<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 22, 1999
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 22, 1999
March 22, 1999
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 22nd day of April, 1999,
at 1:00 p.m., local time, for the following purposes:
1. To elect two Class III directors, each for a three-year term
expiring at the Annual Meeting of Stockholders in 2002.
2. 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 5, 1999, 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 year ended December
31, 1998, 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 22, 1999
PROXY STATEMENT
FOR
1999 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 22, 1999, at
1:00 p.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 Director's unanimous recommendations, which are FOR the election of
Gerard B. Moersdorf, Jr. and Alexander B. Trevor as Class III Directors of the
Company 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 5, 1999,
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
5, 1999, the Company had 15,785,332 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 STOCKHOLDERS
The following table sets forth information as of February 26, 1999
(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>
NAME OF NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OF CLASS(3)
- ------------------------------ --------------------------------- ----------------------
<S> <C> <C>
Gerard B. Moersdorf, Jr. 6,556,529(4) 41.5%
Linda S. Moersdorf 6,556,529(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 February 26, 1999 plus the number of shares such person has the right to
acquire within 60 days of February 26, 1999.
(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 5,560,313 shares held of record by Mr.
Moersdorf, 793,716 shares held of record by Mrs. Moersdorf, 184,500 shares
held by their children, and 18,000 shares which could be acquired by Mrs.
Moersdorf under stock options exercisable within 60 days of February 26,
1999. 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 February 26, 1999, 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>
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS(2)
------------------------ --------------------- -----------
<S> <C> <C>
Gerard B. Moersdorf, Jr.(3) 6,556,529 41.5%
Gerard B. Moersdorf, Sr.(4) 91,400 *
Curtis A. Loveland(5) 121,600 *
James H. Blough(6) 72,000 *
Richard W. Oliver(6) 73,500 *
Thomas W. Huseby(7) 21,000 *
Alexander B. Trevor(8) 15,000 *
William H. Largent (9) 20,000 *
William J. Mrukowski(9) 20,000 *
All directors and executive officers
as a group (10 persons)(10) 7,039,282 43.5%
- ----------------------
</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 February 26, 1999. 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 February 26, 1999, or 15,786,132 shares, plus the number of
shares a person has the right to acquire within 60 days of February 26,
1999. An "*" indicates less than 1%.
(3) Includes 5,560,313 shares held of record by Mr. Moersdorf, Jr., 793,716
shares held by Mrs. Moersdorf, 184,500 shares held by their children, and
18,000 shares which could be acquired by Mrs. Moersdorf under stock options
exercisable within 60 days of February 26, 1999. Mr. and Mrs. Moersdorf
each expressly disclaim beneficial ownership of shares held by the other.
(4) Includes 19,400 shares held by Mr. Moersdorf, Sr. as trustee of a trust and
72,000 shares which may be purchased under stock options exercisable within
60 days of February 26, 1999.
(5) Includes 90,000 shares which may be purchased under stock options
exercisable within 60 days of February 26, 1999, and 1,000 shares held by
Mr. Loveland's children.
(6) Includes 72,000 shares which may be purchased under stock options
exercisable within 60 days of February 26, 1999.
(7) Includes 18,000 shares which may be purchased under stock options
exercisable within 60 days of February 26, 1999.
(8) Includes 13,000 shares which may be purchased under stock options
exercisable within 60 days of February 26, 1999.
(9) Includes 20,000 shares which may be purchased under stock options
exercisable within 60 days of February 26, 1999.
(10) Includes 48,253 shares held by John M. Spiegel, of which 600 are shares
which may be purchased under stock options exercisable within 60 days of
February 26, 1999.
3
<PAGE> 7
ELECTION OF DIRECTORS
The Board of Directors has designated Gerard B. Moersdorf, Jr. and
Alexander B. Trevor for election as Class III 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 STOCKHOLDERS VOTE FOR THE
ELECTION OF EACH NOMINEE FOR CLASS III DIRECTOR.
The following table sets forth (i) the nominees for election as Class
III Directors of the Company, and (ii) the Class I and Class II 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
- ----------------------------------------------------------------------------------------------------------------
NOMINEES - TERMS TO EXPIRE 2002 (CLASS III)
<S> <C> <C>
Gerard B. Moersdorf, Jr., 46 1986 Director, President, Chief Executive Officer and Treasurer of the
Company since 1986.
Alexander B. Trevor, 53 1997 President of Nuvocom Inc., Columbus, Ohio, a computer telephony
company and consultant to Internet related companies.
Previously, Mr. Trevor was Executive Vice President and Chief
Technology Officer of CompuServe Corporation from 1983 to June
1996. Prior to 1983, Mr. Trevor was employed in various other
positions at CompuServe Corporation, including Vice President of
Computer Technology and Executive Vice President of Network
Services.
CONTINUING DIRECTORS - TERMS TO EXPIRE 2000 (CLASS I)
James H. Blough, 67 1993 Retired as National Sales Manager for Chemicals Division of
Procter & Gamble Distributing Company, Cincinnati, Ohio.
Richard W. Oliver, 52 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 Chairman of the Board
of Symmetricom, Inc., a company which has a class of equity
securities registered pursuant to the Securities Exchange Act of
1934.
CONTINUING DIRECTORS - TERMS TO EXPIRE 2001 (CLASS II)
Curtis A. Loveland, 52 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. which
has a class of equity securities registered pursuant to the
Securities Exchange Act of 1934.
Gerard B. Moersdorf, Sr., 69 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, 60 1996 Retired as director of Network Systems Division of Lucent
Technologies. His experience includes a wide range of
manufacturing, development and research activities.
</TABLE>
5
<PAGE> 9
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company had a total of seven meetings
during 1998. No director attended fewer than 75% of the aggregate of the
meetings of the Board of Directors and the meetings of any committees of the
Board of Directors on which the director served. The Board of Directors has an
Audit Committee and a Stock Option and Compensation Committee.
The members of the Audit Committee are Curtis A. Loveland, Gerard B.
Moersdorf, Sr. and Thomas W. Huseby. The Audit Committee oversees the work of
the internal accounting staff and external auditors. The Audit Committee met
three times during 1998, and all members of the Audit Committee attended the
meetings.
The members of the Stock Option and Compensation Committee are James H.
Blough, Richard W. Oliver, and Alexander B. Trevor. The Stock Option and
Compensation 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
five times during 1998, and all members of the Committee attended the meetings.
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.
WILLIAM H. LARGENT, age 43, joined the Company in April 1997 and serves
as Senior Vice President, Operations and Chief Financial Officer of the Company.
Prior to joining the Company, Mr. Largent served as the Executive Vice President
and Chief Financial Officer of Metatec Corporation, an information services
company engaged in optical disc manufacturing and distribution, software
development and network services. Mr. Largent had been an officer at Metatec
since 1993 and a director of Metatec since 1990. From 1990 to 1993, Mr. Largent
was President of Liebert Capital Management Corporation, a private investment
management and consulting company. Mr. Largent is also a director of AmeriLink
Corporation, a company which has a class of equity securities registered
pursuant to the Securities Exchange Act of 1934.
WILLIAM J. MRUKOWSKI, age 57, joined the Company in October 1997 and
serves as Senior Vice President, Sales and Marketing. Prior to joining the
Company, Mr. Mrukowski served with Liebert Corporation as Senior Vice President
responsible for worldwide sales. Mr. Mrukowski had been with Liebert Corporation
for seventeen years prior to joining the Company.
JOHN M. SPIEGEL, age 35, joined the Company in May 1992 and serves as
Controller. 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, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
----------------------------------------------
Name and Fiscal Other Annual All Other
Principal Position Year Salary Bonus Compensation Options # Compensation(1)
------------------ ---- ------ ----- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gerard B. Moersdorf, Jr. 1998 $249,867 $117,500 -- -- $3,212
Chairman, President, 1997 $238,500 -- $542 -- $2,100
Treasurer and CEO 1996 $238,500 -- -- -- $8,002
William J. Mrukowski(2) 1998 $178,654 $97,200 -- 70,000 $3,199
Senior Vice President, 1997 $35,135 $10,000 -- 30,000 $527
Sales and Marketing
William H. Largent(3) 1998 $162,461 $77,500 -- 50,000 $3,077
Senior Vice President, 1997 $94,808 $35,000 -- 50,000 $1,283
Operations and
Chief Financial Officer
- ---------------------
</TABLE>
(1) Represents the amount of the contribution by the Company under the
Company's 401(k) Plan and Trust.
(2) Mr. Mrukowski joined the Company in October 1997.
(3) Mr. Largent joined the Company in April 1997.
7
<PAGE> 11
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information regarding stock options
granted during 1998, to each of the executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
Individual Grants (f)
----------------------------------------------------- Potential Realizable Value
(c) At Assumed Annual Rates
% of Total Of Stock Price Appreciation
(b) Options (d) For Option Term(1)
Options Granted To Exercise (e) --------------------------------
(a) Granted Employees Price Expiration
Name (#) In Fiscal Year ($/Sh) Date 5%($) 10%($)
- -------------------------- ----------- --------------- --------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gerard B. Moersdorf, Jr. -- -- -- -- -- --
William J. Mrukowski 70,000(2) 20.0% $6.81 2/12/06 $227,604 $545,149
William H. Largent 50,000(3) 14.3% $6.81 2/12/06 $162,574 $389,392
</TABLE>
- --------------------
(1) The amounts under the columns labeled "5%($)" and "10%($)" are included
by the Company pursuant to certain rules promulgated by the Securities
and Exchange Commission and are not intended to forecast future
appreciation, if any, in the price of the Company's Common Stock. Such
amounts are based on the assumption that the option holders hold the
options granted for their full term. The actual value of the options
will vary in accordance with the market price of the Company's Common
Stock.
(2) On February 12, 1998, an incentive option to purchase 70,000 shares of
Common stock was granted to Mr. Mrukowski, at an exercise price equal
to the fair market value of the Company's Common stock on the date of
grant. These options vest and become exercisable at a rate of 20% per
year and terminate on February 12, 2006.
(3) On February 12, 1998, an incentive option to purchase 50,000 shares of
Common Stock was granted to Mr. Largent, at an exercise price equal to
the fair market value of the Company's Common Stock on the date of
grant. These options vest and become exercisable at a rate of 20% per
year and terminate on February 12, 2006.
8
<PAGE> 12
AGGREGATED OPTION EXERCISES AND FISCAL
YEAR-END OPTION VALUE TABLE
The following table provides certain information regarding the value of
stock options at December 31, 1998 held by the Company's executive officers
named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END ($)(1)
ON EXERCISE REALIZED --------------------------- -----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ------------- ---------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerard B. Moersdorf, Jr. -- -- -- -- -- --
William J. Mrukowski -- -- 6,000 94,000 -- --
William H. Largent -- -- 10,000 90,000 -- --
- --------------------------------
</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
In 1998, the 1996 Stock Option Plan provided for the automatic grant of
an option to purchase 9,000 shares of Common Stock of the Company on March 1 of
each year to each nonemployee director of the Company. In 1999, this provision
was modified to provide for an automatic grant of an option to purchase 9,000
shares of Common Stock of the Company on January 1 of each year to each
nonemployee director of the Company. 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 March 1, 1998,
James H. Blough, Curtis A. Loveland, Gerard B. Moersdorf, Sr., Richard W.
Oliver, Alexander B. Trevor and Thomas W. Huseby each received an option to
purchase 9,000 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
$7.00 per share. Additionally, each director receives $1,000 for each Board of
Directors meeting attended and $500 for each committee meeting attended,
provided such committee meeting was 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 $24,000 in 1998 for his consulting services.
The Company has entered into an arrangement with Mr. Trevor, a director
of the Company, pursuant to which Mr. Trevor provides management consulting
services to the Company. Under this arrangement, the Company paid Mr. Trevor
$2,400 in 1998.
9
<PAGE> 13
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.
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 stockholder 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.
The 1998 Officer and Manager Compensation Plan (the "1998 Plan") was
adopted by the Board of Directors in February 1998. The 1998 Plan had both a
short-term and long-term incentive component. The 1998 Plan established a total
bonus amount equal to a percentage of base salary, with the percentage
increasing or decreasing based on target levels of pre-tax, pre-bonus income and
total revenues for 1998.
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. To
date, Mr. Moersdorf, Jr., has received no stock options under any of the
Company's stock option plans.
Compensation for the named executive officers during the 1998 fiscal
year included base salary and awards under the 1998 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.
10
<PAGE> 14
The Budget Reconciliation Act of 1993 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
Alexander B. Trevor.
11
<PAGE> 15
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 December 31, 1993 through December 31,
1998. 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
December 31, 1993, and in the respective index on December 31, 1993, and that
all dividends were reinvested.
Applied Innovation Inc.
Closing Price Index
Nasdaq NM Comp S&P Communications Equip. AINN
Dec. 93 100 100 100
Dec. 94 97.6 113 122
Dec. 95 135.5 168 106.8
Dec. 96 168.9 196 55.7
Dec. 97 206.7 254 50
Dec. 98 286.4 445 31.25
12
<PAGE> 16
INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG LLP, independent public
accountants, as auditors for the Company for fiscal 1999. KPMG LLP has served as
the independent auditors for the Company since 1993. The Board of Directors
believes that the reappointment of KPMG LLP for fiscal 1999 is appropriate
because of the firm's reputation, qualifications, and experience.
Representatives of KPMG LLP will be present at the meeting and will have an
opportunity to make a statement if they desire to do so. Such representatives
will be available to respond to appropriate questions.
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1998, containing financial statements for such year and the signed
opinion of KPMG 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, 1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS AVAILABLE
WITHOUT CHARGE TO STOCKHOLDERS UPON REQUEST TO: JOHN M. SPIEGEL, CONTROLLER,
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 1998.
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
13
<PAGE> 17
Proxy Statement for the Annual Meeting of Stockholders to be held in 2000 must
be received by the Company (addressed to the attention of the Secretary) on or
before February 2, 2000. 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.
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, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
14
<PAGE> 18
APPLIED INNOVATION INC.
5800 INNOVATION DRIVE, DUBLIN, OHIO 43016
==========================================================
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- APRIL 22, 1999
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 22, 1999, at 1:00 p.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 III DIRECTORS
[ ] FOR all nominees listed below (except as marked to the contrary).
[ ] WITHHOLD AUTHORITY to vote for all nominees below.
GERARD B. MOERSDORF, JR. ALEXANDER B. TREVOR
(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 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 THE PROPOSAL.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Stockholders, dated March 22, 1999, 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 , 1999
-------------------
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
