March 3, 1997.
(4) Gerard B. Moersdorf, Jr. and Linda S. Moersdorf are husband and wife.
Under the rules of the Securities and Exchange Commission, each may be
deemed to beneficially own the shares of the other; consequently, the
number reported in the table above for each includes 5,558,188 shares
held of record by Mr. Moersdorf, 775,716 shares held of record by Mrs.
Moersdorf, 183,000 shares held by their children, and 36,000 shares
which could be acquired by Mrs. Moersdorf under stock options
exercisable within 60 days of March 3, 1997. Mr. and Mrs. Moersdorf
each expressly disclaim beneficial ownership of shares held by the
other.
2
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 3, 1997, the beneficial
ownership of the Company's Common Stock by each director, each of the Company's
executive officers named in the Summary Compensation Table, and by all directors
and executive officers as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE
------------------------ BENEFICIALLY OWNED(1) OF CLASS(2)
--------------------- -----------
<S> <C> <C>
Gerard B. Moersdorf, Jr.(3) 6,552,904 41.5%
Gerard B. Moersdorf, Sr.(4) 76,400 *
Curtis A. Loveland(5) 103,600 *
James H. Blough(6) 54,000 *
Richard W. Oliver(7) 55,000 *
James K. Hinderliter(8) 21,352 *
Thomas W. Huseby 500 *
Lawrence H. Corbett 1,682 *
All directors and executive officers 6,913,091 43.0%
as a group (9 persons)(9)
- ------------------------------------
</TABLE>
(1) For purposes of the above table, a person is considered to
"beneficially own" any shares with respect to which he exercises
sole or shared voting or investment power or as to which he has
the right to acquire the beneficial ownership within 60 days of
March 3, 1997. Unless otherwise indicated, voting power and
investment power are exercised solely by the person named above or
shared with members of his household.
(2) "Percentage of Class" is calculated on the basis of the number of
shares outstanding on March 3, 1997, or 15,772,832 shares, plus
the number of shares a person has the right to acquire within 60
days of March 3, 1997. An "*" indicates less than 1%.
(3) Includes 5,558,188 shares held of record by Mr. Moersdorf, 775,716
shares held by Mr. Moersdorf's wife, 183,000 shares held by their
children, and 36,000 shares which could be acquired by Mrs.
Moersdorf under stock options exercisable within 60 days of March
3, 1997. Mr. and Mrs. Moersdorf each expressly disclaim beneficial
ownership of shares held by the other.
(4) Includes 22,400 shares held by Mr. Moersdorf, Sr. as trustee of a
trust and 54,000 shares which may be purchased under stock options
exercisable within 60 days of March 3, 1997.
(5) Includes 30,600 shares held in Mr. Loveland's Keogh and IRA
accounts, 72,000 shares which may be purchased under stock options
exercisable within 60 days of March 3, 1997, and 1,000 shares held
by Mr. Loveland's children.
3
<PAGE> 7
(6) Includes 54,000 shares which may be purchased under stock options
exercisable within 60 days of March 3, 1997.
(7) Includes 1,000 shares held of record by Mr. Oliver and 54,000
shares which may be purchased under stock options exercisable
within 60 days of March 3, 1997.
(8) Includes 1,352 shares held of record by Mr. Hinderliter and 20,000
shares which may be purchased under stock options exercisable
within 60 days of March 3, 1997.
(9) Includes 47,653 shares for John M. Spiegel, of which 22,000 are
shares which may be purchased under stock options exercisable
within 60 days of March 3, 1997.
ELECTION OF DIRECTORS
The Board of Directors has designated James H. Blough and Richard W.
Oliver for election as Class I Directors of the Company, each to serve for a
term of three years and until their successors are duly elected and qualified.
The shares represented by the enclosed proxy, if returned duly executed and
unless instructions to the contrary are indicated thereon, will be voted FOR the
nominees. If for any reason a nominee should not be a candidate for election at
the time of the meeting, the proxies may be voted for a substitute nominee in
the discretion of those named as proxies. The Board of Directors has no reason
to believe that any nominee will be unavailable. The election of each nominee
requires the favorable vote of a plurality of all votes cast by the holders of
Common Stock. Abstentions and broker non-votes are not counted in the election
of directors and thus have no effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH NOMINEE FOR CLASS I DIRECTOR.
The following table sets forth (i) the nominees for election as Class I
Directors of the Company, and (ii) the Class II and Class III Directors of the
Company whose terms in office will continue. Each director has held the
occupation indicated for more than the past five years unless otherwise
indicated.
4
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NAME AND AGE SINCE PRINCIPAL OCCUPATION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOMINEES - TERMS TO EXPIRE 2000 (CLASS I)
James H. Blough, 65 1993 Retired as National Sales Manager for Chemicals Division of
Procter & Gamble Distributing Company, Cincinnati, Ohio.
Richard W. Oliver, 50 1993 Professor of Management at the Owen Graduate School of
Management, Vanderbilt University, Nashville, Tennessee,
since September 1992. From 1977 to September 1992, Mr.
Oliver served in various marketing capacities, including as
Vice President, Business and Residential Services, Vice
President, Corporate Marketing and special assistant to the
Chairman and Chief Executive Officer, for Northern Telecom
Ltd. Mr. Oliver is also a director of Communications Central,
Inc., a company which has a class of equity securities
registered pursuant to the Securities Exchange Act of 1934.
CONTINUING DIRECTORS - TERMS TO EXPIRE 1998 (CLASS II)
Curtis A. Loveland, 50 1991 Partner, Porter, Wright, Morris & Arthur, Attorneys at Law,
since 1979 and Secretary of the Company since April 1992.
Mr. Loveland is also a director of Rocky Shoes & Boots, Inc.
and of Danninger Medical Technology, Inc., both companies
which have a class of equity securities registered pursuant to
the Securities Exchange Act of 1934.
Gerard B. Moersdorf, Sr., 67 1987 Retired as Export Manager of Industrial Chemical Sales
Division of Procter & Gamble Distributing Company, Cincinnati,
Ohio. Gerard B. Moersdorf, Sr. is the father of Gerard B.
Moersdorf, Jr., President, Chief Executive Officer, Treasurer
and a director of the Company.
Thomas W. Huseby, 58 1996 Retired as director of Network Systems Division of Lucent
Technologies.
CONTINUING DIRECTOR - TERMS TO EXPIRE 1999 (CLASS III)
Gerard B. Moersdorf, Jr., 44 1986 Director, President, Chief Executive Officer and Treasurer of
the Company since 1986.
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company had a total of six meetings
during 1996. No director attended fewer than 75% of the meetings of the Board of
Directors. The Board of Directors has an Audit Committee and a Stock Option and
Compensation Committee.
5
<PAGE> 9
In 1996, the members of the Audit Committee were Curtis A. Loveland,
Gerard B. Moersdorf, Sr., and Ledo A. Ross. Mr. Ross resigned from his position
as a director of the Company effective March 2, 1997. As of March 24, 1997, the
Board of Directors of the Company had not appointed a replacement to the Audit
Committee for Mr. Ross. The Audit Committee oversees the work of the internal
accounting staff and external auditors and met twice during 1996. All members of
the Audit Committee attended both meetings.
In 1996, the members of the Stock Option and Compensation Committee
were James H. Blough, Richard W. Oliver and Ledo A. Ross. Mr. Ross resigned from
his position as a director of the Company effective March 2, 1997. Mr.
Moersdorf, Sr. has replaced Mr. Ross on the Stock Option and Compensation
Committee. The Committee has the authority and responsibility to determine and
administer the Company's compensation policies and to establish the salaries of
executive officers, the formula for bonus awards to executive officers, and the
grant of stock options under the Company's stock option plan. The Committee met
once during 1996, and all members of the Committee attended the meeting.
EXECUTIVE OFFICERS
The officers of the Company are elected annually by the Board of
Directors and serve at the pleasure of the Board. In addition to Gerard B.
Moersdorf, Jr., President, Treasurer and Chief Executive Officer, and Curtis A.
Loveland, Secretary, the following persons are officers of the Company.
LAWRENCE H. CORBETT, age 61, has served as Senior Vice President of
Sales and Marketing for the Company since June 1995. His previous experience
includes serving as Senior Director, Product Line Management, for Alcatel
Network Systems from 1989 until joining the Company.
JAMES K. HINDERLITER, age 38, has served as Vice President of Sales for
the Company since February 1995. Mr. Hinderliter joined the Company in December
1990 as a Regional Sales Manager and was promoted to National Sales Manager in
January 1994. Prior to joining the Company, he served as Manager of Distribution
Sales for Capetronic U.S.A.
JOHN M. SPIEGEL, age 33, joined the Company in May 1992 and serves as
Comptroller. His previous experience includes serving as Manager with Clark,
Schaefer, Hackett & Company from January 1987 until joining the Company. Mr.
Spiegel is a Certified Public Accountant.
6
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's Chief Executive Officer, and the only other executive officers of the
Company whose combined salary and bonus exceeded $100,000 for fiscal year ended
December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------------- --------------------
Restricted
Name and Fiscal Other Annual Stock All Other
Principal Position Year Salary(1) Bonus Compensation Awards Options # Compensation
------------------ ---- ------ ----- ------------ ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerard B. Moersdorf, Jr., 1996 $238,500 -- -- -- -- --
Chairman, President, 1995 $225,000 $16,875 -- $19,163(2) -- $13,068(3)
Treasurer and CEO 1994 $135,000 $50,625 -- $65,360(2) -- $13,107(3)
Lawrence H. Corbett(4) 1996 $132,500 $11,042 $ 500 -- -- --
Senior Vice President- 1995 $ 73,077 $ 5,481 $25,000 $ 6,223(2) -- --
Sales and Marketing
James K. Hinderliter, 1996 $ 95,000 $73,438 -- -- -- --
Vice President - Sales 1995 $ 85,000 $41,783 -- $ 2,409(2) -- $ 8,068(3)
1994 $167,586 $39,525 -- $12,920(2) 40,000 $ 6,567(3)
</TABLE>
(1) The dollar amount in the salary column for Mr. Hinderliter in 1994
includes sales commissions.
(2) For 1994, represents the value of 5,504 and 1,088 shares of restricted
stock received by Mr. Moersdorf and Mr. Hinderliter, respectively, on
March 15, 1995, pursuant to the Company's 1994 Officer and Manager
Compensation Plan, based upon the closing price of $11.875 per share,
on March 15, 1995. For 1995, represents the value of 2,100, 264, and
682 shares of restricted stock received by Mr. Moersdorf, Mr.
Hinderliter, and Mr. Corbett, respectively, on March 15, 1996, pursuant
to the Company's 1995 Officer and Manager Compensation Plan, based upon
the closing price of $9.125 per share, on March 15, 1996.
(3) Represents the amount of the contribution by the Company under the
Company's 401(k) Plan and Trust. The amount of the contribution for the
1996 fiscal year has not yet been determined.
(4) Mr. Corbett joined the Company in June 1995.
7
<PAGE> 11
AGGREGATED OPTION EXERCISES AND FISCAL
YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
SHARES VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON REALIZED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
NAME EXERCISE (#) ($) OPTIONS AT FISCAL YEAR END FISCAL YEAR END ($)(1)
--------------------------- ---------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ------------ ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerard B. Moersdorf, Jr. -- -- -- -- -- --
Lawrence H. Corbett -- -- -- -- -- --
James K. Hinderliter -- -- 20,000 20,000 -0- -0-
</TABLE>
- ---------------------------------
(1) Represents the total gain which would have been realized if all
in-the-money options held at fiscal year-end had been exercised,
determined by multiplying the number of shares underlying the options by
the difference between the per share option exercise price and per share
fair market value at year-end. An option is in-the-money if the fair
market value of the underlying shares exceeds the exercise price of the
option.
COMPENSATION OF DIRECTORS
The Company has granted options under the Company's 1986 Non-Statutory
Stock Option Plan (the "1986 Non-Statutory Plan") to independent directors each
fiscal year since 1987 in lieu of cash compensation for service on the Board of
Directors. In 1993, the Non-Statutory Plan was amended by Board and shareholder
action to provide for, among other things, the automatic grant to each
nonemployee director of the Company on the date of the April meeting of the
Board of Directors each year, beginning in 1994. Such options will be
exercisable at any time for a period of five years from the first anniversary of
the date of grant and will have an exercise price equal to the fair market value
of the Company's Common Stock on the date of grant. Pursuant to this provision,
on April 25, 1996, James H. Blough, Curtis A. Loveland, Gerard B. Moersdorf,
Sr., Richard W. Oliver and Ledo A. Ross each received an option to purchase
18,000 shares of Common Stock of the Company exercisable during a period of five
years from the first anniversary of the date of grant at a price of $12.75 per
share.
Beginning in 1997, pursuant to the Company's 1996 Stock Option Plan,
each of the independent directors will be granted an option to purchase 9,000
shares of Common Stock of the Company on March 1 of each year. Additionally,
each director will receive $1,000 for each Board of Directors meeting attended
and $500 for each committee meeting attended, provided such committee meeting is
not on the same day as a Board of Directors meeting.
RELATED PARTY TRANSACTIONS
The Company has entered into a consulting contract with Mr. Oliver, a
director of the Company, pursuant to which Mr. Oliver provides marketing,
technology and strategy consulting to the Company. Under this arrangement, the
Company paid Mr. Oliver $37,000 in 1996 for his consulting services.
Mr. Loveland, a director and Secretary of the Company, is a partner in
the law firm of Porter, Wright, Morris & Arthur, which firm serves as general
counsel to the Company.
8
<PAGE> 12
The Company believes that all terms of the transactions and existing
arrangements set forth above are no less favorable to the Company than similar
transactions and arrangements which might have been entered into with unrelated
parties.
The following Board Compensation Committee Report on Executive
Compensation and Performance Graph will not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any of the Company's filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and will not
otherwise be deemed filed under such Acts.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee (the "Committee") reviews
and evaluates individual executive officers and determines the compensation for
each executive officer. In general, compensation is designed to attract and
retain qualified key executives, reward individual performance, relate
compensation to Company goals and objectives and enhance shareholder value.
Prior to 1994, compensation for executive officers included base salary
and stock option awards. Base salary was reviewed annually in light of the
Committee's perception of individual performance and performance of the Company
as a whole. No specific weight was given to any of these factors in the
evaluation of an executive officer's base salary. Beginning with fiscal 1994,
the Committee established in advance a formula for determining the amount of
bonus to be paid to senior executive officers pursuant to the Company's 1994
Officer and Manager Compensation Plan. In fiscal 1995, the Committee again
established a formula for determining the amount of bonus to be paid to senior
executive officers pursuant to the Company's 1995 Officer and Manager
Compensation Plan.
The 1996 Officer and Manager Compensation Plan (the "1996 Plan") was
adopted by the Board of Directors and approved by shareholders at the 1996
Annual Meeting. The 1996 Plan had both a short-term and long-term incentive
component. It established a total bonus amount equal to a percentage of base
salary, with the percentage increasing based on target levels of pre-tax,
pre-bonus income for 1996. The short-term incentive amount is equal to half of
the total bonus amount and was payable in cash on March 15, 1997 and the
long-term component is payable on the same date in restricted, forfeitable
common stock, with the number of restricted shares based upon one-half of the
total bonus amount divided by 75% of the average closing prices of the Company's
common stock in January and February of 1997. No bonuses were awarded under the
1996 Plan, because target income levels were not obtained.
9
<PAGE> 13
The Committee also awards stock options to executive officers to
encourage share ownership and to give them a stake in the performance of the
Company's stock. The specific number of stock options granted to individual
executive officers is determined by the Committee's perception of relative
contributions or anticipated contributions to overall corporate performance. In
1996, no stock options were granted to executive officers.
Compensation for the named executive officers during the 1996 fiscal
year included base salary and awards under the 1996 Plan. Base salary was
determined by reviewing the previous levels of base salary, perceived level of
individual performance and the overall performance of the Company. No specific
weight was given to any of these factors in the evaluation of base salaries
because each of these factors was considered significant and the relevance of
each varies depending on an officer's responsibilities. To date, Mr. Moersdorf
has received no stock options under any of the Company's stock option plans.
The Budget Reconciliation Act of 1933 amended the Code to add Section
162(m) which bars a deduction to any publicly held corporation for compensation
paid to a "covered employee" in excess of $1,000,000 per year. The Compensation
Committee does not believe that this law will impact the Company because the
current level of compensation for each of the Company's executive officers is
well below the $1,000,000 salary limitation.
Compensation Committee: James H. Blough, Richard W. Oliver, and Gerard
B. Moersdorf, Sr.
10
<PAGE> 14
PERFORMANCE GRAPH
The following graph shows the dollar change in the cumulative total
return performance to holders of the Company's Common Stock with that of the
Nasdaq Stock Market - U.S. Index and the Standard & Poor's Communication
Equipment Manufacturers Index, both of which are published indexes. This
comparison includes the period beginning May 31, 1993 through December 31, 1996.
The Company's Common Stock was registered under the Securities and Exchange Act
of 1934 effective on May 9, 1993. The Company's Common Stock is traded on The
Nasdaq National Market under the symbol "AINN." The comparison of the cumulative
total returns for each investment assumes that $100 was invested in the
Company's Common Stock on May 9, 1993, and in the respective index on May 31,
1993, and that all dividends were reinvested.
[GRAPH]
<TABLE>
<CAPTION>
May-93 Dec-93 Dec-94 Dec-95 Dec-96
<S> <C> <C> <C> <C> <C>
Applied Innovation 100 260 315 276 144
S & P Communication Equip./Mfgrs. 100 100 113 168 196
Nasdaq NMS 100 111 108 152 187
</TABLE>
11
<PAGE> 15
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP as
independent auditors to examine and report on the Company's financial statements
for the current fiscal year, and to perform other appropriate audit, accounting
and consulting services. KPMG Peat Marwick LLP has served as the Company's
independent auditors and audited the Company's financial statements since 1993.
Although the Delaware General Corporation Law does not require the
selection of independent auditors to be submitted to a vote by stockholders, the
Board continues to believe it appropriate as a matter of policy to request that
the stockholders ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the 1997 fiscal year.
It is expected that a representative of KPMG Peat Marwick LLP will be
present at the Annual Meeting, will have the opportunity to make a statement if
he desires to do so, and will be available to respond to appropriate questions.
The affirmative vote of a majority of the votes entitled to be cast by
the holders of the Company's Common Stock present in person or represented by
proxy at the Annual Meeting is required for ratification. Abstentions and broker
non-votes have the same effect as votes cast against ratification of the
appointment of KPMG Peat Marwick LLP as independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. UNLESS A
CONTRARY CHOICE IS SPECIFIED, PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL
BE VOTED FOR THE RATIFICATION OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS.
12
<PAGE> 16
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1996, containing financial statements for such year and the signed
opinion of KPMG Peat Marwick LLP, independent auditors, with respect to such
financial statements, is being sent to stockholders concurrently with this Proxy
Statement. The Annual Report is not to be regarded as proxy soliciting material,
and management does not intend to ask, suggest or solicit any action from the
stockholders with respect to such report.
A COPY OF THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS AVAILABLE
WITHOUT CHARGE TO STOCKHOLDERS UPON REQUEST TO: JOHN M. SPIEGEL, COMPTROLLER,
APPLIED INNOVATION INC., 5800 INNOVATION DRIVE, DUBLIN, OHIO 43016.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and greater than 10%
stockholders, to file reports of ownership and changes in ownership of the
Company's securities with the Securities and Exchange Commission. Copies of the
reports are required by SEC regulation to be furnished to the Company. Based on
its review of such reports and written representations from reporting persons,
the Company believes that all filing requirements were complied with during
fiscal 1996.
COST OF SOLICITATION OF PROXIES
The cost of this solicitation will be paid by the Company. In addition
to the solicitation of proxies by mail, the directors, officers and employees of
the Company may solicit proxies personally or by telephone. The Company may
request persons holding shares in their names for others to forward soliciting
materials to their principals to obtain authorization for the execution of
proxies, and the Company may reimburse such persons for their expenses in doing
so.
STOCKHOLDER PROPOSALS
Each year the Board of Directors submits its nominations for election
of directors at the Annual Meeting of Stockholders. Other proposals may be
submitted by the Board of Directors or the stockholders for inclusion in the
Proxy Statement for action at the Annual Meeting. Any proposal submitted by a
stockholder for inclusion in the Proxy Statement for the Annual Meeting of
Stockholders to be held in 1998 must be received by the Company (addressed to
the attention of the Secretary) on or before November 30, 1997. To be submitted
at the meeting, any such proposal must be a proper subject for stockholder
action under the laws of the State of Delaware.
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OTHER MATTERS
The only business which management intends to present at the meeting
consists of the matters set forth in this statement. Management knows of no
other matters to be brought before the meeting by any other person or group. If
any other matter should properly come before the meeting, the proxy holders will
vote thereon in their discretion.
All proxies received duly executed will be voted. You are requested to
sign and date the enclosed proxy and mail it promptly in the enclosed envelope.
If you later desire to vote in person, you may revoke your proxy, either by
written notice to the Company, Attention: Gerard B. Moersdorf, Jr., or in person
at the meeting, without affecting any vote previously taken.
BY ORDER OF THE BOARD OF DIRECTORS
GERARD B. MOERSDORF, JR.
CHAIRMAN OF THE BOARD AND PRESIDENT
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APPLIED INNOVATION INC.
5800 INNOVATION DRIVE, DUBLIN, OHIO 43016
------------------------
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- APRIL 24, 1997
The undersigned hereby appoints GERARD B. MOERSDORF, JR., and CURTIS A.
LOVELAND, or either of them acting alone, my attorneys and proxies, with full
power of substitution to each, to vote all shares of Common Stock which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of said
corporation to be held on April 24, 1997, at 9:00 a.m., local time, at 5800
Innovation Drive, Dublin, Ohio 43016, and at any adjournment thereof, with all
of the powers I would have if personally present, for the following purposes:
1. ELECTION OF CLASS I DIRECTORS
[ ] FOR all nominees listed below (except as marked to the contrary).
[ ] WITHHOLD AUTHORITY to vote for all nominees below.
JAMES H. BLOUGH RICHARD W. OLIVER
(INSTRUCTIONS: Do not check "WITHHOLD AUTHORITY" to vote for only a certain
individual nominee. To withhold authority to vote for any individual
nominee, strike a line through the nominee's name and check "FOR").
2. TO RATIFY the selection for KPMG Peat Marwick LLP as the Company's
independent certified public accountants for the fiscal year ending December
31, 1997. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO TRANSACT such other business as may properly come before the meeting and
any adjournment thereof.
<PAGE> 19
giving unto said attorneys and proxies, or substitutes, full power and authority
to do whatsoever in their opinion may be necessary or proper to be done in the
exercise of the power hereby conferred, including the right to vote for any
adjournment, hereby ratifying all that said attorneys and proxies, or
substitutes, may lawfully do or cause to be done by virtue hereof. Either of
said attorneys and proxies, or substitutes, who shall be present and shall act
at the meeting shall have and may exercise all the powers of said attorneys and
proxies hereunder.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1
AND 2.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Stockholders, dated March 24, 1997, the Proxy Statement and the
Annual Report of the company furnished therewith. Any proxy heretofore given to
vote said shares is hereby revoked.
Please sign and date this Proxy below and return in the enclosed envelope.
Dated __________________________________ , 1997
Signature ________________________________________________
Signature __________________________________________
SIGNATURE(S) SHALL AGREE WITH THE NAME(S) PRINTED ON THIS PROXY. IF SHARES ARE
REGISTERED IN TWO NAMES, BOTH STOCKHOLDERS SHOULD SIGN THIS PROXY. IF SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE YOUR FULL
TITLE AS SUCH.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
