<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Digital Microwave Corporation
- --------------------------------------------------------------------------------
(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)(1)
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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
July 7, 1999
TO THE STOCKHOLDERS OF
DIGITAL MICROWAVE CORPORATION:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Digital Microwave Corporation (the "Company") on August 10,
1999, at 3:00 p.m., local time, which will be held at the Company's executive
offices located at 170 Rose Orchard Way, San Jose, California.
Details of business to be conducted at the Annual Meeting are given in the
attached Notice of Annual Meeting and Proxy Statement.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote FOR each such
proposal.
We hope that you will attend the Annual Meeting. In any event, after
reading the Proxy Statement, please mark, date, sign and return the enclosed
proxy card in the accompanying reply envelope. If you decide to attend the
Annual Meeting, please notify the Secretary of the Company if you wish to vote
in person and your proxy will not be voted.
A copy of the Company's 1999 Annual Report to Stockholders has been mailed
concurrently herewith to all stockholders entitled to notice of and to vote at
the Annual Meeting.
Sincerely yours,
/s/ CHARLES D. KISSNER
Charles D. Kissner
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
DIGITAL MICROWAVE CORPORATION
170 Rose Orchard Way
San Jose, California 95134
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
The Annual Meeting of Stockholders of Digital Microwave Corporation (the
"Company") will be held at the Company's executive offices located at 170 Rose
Orchard Way, San Jose, California, on Tuesday, August 10, 1999, at 3:00 p.m.
local time, to:
1. Elect seven directors to serve until the next Annual Meeting and until
their successors have been elected and qualified;
2. Approve the adoption of the Digital Microwave Corporation 1999 Stock
Incentive Plan;
3. Ratify the selection of Arthur Andersen LLP as independent public
accountants for the Company for the fiscal year ending March 31, 2000; and
4. Transact any other business which may properly come before the meeting
and any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice.
Stockholders of record at the close of business on June 18, 1999, will be
entitled to notice of and to vote at the Annual Meeting and at any continuation
or adjournment thereof.
All stockholders are cordially invited and encouraged to attend the Annual
Meeting. In any event, to ensure your representation at the Annual Meeting,
please carefully read the accompanying Proxy Statement which describes the
matters to be voted on at the Annual Meeting and sign, date and return the
enclosed proxy card in the reply envelope provided. Should you receive more than
one proxy because your shares are registered in different names and addresses,
each proxy should be returned to assure that all your shares will be voted. If
you attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the Annual
Meeting.
We look forward to seeing you at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ CHARLES D. KISSNER
Charles D. Kissner
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
San Jose, California
July 7, 1999
<PAGE>
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
DIGITAL MICROWAVE CORPORATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Digital Microwave Corporation, a Delaware corporation
("DMC" or the "Company"), of proxies for the Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held at 3:00 p.m., local time, on
August 10, 1999, and any adjournment or postponement thereof. This Proxy
Statement was first mailed to stockholders on or about July 7, 1999.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in a subsequent section
of this Proxy Statement.
VOTING
Only holders of record of the Common Stock of the Company ("Common Stock")
at the close of business on June 18, 1999, will be entitled to vote at the
Annual Meeting and any continuations or adjournments thereof. Each share
entitles the holder to one vote on each matter to come before the Annual
Meeting. On June 18, 1999, there were 62,513,899 shares of Common Stock
outstanding and entitled to vote at the Annual Meeting, held by 372 stockholders
of record. The presence at the Annual Meeting of a majority, or 31,256,950 of
these shares of Common Stock of the Company, either in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting. An
automated system administered by the Company's transfer agent will tabulate
votes cast by proxy and an employee of the transfer agent will tabulate votes
cast in person at the Annual Meeting.
If any stockholder is unable to attend the Annual Meeting, such stockholder
may vote by proxy. The enclosed proxy is solicited by the DMC Board of Directors
(the "Board of Directors" or the "Board"), and, when returned properly
completed, will be voted as you direct on your proxy card. In the discretion of
the proxy holder, shares represented by such proxies will be voted upon any
other business as may properly come before the Annual Meeting. Each outstanding
share of Common Stock on the Record Date is entitled to one vote on all matters.
Directors shall be elected by a plurality of the votes cast.
The approval of the adoption of the Company's 1999 Stock Incentive Plan and
the ratification of the independent auditors of the Company for the current year
will require the affirmative vote of a majority of the shares of the Company's
Common Stock present or represented and entitled to vote at the Annual Meeting.
Because abstentions are treated as shares present or represented and entitled to
vote for the purposes of determining whether a matter has been approved by the
stockholders, abstentions have the same effect as negative votes. Broker
non-votes and shares as to which proxy authority has been withheld with respect
to any matter are not deemed to be entitled to vote for purposes of determining
whether stockholder approval of that matter has been obtained. With respect to
Proposal Numbers 2 and 3, which require the affirmative vote of a majority of
the shares present and entitled to vote, broker non-votes shall have no effect.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by (i) delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or (ii) attending the Annual Meeting and voting in person.
COST OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, proxies may also be solicited by directors, officers and
employees of the Company who will not receive additional compensation for such
solicitation. Brokerage firms and other custodians, nominees and fiduciaries
will be reimbursed by the Company for their reasonable expenses incurred in
sending proxy material to beneficial owners of the Common Stock.
The Annual Report of the Company for the fiscal year ended March 31, 1999
has been mailed concurrently with the mailing of the Notice of Annual Meeting
and Proxy Statement to all stockholders entitled to notice of and to vote at the
Annual Meeting.
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PROPOSAL 1:
ELECTION OF DIRECTORS
At the Annual Meeting, seven directors are to be elected to serve until the
next Annual Meeting and until their successors are elected and qualified, or
until the death, resignation, or removal of such director. It is intended that
the proxies will be voted for the election of the seven nominees named below as
directors unless authority to vote for any such nominee is withheld. The seven
nominees receiving the highest number of votes will be elected. In the
unanticipated event that a nominee is unable or declines to serve as a director
at the time of the Annual Meeting, the proxies will be voted for any nominee
named by the current Board of Directors to fill the vacancy. As of the date of
this Proxy Statement, the Board of Directors is not aware of any nominee who is
unable or will decline to serve as a Director.
Pursuant to the Company's merger with Innova Corporation in October 1998,
the Board amended the Company's Bylaws to increase the number of directors to
nine and simultaneously elected Mr. Paul Bachow and Mr. Frank Mendicino to serve
as a directors. Furthermore, pursuant to the terms of the merger, the Company
agreed to nominate Mr. Bachow to serve as a director for a one-year term at each
of annual meetings of stockholders to be held in 1999, 2000 and 2001.
Additionally, pursuant to the terms of the merger, the Company agreed to
nominate Mr. Mendicino to serve as a director for a one-year term at each of the
annual meetings to be held in 1999 and 2000. However, the obligation of the
Company to nominate Mr. Mendicino lapses upon the date that Woodside Fund III, a
private investment fund, liquidates or otherwise distributes all shares of the
Company's Common Stock held by it. The Board subsequently amended the Company's
Bylaws, effective at the Annual Meeting, to reduce the number of directors to
seven, as Mr. Clifford Higgerson and Mr. Billy Oliver intend to resign from the
Board at such time.
In the event that additional persons are nominated, other than by the Board
of Directors, for election as directors, the proxy holders intend to vote all
proxies received by them for the nominees listed below and any additional Board
of Directors' nominee as described above. The following are the nominees of the
Board of Directors for election as directors at the date hereof:
<TABLE>
Name Title Age
<S> <C> <C>
Charles D. Kissner Chairman of the Board and 52
Chief Executive Officer
Richard C. Alberding Director 68
Paul S. Bachow Director 48
John W. Combs Director 52
James D. Meindl Director 66
V. Frank Mendicino Director 60
Howard Oringer Director 57
</TABLE>
Mr. Charles D. Kissner joined the Company as President, Chief Executive
Officer and was elected a director of the Company in July 1995 and Chairman of
the Board in August 1996. He currently serves as Chairman of the Board and Chief
Executive Officer of the Company. Prior to joining the Company, he served as
Vice President and General Manager of the Microelectronics Division of M/A-COM,
Inc., a manufacturer of radio and microwave communication products, from July
1993 to July 1995. Mr. Kissner currently is a director of Spectrian, Inc., a
supplier of high power amplifiers to wireless communications manufacturers and
service providers, and American Flight Support, Inc., a non-profit medical
transportation company.
Mr. Richard C. Alberding has served as a director of the Company since July
1993 and served as Co-Chairman of the Board and Co-Chief Executive Officer from
September 1994 to July 1995. Mr. Alberding retired from Hewlett-Packard Company
in 1991, where he had served since 1984 as an Executive Vice President with
responsibility for worldwide company sales, support and administration
activities for measurement and computation products, as well as all
corporate-level marketing activities. He also served on the corporate Executive
Committee. Mr. Alberding is a director of Kennametal Corporation, a machine tool
company, Walker Interactive Systems, a
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software company, Quickturn Design Systems, a design automation company,
SyBase, Inc., a computer database and tools company, Digital Link Corp., a
network tools company, Paging Network, Inc., a paging services company, JLK
Direct Distribution, a metalworking consumables distribution company, and
several private companies.
Mr. Paul S. Bachow has served as a director of the Company since October
1998. He served as a director of Innova Corporation from January 1993 until
October 1998, when the merger of the Company and Innova was consummated. Mr.
Bachow has served as President of Bachow & Associates, Inc., a venture capital
investment company, since its formation in December 1989. Mr. Bachow also acts
as President of the General Partner of each of Paul S. Bachow Co-Investment
Fund, L.P., and Bachow Investment Partners III, L.P. Mr. Bachow serves as a
director of Deb Shops, Inc., a publicly traded company in the women's clothing
business, Anadigics, Inc., a publicly traded manufacturer of gallium arsenide
chips for use in a broad array of communications devices, Crusader Holding
Corporation, a publicly traded savings and loan, and several private companies.
Mr. John W. Combs has served as a director of the Company since May 1997.
Since June 1993, Mr. Combs has served as President, Southwest Area for Nextel
Communications, Inc., a digital communications system provider. From March 1990
to June 1993, he served as Executive Vice President of Sales, Marketing and
Customer Care of Los Angeles Cellular Telephone Company, a provider of wireless
telecommunications services. In addition, Mr. Combs also serves as a director of
Hello Direct, Inc., a direct marketer of telecommunications products.
Dr. James D. Meindl has served as a director of the Company since November
1995. Since 1993, Dr. Meindl has held the Joseph M. Pettit Chaired Professorship
in Microelectronics at the Georgia Institute of Technology. Prior to his
professorship at the Georgia Institute of Technology, Dr. Meindl served as
Senior Vice President for Academic Affairs and Provost at Rensselaer Polytechnic
Institute from 1986 to 1993. Dr. Meindl serves as a director of SanDisk Corp.,
which designs, develops and markets flash memory data storage products, and
Zoran Corp., a semiconductor and related devices company.
Mr. V. Frank Mendicino has served as a director of the Company since
October 1998. Mr. Mendicino served as a director of Innova Corporation from July
1989 and as its Chairman from February 1992 until October 1998, when the merger
of the Company and Innova was consummated. Since 1983, Mr. Mendicino has served
as a General Partner of Woodside Fund, Woodside Fund II and Woodside Fund III,
each of which is a private investment fund. He also has served as a director of
over 15 private companies.
Mr. Howard Oringer has served as a director of the Company since March
1998. Mr. Oringer has been Managing Director of Communications Capital Group, a
management consulting firm, since November 1993. From February 1986 to November
1993, Mr. Oringer was the President, Chief Executive Officer and Chairman of the
Board of Directors of TeleSciences, Inc., a manufacturer of telecommunications
equipment. Mr. Oringer serves as a director of Tekelec, which designs,
manufactures and markets network switching solutions and diagnostic systems,
Verilink Corporation, which develops, manufactures and markets access products
for telecommunications network service providers and corporate end users and
Vertel, a provider of software for telecommunications management systems.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL
OF THE ABOVE NOMINEES AS DIRECTORS.
3
<PAGE>
PROPOSAL 2:
APPROVAL OF THE ADOPTION OF
THE 1999 STOCK INCENTIVE PLAN
The Company's stockholders are asked to vote on the proposed adoption of
the Company's 1999 Stock Incentive Plan (the "1999 Incentive Plan"). The 1999
Incentive Plan provides for the issuance of stock options covering up to
2,500,000 shares of Common Stock of the Company. The Board has concluded that
the proposed adoption is in the best interests of the Company and its
stockholders. The adoption of the 1999 Incentive Plan will enable the Company to
grant options as needed to retain talented employees and to attract talented new
employees. The Board of Directors believes that the Company's long term success
is dependent upon the ability of the Company to attract and retain highly
qualified individuals who, by virtue of their ability and qualifications, make
important contributions to the Company.
A general description of the principal terms of the 1999 Incentive Plan is
set forth below. However, the summary does not purport to be a complete
description of all of the provisions of the 1999 Incentive Plan. Any stockholder
of the Company who wishes to obtain a copy of the actual plan document may
obtain a copy by writing to the Company, attention: Director of Corporate
Communications.
THE BOARD HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE 1999 INCENTIVE PLAN
AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF THE COMPANY'S COMMON STOCK
VOTE FOR APPROVAL OF SUCH PROPOSAL.
GENERAL DESCRIPTION
The 1999 Incentive Plan was approved by the Board of Directors in June
1999. The purposes of the 1999 Incentive Plan are to give the Company's
employees and others who perform substantial services to the Company an
incentive, through ownership of the Company's Common Stock, to continue in
service to the Company, and to help the Company compete effectively with other
enterprises for the services of qualified individuals.
ADMINISTRATION. The 1999 Incentive Plan is administered, with respect to
grants to directors, officers, consultants, and other employees, by the
Administrator of the 1999 Incentive Plan, defined as the Board or a committee
designated by the Board. The committee is constituted in such a manner as to
satisfy applicable laws, including Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"). With respect to Awards subject
to the Internal Revenue Code (the "Code") Section 162(m), the committee will be
comprised solely of two or more "outside directors" as defined under Code
Section 162(m) and applicable tax regulations. For grants of Awards to
individuals not subject to Rule 16b-3 and Code Section 162(m), the Board of
Directors may authorize one or more officers to grant such Awards.
AMENDMENT AND TERMINATION. The Board may at any time amend, suspend or
terminate the 1999 Incentive Plan. To the extent necessary to comply with
applicable provisions of Federal securities laws, state corporate and securities
laws, the Code, the rules of any applicable stock exchange or national market
system, and the rules of any foreign jurisdiction applicable to Awards granted
to residents therein, the Company will obtain stockholder approval of any
amendment to the 1999 Incentive Plan in such a manner and to such a degree as
required. The 1999 Incentive Plan will terminate in August 2006 unless
previously terminated by the Board of Directors.
OTHER TERMS. The 1999 Incentive Plan permits the grant of "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Code only to
employees of the Company or any parent or subsidiary corporation of the Company.
Awards other than incentive stock options may be granted to employees, directors
and consultants. Under the 1999 Incentive Plan, Awards may be granted to such
employees, directors or consultants who are residing in foreign jurisdictions as
the Administrator may determine from time to time.
The 1999 Incentive Plan authorizes the Administrator to select the
employees, directors and consultants of the Company to whom Awards may be
granted and to determine the terms and conditions of any Award; however, the
term of an Award may not be for more than 7 years (or 5 years in the case of
incentive stock options granted to any grantee who owns stock representing more
than 10% of the combined voting power of the Company or any parent or subsidiary
corporation of the Company). Additionally, in no event may any participant in
the 1999 Incentive Plan be granted stock options for more than 750,000 shares in
any fiscal year. However, in connection with his or her initial commencement of
service with the Company, a participant in the 1999 Incentive Plan may be
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<PAGE>
granted stock options for up to an additional 750,000 shares, which shares shall
not count against the limit set forth in the previous sentence.
The 1999 Incentive Plan authorizes the Administrator to grant options at an
exercise price of not less than 100% (or 110%, in the case of incentive stock
options granted to any grantee who owns stock representing more than 10% of the
combined voting power of the Company or any parent or subsidiary corporation of
the Company) of the fair market value of the Common Stock on the date the option
is granted. The exercise price of Awards intended to qualify as
performance-based compensation for purposes of Code Section 162(m) shall not be
less than 100% of the fair market value. The exercise price is generally payable
in cash or, in certain circumstances, with such documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of an Award and delivery to the Company of the sale or loan proceeds required to
pay the exercise price, or with shares of Common Stock. The aggregate fair
market value of the Common Stock with respect to any incentive stock options
that are exercisable for the first time by an eligible employee in any calendar
year may not exceed $100,000.
The Awards may be granted subject to vesting schedules and restrictions on
transfer and repurchase or forfeiture rights in favor of the Company as
specified in the agreements to be issued under the 1999 Incentive Plan;
provided, however, that no Awards shall be exercisable prior to the first
anniversary of the grant date. The Administrator has the authority to accelerate
the vesting schedule of Awards so that they become fully vested, exercisable,
and released from any restrictions on transfer and repurchase or forfeiture
rights in the event of a Change in Control, as defined in the 1999 Incentive
Plan. In the event of a Corporate Transaction, each outstanding Award shall
become fully vested and exercisable unless the Award is assumed by the successor
company or its parent or is replaced with a comparable Award. Effective upon the
consummation of the Corporate Transaction, all outstanding Awards under the 1999
Incentive Plan will terminate unless assumed by the successor company or its
parent. In the event of a Related Entity Disposition, as defined in the 1999
Incentive Plan, each Award of a grantee employed by the affected Related Entity
shall become fully vested and exercisable unless the Award is assumed by the
successor company or its parent or is replaced with a comparable Award. The 1999
Incentive Plan also permits the Administrator to include a provision whereby the
grantee may elect at any time while an employee, director or consultant to
exercise any part or all of the Award prior to full vesting of the Award.
Under the 1999 Incentive Plan, incentive stock options may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised
during the lifetime of the grantee only by the grantee. However, the 1999
Incentive Plan permits the designation of beneficiaries by holders of incentive
stock options. Other Awards are transferable to the grantee's immediate family
to the extent provided in the Award agreement or in the manner and to the extent
permitted by the Administrator.
Under the 1999 Incentive Plan, the Administrator may establish one or more
programs under the 1999 Incentive Plan to permit selected grantees the
opportunity to elect to defer receipt of consideration payable under an Award.
The Administrator also may establish under the 1999 Incentive Plan separate
programs for the grant of particular forms of Awards to one or more classes of
grantees.
CERTAIN FEDERAL TAX CONSEQUENCES
The grant of a non-qualified stock option under the 1999 Incentive Plan
will not result in any Federal income tax consequences to the optionee or to the
Company. Upon exercise of a non-qualified stock option, the optionee is subject
to income taxes at the rate applicable to ordinary compensation income on the
difference between the option exercise price and the fair market value of the
shares on the date of exercise. This income is subject to withholding for
Federal income and employment tax purposes. The Company is entitled to an income
tax deduction in the amount of the income recognized by the optionee. Any gain
or loss on the optionee's subsequent disposition of the shares of Common Stock
will receive long or short-term capital gain or loss treatment, depending on
whether the shares are held for more than one year following exercise. The
Company does not receive a tax deduction for any such gain. The maximum marginal
rate at which ordinary income is taxed to individuals is currently 39.6%. The
maximum rate at which long-term capital gains for most types of property are
taxed is 20%.
The grant of an incentive stock option under the 1999 Incentive Plan will
not result in any Federal income tax consequences to the optionee or to the
Company. An optionee recognizes no Federal taxable income upon exercising an
incentive stock option ("ISO") (subject to the alternative minimum tax rules
discussed below), and the Company receives no deduction at the time of exercise.
In the event of a disposition of stock acquired upon exercise of an ISO, the tax
consequences depend upon how long the optionee has held the shares of Common
Stock.
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If the optionee does not dispose of the shares within two years after the
ISO was granted, nor within one year after the ISO was exercised, the optionee
will recognize a long-term capital gain (or loss) equal to the difference
between the sale price of the shares and the exercise price. The Company is not
entitled to any deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding periods,
he or she must recognize ordinary income in the year of the disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is the lesser of (i) the difference between the amount realized
on the disposition and the exercise price, or (ii) the difference between the
fair market value of the stock on the exercise date and the exercise price. Any
gain in excess of the amount taxed as ordinary income will be treated as a long
or short-term capital gain, depending on whether the stock was held for more
than one year. The Company, in the year of the disqualifying disposition, is
entitled to a deduction equal to the amount of ordinary income recognized by the
optionee.
The "spread" under an ISO -- i.e., the difference between the fair market
value of the shares at exercise and the exercise price -- is classified as an
item of adjustment in the year of exercise for purposes of the alternative
minimum tax.
THE FOREGOING IS ONLY A SUMMARY OF THE CURRENT EFFECT OF FEDERAL INCOME
TAXATION UPON THE GRANTEE AND THE COMPANY WITH RESPECT TO THE SHARES PURCHASED
UNDER THE 1999 INCENTIVE PLAN. REFERENCE SHOULD BE MADE TO THE APPLICABLE
PROVISIONS OF THE CODE. IN ADDITION, THE SUMMARY DOES NOT DISCUSS THE TAX
CONSEQUENCES OF A GRANTEE'S DEATH OR THE INCOME TAX LAWS OF ANY MUNICIPALITY,
STATE OR FOREIGN COUNTRY TO WHICH THE GRANTEE MAY BE SUBJECT.
AMENDED PLAN BENEFITS
As of the date of this Proxy Statement, no executive officer, director and
no associates of any executive office or director, has been granted any options
under the 1999 Incentive Plan. The benefits to be received pursuant to the 1999
Incentive Plan by the Company's executive officers, directors and employees are
not determinable at this time.
PLAN ADOPTION
To attract and retain talented employees, it is proposed that the 1999
Incentive Plan be adopted.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present or represented at the Annual Meeting is required
to approve the adoption of the 1999 Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
ADOPTION OF THE 1999 INCENTIVE PLAN.
AN ABSTENTION WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
6
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PROPOSAL 3:
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors appointed Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending March 31, 2000.
Although the appointment of Arthur Andersen LLP is not required to be
submitted to a vote of the stockholders, the Board of Directors believes it
appropriate as a matter of policy to request that the stockholders ratify the
appointment of the independent public accountants for the fiscal year ending
March 31, 2000. In the event a majority of the votes cast at the meeting are not
voted in favor of ratification, the adverse vote will be considered as a
direction to the Board of Directors of the Company to select other auditors for
the fiscal year ending March 31, 2000.
The Company anticipates that a representative of Arthur Andersen LLP will
be present at the Annual Meeting. The representative will be given the
opportunity to make a statement if he desires to do so, and is expected to be
available to respond to questions submitted either orally or in writing at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION OF
ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE FISCAL YEAR ENDING MARCH 31, 2000.
7
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of June 18, 1999, by (i) each
person known by the Company to own beneficially more than five percent (5%) of
the outstanding Common Stock of the Company; (ii) each of the Company's
directors; (iii) the Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company, determined for the year
ended March 31, 1999 (collectively, the "Named Executive Officers"); and (iv)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(2)
- -------------------------------------------- ------------ ------------
<S> <C> <C>
Kopp Investment Advisors, Inc.
7701 France Avenue South, Suite 500 8,926,407(3) 14.28%
Edina, Minnesota 55435
State of Wisconsin Investment Board
P.O. Box 7842 4,573,640(4) 7.32%
Madison, Wisconsin 53707
Charles D. Kissner 653,422(5) 1.04%
Richard C. Alberding 44,000(6) *
Paul S. Bachow 4,407,312(7) 6.93%
John W. Combs 50,317(8) *
Clifford H. Higgerson 607,180(9) 1.00%
James D. Meindl 39,000(10) *
V. Frank Mendicino 2,463,362(11) 3.93%
Billy B. Oliver 61,417(12) *
Howard Oringer 114,960(13) *
Frank Carretta, Jr. 122,744(14) *
Frank Grenon 598,022(15) *
Sam Smookler 63,270(16) *
Carl A. Thomsen 134,104(17) *
All directors and executive officers as a group (17 persons) 8,970,078(18) 13.66%
</TABLE>
- -------------------
* Less than 1%
(1) To the Company's knowledge, except as set forth in the footnotes to this
table, and subject to applicable community property laws, each person named
in this table has sole voting and investment power with respect to the
shares set forth opposite such person's name.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable or exercisable on or before August 17,
1999, are deemed outstanding for computing the percentage of the person
holding such options but are not deemed outstanding for computing the
percentage of any other person. On June 18, 1999, there were 62,513,899
shares of the Company's Common Stock outstanding. Options granted to
directors under the Company's 1994 Stock Incentive Plan are immediately
exercisable; however, any shares purchased under such options are subject
to repurchase by the Company, upon the director's cessation of Board
service prior to vesting in those shares. Such options vest, and the
Company's repurchase rights lapse, annually over a period of three years
commencing on the first anniversary of the grant date.
(3) Pursuant to a Schedule 13G/A, dated January 30, 1999, filed with the
Securities and Exchange Commission, Kopp Investment Advisors, Inc., Kopp
Holding Company and LeRoy C. Kopp reported shared dispositive power over
6,234,407 shares, sole dispositive power over 2,692,000 shares and sole
voting power over 3,317,000 shares.
8
<PAGE>
(4) Pursuant to a Schedule 13G, dated February 1, 1999, filed with the
Securities and Exchange Commission, the State of Wisconsin Investment Board
reported sole voting and dispositive power over 4,573,640 shares.
(5) Includes 608,640 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999. Also includes 400 shares held of record by a trust for the benefit of
Mr. Kissner's children.
(6) Includes 38,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999, none of which are subject to repurchase rights.
(7) Includes 2,745,844 shares held by Bachow Investment Partners III, L.P.
("Bachow Investment Partners"), and 291,329 shares held by Paul S. Bachow
Co-Investment Fund, L.P. ("Bachow Co-Investment Fund"), both limited
partnerships. Mr. Bachow is the President of the General Partner of each of
Bachow Investment Partners and Bachow Co-Investment Fund. Also includes
93,463 shares issuable upon exercise of warrants to purchase Common Stock
held by Mr. Bachow, 826,231 shares issuable upon exercise of warrants to
purchase Common Stock held by Bachow Investment Partners, and 76,704 shares
issuable upon exercise of warrants to purchase Common Stock held by Bachow
Co-Investment Fund. Also includes 52,500 shares of Common Stock subject to
options which are currently exercisable or will become exercisable on or
before August 17, 1999, of which 42,000 shares are subject to repurchase
rights, and 10,500 shares of Common Stock that are subject to cancellation.
(8) Includes 42,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999, of which 15,221 shares are subject to repurchase rights.
(9) Includes 78,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999, none of which are subject to repurchase rights.
(10) Includes 38,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999, none of which are subject to repurchase rights.
(11) Represents 9,450 shares held by V. Frank Mendicino Defined Benefit Pension
Plan (the "Mendicino Benefit Plan"), 2,520 shares held by Mendicino
Brothers, 559,421 shares held by Woodside Fund, 292,285 shares held by
Woodside Fund II, 1,486,788 shares held by Woodside Fund III (Woodside
Fund, Woodside Fund II and Woodside Fund III are collectively referred to
as "Woodside Funds") and 1,050 shares held by Campus Mall, G.P. ("Campus
Mall"). Also represents 59,348 shares issuable upon exercise of warrants to
purchase shares of Common Stock held by Woodside Fund III. Mr. Mendicino is
a General Partner of Woodside Funds and has shared investment power and
shared voting power over such shares with the two other General Partners,
Vincent M. Occhipinti and Robert E. Larson. Mr. Mendicino is a General
Partner of Campus Mall and has shared investment power and shared voting
power over such shares with Kent Boswell, Michael Mendicino, Flory
Mendicino and John Mendicino. Mr. Mendicino is a General Partner of
Mendicino Brothers and has shared investment power and shared voting power
over such shares with two other General Partners, Flory Mendicino and P.
Michael Mendicino. Also includes 52,500 shares of Common Stock subject to
options which are currently exercisable or will become exercisable on or
before August 17, 1999, of which 42,000 shares are subject to repurchase
rights, and 10,500 shares of Common Stock that are subject to cancellation.
(12) Includes 38,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999, of which 14,000 shares are subject to repurchase rights.
(13) Includes 54,960 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999, of which 28,000 shares are subject to repurchase rights and 12,960
shares of Common Stock that are subject to cancellation.
(14) Includes 91,744 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999.
(15) Includes 598,022 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999.
(16) Includes 62,170 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999.
(17) Includes 126,324 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before August 17,
1999.
(18) See Footnotes (5) through (17). Includes 2,100,310 shares of Common Stock
subject to options which are currently exercisable or will become
exercisable on or before August 17, 1999, of which 141,221 shares are
subject to repurchase rights, 1,055,746 shares of Common Stock issuable
upon exercise of warrants to purchase shares of Common Stock, and 33,960
shares of Common Stock that are subject to cancellation.
9
<PAGE>
COMPENSATION OF DIRECTORS
AND CERTAIN EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company for the
fiscal year ended March 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------- ------------
Securities
Name and Principal Fiscal Other Annual Underlying All Other
Position Year Salary Bonus(1) Compensation Options Compensation(2)
-------------------------- ------ ------ -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Kissner 1999 $363,742 -- -- 612,936 $2,592
Chairman of the Board and 1998 380,000 $321,480 -- 100,000 2,592
Chief Executive Officer 1997 326,009 224,400 -- 100,000 1,823
Frank Carretta, Jr. 1999 232,221 -- -- 42,659 2,326
Senior Vice President, 1998 225,001 237,990 -- 40,000 2,056
Worldwide Sales 1997 216,407 129,320(3) -- 30,000 1,980
Frank Grenon 1999 113,571(4) 100,000 -- 308,000 --
President, Narrowband 1998 -- -- -- -- --
Products 1997 -- -- -- -- --
Sam Smookler 1999 325,684 -- 36,347(5) 110,893 3,483
President, Broadband, 1998 --(6) -- -- -- --
Longhaul and Services 1997 -- -- -- -- --
Carl A. Thomsen 1999 219,097 -- -- 75,735 2,221
Senior Vice President, 1998 216,000 118,368 -- 40,000 2,164
Chief Financial 1997 188,104 80,125 -- -- 1,902
Officer and Secretary
</TABLE>
- ------------------------
(1) The Company's executive officers are eligible for annual cash bonuses. Such
bonuses are generally based upon achievement of individual, as well as
corporate performance objectives determined by the Company's Compensation
Committee.
(2) Represents compensation paid in the form of premiums for group life
insurance.
(3) Represents (i) a $30,000 signing bonus earned in fiscal year 1996, but paid
in fiscal year 1997, and (ii) a $99,320 bonus earned in fiscal year 1997.
(4) Represents Mr. Grenon's salary since joining the Company in October 1998.
(5) Represents relocation expense reimbursements.
(6) Mr. Smookler became an executive officer of the Company in January 1998.
10
<PAGE>
STOCK OPTIONS
The following table contains information concerning stock option grants
made to each of the Named Executive Officers during the fiscal year ended March
31, 1999. No stock appreciation rights were granted during such fiscal year to
the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1999(1)
INDIVIDUAL GRANTS
--------------------------------------------------------
Potential Realizable
Value at Assumed Annual
Number of Rates of Stock Price
Securities % of Total Appreciation for Option
Underlying Options Granted Exercise Term(2)
Options to Employees in Price Expiration -----------------------
Name Granted (#) 1999 Fiscal Year ($/Share) Date 5% 10%
--------------------------- ----------- ---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Kissner 288,000 10.40% $7.25 06/25/08 $1,313,132 $3,327,734
312,000 11.27 4.6875 08/04/08 919,758 2,330,848
12,936 0.47 2.9375 10/19/08 23,898 60,561
Frank Carretta, Jr. 35,000 1.26 7.25 06/25/08 159,582 404,412
7,659 0.28 2.9375 10/19/08 14,149 35,857
Frank Grenon 300,000 10.83 2.8125 10/08/08 530,630 1,344,720
8,000 0.29 2.9375 10/19/08 14,779 37,453
Sam Smookler 100,000 3.61 7.25 06/25/08 455,949 1,155,463
10,893 0.39 2.9375 10/19/08 20,123 50,997
Carl A. Thomsen 75,000 2.71 7.25 06/25/08 341,961 866,597
7,353 0.27 2.9375 10/19/08 13,584 34,424
</TABLE>
- --------------------------
(1) All options granted, except as specifically noted, had ten-year terms and
vest ratably over five years.
(2) The 5% and 10% annual rates of compounded stock price appreciation are
mandated by rules of the Securities and Exchange Commission. There is no
assurance provided to any Named Executive Officer or any other holder of
the Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the Named Executive Officers.
11
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executive Officers concerning their exercise of stock options during the fiscal
year ended March 31, 1999, and the unexercised options held by them as of March
31, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND OPTION VALUES AT MARCH 31, 1999
<TABLE>
<CAPTION>
Value of Unexercised in-the-
Money Options at March 31,
Number of Securities 1998 (market price of shares
Underlying Unexercised at March 31, 1999 ($8.375
Options at March 31, 1999 (#) less exercise price)(1)
----------------------------- -----------------------------
Value
Realized
(market price
at exercise
Shares date less
Acquired on exercise
Name Exercise (#) price) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------ ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Kissner -- -- 594,406 422,538 $808,459 $1,055,143
Frank Carretta, Jr. -- -- 71,000 92,659 137,063 81,021
Frank Grenon -- -- 642,022 308,000 4,172,373 1,712,250
Sam Smookler -- -- 40,000 270,893 -- 171,731
Carl A. Thomsen -- -- 109,484 104,623 111,522 109,109
</TABLE>
- ------------------------
(1) "In-the-money" options are options with an exercise price less than the
closing price of the Company's Common Stock on March 31, 1999.
12
<PAGE>
EMPLOYMENT AND TERMINATION AGREEMENTS
Mr. Kissner, Mr. Carretta, Mr. Grenon, Mr. Smookler and Mr. Thomsen, the
Named Executive Officers, each have written employment agreements with the
Company.
In August 1998, Mr. Kissner entered into a renewed and restated employment
agreement with the Company. The terms of this agreement extend until terminated
by either the Company or Mr. Kissner. The Agreement provides that (1) if Mr.
Kissner is terminated without cause or as a result of a disability, he is
entitled to receive (a) severance payment equal to the amount of 36 months of
his then base salary, paid in the form of a salary continuation over the course
of a 36-month period, (b) payment equal to the average annual incentive bonus
received by Mr. Kissner for the previous three fiscal years multiplied by three,
(c) a proration of his incentive bonus, if earned, for the then current fiscal
year based on the number of months he was employed during the year by the
Company, (d) payment of Mr. Kissner's share of health insurance premiums for a
period of up to 36 months, unless he and his family become entitled to enroll in
a group health insurance plan of another company or organization as defined by
COBRA Regulations, and (e) continued vesting of all new and future stock options
for a period of 36 months.
Mr. Kissner may also terminate his employment with the Company if one of
the following events takes place without his consent: (a) Mr. Kissner's position
changes, which results in a significant reduction of his title or
responsibilities, (b) Mr. Kissner's compensation is reduced by more than five
percent, or (c) Mr. Kissner's principal place of employment is relocated by more
than 50 miles. If Mr. Kissner terminates his employment in any of these
scenarios, he will receive the same severance payments and benefits that he is
entitled to receive if the Company were to terminate his employment without
cause as described above.
Additionally, if Mr. Kissner is terminated by the Company or a "Surviving
Legal Entity" following a "Change of Control," each as defined in the employment
agreement, Mr. Kissner will receive the same severance payments and benefits
that he is entitled to receive if the Company were to terminate his employment
without cause as described above.
Mr. Grenon entered into an employment agreement with the Company effective
as of October 1998. Mr. Carretta, Mr. Smookler and Mr. Thomsen entered into
renewed and restated employment agreements with the Company, effective as of
December 1998. The term of each of these four agreements extends until
terminated by either the Company or the officer. The employment agreement for
each of these officers includes the following provisions: (1) if the officer is
terminated without cause he shall be entitled to receive (a) severance pay for
12 months at his normal monthly salary; (b) the continuation of vesting of his
stock options for one year from the date of his termination; and (c) a proration
of his incentive bonus, if earned, for the then current fiscal year based on the
number of months he was employed during the year by the Company; or (2) if the
Company is merged or acquired in a transaction in which there is a Change of
Control of the Company, then the officer shall be entitled to receive (i)
severance pay in the amount of two times his base annual salary; (ii) a bonus
payment equal to that of the total of the bonuses paid to him in the last two
fiscal years; and (iii) a proration of his incentive bonus, if earned, for the
then current fiscal year based on the number of months he was employed during
the year by the Company. In the event of a Change of Control, the officer shall
receive full vesting of all stock option grants in accordance with the Company's
stock option agreements.
BOARD MEETINGS AND COMMITTEES
During the year ended March 31, 1999, the Board of Directors held nine
meetings. During the same period, each director attended at least 75% of the
aggregate of (i) the total number of meetings of the Board held during the
period for which he was a director and (ii) the total number of meetings by all
Committees of the Board on which such director served held during the period for
which he was a director. There are no family relationships among any of the
executive officers or directors of the Company.
The Company currently has an Audit Committee and a Compensation Committee
of the Board of Directors. The Audit Committee is primarily responsible for
approving the services performed by the Company's independent public accountants
and reviewing the Company's accounting practices and system of internal
accounting controls. The Audit Committee, which currently consists of Mr.
Alberding, Mr. Higgerson and Mr. Oringer, held four meetings during the year
ended March 31, 1999. The Compensation Committee is responsible for recommending
and reviewing the compensation of the Company's executive officers and for
13
<PAGE>
administering the Company's incentive plans. This committee, which currently
consists of Dr. Meindl, Mr. Combs and Mr. Oliver, held seven meetings during the
year ended March 31, 1999.
The Company does not currently have a Nominating Committee. Although there
are no formal procedures for stockholders to recommend nominees for election to
the Board, the Board will consider recommendations from stockholders, which
should be addressed to Ms. Carol A. Goudey, the Company's Assistant Secretary,
at the Company's address set forth above.
COMPENSATION OF DIRECTORS
During the year ended March 31, 1999, the Company paid each non-employee
director $1,000 in fees for each in-person meeting and $500 per telephone
meeting, a retainer of $3,000 per quarter, and committee meeting fees of $750
for each in-person committee meeting and $375 for each telephone committee
meeting unless, in either case, such committee meeting was held in conjunction
with a Board meeting. Directors were also reimbursed for their out-of-pocket
expenses incurred in attending meetings of the Board and committees thereof. The
Company also pays consulting fees to members of the Board of $1,000 per day, in
one half day increments, for Board approved projects (including transportation
time) plus reimbursement of all expenses. Beginning January 1, 1999, those
directors electing to participate in the Stock Fee Program of the Company's 1994
Incentive Plan, had their annual retainer fee increased to $14,000 per year,
which is equivalent to $3,500 per quarter.
Pursuant to the Company's 1994 Stock Incentive Plan (the "1994 Incentive
Plan"), during the year ended March 31, 1999, each new non-employee Board
member, upon his initial appointment or election to the Board, received an
automatic option grant for 42,000 shares with an exercise price equal to the
fair market value of the option shares on the grant date. Each individual
reelected as a non-employee Board member at the 1998 annual meeting of
stockholders, and who had been a Board member for the three prior years,
received an option grant at that time for 14,000 shares. Each initial or
periodic option grant is immediately exercisable for all the option shares, but
the shares purchased under the option are subject to repurchase by the Company,
at the option exercise price, upon the optionee's cessation of Board service.
The option shares vest, and the Company's repurchase right lapses with respect
to option shares, in three equal annual installments over the optionee's period
of Board service, measured from the grant date. However, upon certain changes in
control of the Company, the Company's repurchase rights immediately lapse in
full. Each option grant has a maximum term of ten years, subject to earlier
termination upon the optionee's cessation of Board service.
Pursuant to the Stock Fee Program of the Company's 1994 Incentive Plan,
non-employee directors may elect to apply all or any portion of their annual
retainer fee and/or meeting fees otherwise payable in cash to the acquisition of
shares of the Company's Common Stock. For the 1999 calendar year, Mr. Bachow,
Mr. Combs, Mr. Mendicino and Mr. Oliver have chosen to participate in such
program and have elected to receive the Company's Common Stock in lieu of their
annual retainer fee. On January 4, 1999, Mr. Bachow, Mr. Combs, Mr. Mendicino
and Mr. Oliver each received 2,093 shares of the Company's Common Stock at a
purchase price of $6.6875 per share. Such shares will be held in escrow by the
Company and will vest ratably each month over the 1999 calendar year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
three members of the Board: John W. Combs, James D. Meindl and Billy B. Oliver.
No member of this committee is a present or former officer or employee of the
Company or any of its subsidiaries.
No executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has the authority and responsibility to approve
the overall compensation strategy for the Company, administer the Company's
annual and long-term compensation plans, and review and make recommendations to
the Board of Directors with respect to the Company's executive compensation. The
Compensation Committee is comprised of independent, non-employee Board members.
14
<PAGE>
GENERAL COMPENSATION POLICY. The Compensation Committee's overall policy is
to offer the Company's executive officers competitive compensation
opportunities. The Compensation Committee utilizes competitive data and
summaries provided by Radford Associates, Alexander & Alexander Consulting Group
and the American Electronics Association to develop compensation recommendations
competitive with other companies in the communications industry. The
Compensation Committee's objectives are to (i) create a performance oriented
environment with variable compensation based upon the achievement of annual and
longer-term business results; (ii) focus management on maximizing stockholder
value through stock-based compensation aligned to stockholders' return; and
(iii) provide compensation opportunities dependent upon the Company's
performance relative to its competitors and changes in its own performance over
time.
The Compensation Committee is authorized (i) to establish and maintain
compensation guidelines for salaries and merit pay increases throughout the
Company; and (ii) to make specific recommendations to the Board of Directors
concerning the compensation of executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee also administers the
Company's stock option plans and the Company's retirement and savings plan.
FACTORS. The primary factors considered in establishing the components of
each executive officer's compensation package for the fiscal year ended March
31, 1999 are summarized below. The Committee may in its discretion apply
entirely different factors, such as different measures of financial performance,
for future fiscal years.
- BASE SALARY. The base salary for each officer is set on the
basis of personal performance, the salary levels in effect for
comparable positions with other companies in the industry, and
internal comparability considerations. Generally, Company
performance and profitability are not taken into account in
establishing base salary. Salaries paid to the Company's executive
officers for the fiscal year ended March 31, 1999 ranged from the
86th percentile at the low end to the 107th percentile at the high
end of the compensation data surveyed for the industry. A number of
adjustments were made to the surveyed compensation data for the
industry to reflect differences in management style, organizational
structure and corporate culture, geographic location, product
development stage and market capitalization between the Company and
the surveyed entities. As a result of these adjustments, there is
not a meaningful correlation between the companies in the industry
which were taken into account for comparative compensation purposes
and the companies included in the industry group index which
appears later in this Proxy Statement for purposes of evaluating
the price performance of the Company's Common Stock. See "Stock
Performance Graph."
- ANNUAL INCENTIVE COMPENSATION. For the fiscal year ended March
31, 1999, specific financial and organizational objectives,
including earnings per share, revenue and orders targets, were
established as the basis for the incentive bonuses to be paid to
the executive officers of the Company.
Specific bonus awards, set as a target percentage of salary, were
established for each officer's position and were to be earned on the
basis of achieving the specified corporate goals and the
accomplishment of specific individual objectives. The corporate goals
for the fiscal year 1999 were not met, and incentive bonuses were not
paid to officers of the Company for such fiscal year based on this
plan. Separate goals were established for Mr. Grenon when he joined
the Company in connection with the merger with Innova Corporation.
These goals were achieved and an incentive bonus was paid to Mr.
Grenon.
- LONG-TERM STOCK-BASED INCENTIVE COMPENSATION. Generally, the
Compensation Committee awards stock options to each of the Company's
executive officers following the initial hiring and from time to time
thereafter. The option grants are designed to align the interests of
the executive officer with those of the stockholders and to provide
each individual with a significant incentive to manage the Company
from the perspective of an owner with an equity stake in the business.
In furtherance of this policy, the Company has implemented the 1994
Incentive Plan to serve as a comprehensive equity incentive program
for the Company's executive officers and other key employees.
Additionally, at the Annual Meeting, the Company's stockholders are
being asked to approve the adoption of the 1999 Incentive Plan, which
if approved, will serve as a comprehensive equity incentive program
for the Company's executive officers and other key employees.
Generally, the size of the option grant made to each executive officer is
set at a level which the Compensation Committee deems appropriate to create
a meaningful opportunity for stock ownership based
15
<PAGE>
upon the individual's current position with the Company, but the
Compensation Committee also takes into account comparable awards to
individuals in similar positions in the industry, as reflected in
external surveys, the individual's potential for future responsibility
and promotion, the individual's performance in recent periods and the
number of unvested options held by the individual at the time of the
grant. The relative weight given to each of these factors will vary from
individual to individual in the Committee's discretion. Each of the
Named Executive Officers, Mr. Kissner, Mr. Carretta, Mr. Grenon, Mr.
Smookler and Mr. Thomsen, received stock option grants in fiscal year
1999.
Each grant allows the executive officer to acquire shares of the Company's
Common Stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to 10 years). The option will
generally become exercisable in installments over a five-year period,
contingent upon the executive officer's continued employment with the
Company. Accordingly, the option will provide a return to the executive
officer only if he or she remains in the Company's employ, and then only if
the market price of the Company's Common Stock appreciates over the option
term.
CEO COMPENSATION. The Compensation Committee established Mr. Kissner's base
salary with the objective of maintaining the competitiveness of Mr. Kissner's
base salary with salaries paid to similarly situated chief executive officers.
With respect to Mr. Kissner's base salary, it was the Compensation Committee's
intent to provide him with a level of stability and certainty each year and not
have this particular component of compensation affected to any significant
degree by Company performance factors. Mr. Kissner's base salary for the 1999
fiscal year was set at the 86th percentile of the salary data surveyed for other
chief executive officers in the industry.
Mr. Kissner received additional compensation from the Company in the 1999
fiscal year in the form of a car allowance. In addition, Mr. Kissner received a
grant of 612,936 stock options in the 1999 fiscal year.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the Company's executive officers. The limitation
applies only to compensation which is not considered to be performance-based.
The non-performance-based compensation paid to the Company's executive officers
in fiscal year 1999 did not exceed the $1 million limit per officer. At the 1994
Annual Meeting, the stockholders approved the implementation of the 1994
Incentive Plan under which the number of shares of Common Stock for which any
one individual participating in the 1994 Incentive Plan may be granted stock
options, stock appreciation rights or direct stock issuances is limited to
1,000,000 shares over the term of the plan. As a result of this limitation and
certain other administrative provisions of the 1994 Incentive Plan, any
compensation deemed paid to a covered executive officer in connection with the
exercise of stock options or stock appreciation rights granted under the 1994
Incentive Plan with an exercise price equal to the market price of the shares
covered by the option or stock appreciation right on the grant date will qualify
as performance-based compensation.
The 1999 Incentive Plan, which is subject to the approval of the Company's
stockholders as described in Proposal 2, also contains limits on the number of
stock options a participant may receive in any fiscal year, as well as certain
other administrative provisions, so that the compensation attributable to the
exercise of stock options under the 1999 Incentive Plan will qualify as
performance-based compensation.
The Compensation Committee does not expect that the compensation to be paid
to the Company's covered executive officers for the 2000 fiscal year will exceed
the $1 million limit per officer. The Compensation Committee is aware of the
limitations imposed by Section 162(m), and the exemptions available therefrom,
and will address the issue of deductibility when and if circumstances warrant
and may use such exemptions in addition to the exemption contemplated under the
Company's 1994 Incentive Plan.
Submitted by the Compensation Committee of the Company's Board of
Directors:
John W. Combs
James D. Meindl
Billy B. Oliver
16
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage changes in the
cumulative total stockholder return on the Company's Common Stock with the
cumulative total return on the Dow Jones Equity Market Index and the Dow Jones
Communications Technology Index during the five fiscal years ended March 31,
1999. The comparison assumes $100 was invested on March 31, 1994 in the
Company's Common Stock and in each of the foregoing indices and assumes
reinvestment of any dividends.
COMPARISON OF 5-YEAR CUMULATIVE RETURN
AMONG
DIGITAL MICROWAVE CORPORATION,
DOW JONES EQUITY MARKET INDEX AND
DOW JONES COMMUNICATIONS TECHNOLOGY INDEX
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------
3/94 3/95 3/96 3/97 3/98 3/99
<S> <C> <C> <C> <C> <C> <C>
DIGITAL MICROWAVE CORPORATION 100 92 61 131 200 114
DOW JONES EQUITY MARKET 100 115 153 183 270 320
DOW JONES COMMUNICATIONS TECHNOLOGY 100 107 131 121 199 339
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Company Stock Performance Graph will not be
incorporated by reference into any of those prior filings; nor will such report
or graph be incorporated into any future filings made by the Company under those
statutes.
17
<PAGE>
OTHER MATTERS
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
beneficial ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent (10%) stockholders are required
by Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended March 31, 1999, all of the
Company's officers, directors and greater than ten percent beneficial owners
complied with applicable Section 16(a) filing requirements during the 1999
fiscal year, except that Mr. Billy Oliver, a director of the Company, and each
officer of the Company inadvertently failed to file a Form 5 for the 1999 fiscal
year in a timely manner. However, each such form was subsequently filed with the
Securities and Exchange Commission on June 9, 1999.
STOCKHOLDER PROPOSALS
The deadline for stockholder proposals intended to be considered for
inclusion in the Company's Proxy Statement for next year's Annual Meeting of
Stockholders is expected to be March 9, 2000. Such proposals may be included in
next year's Proxy Statement if they comply with certain rules and regulations
promulgated by the Securities and Exchange Commission.
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting. Should any other matter requiring a
vote of the stockholders arise, the enclosed proxy card gives authority to the
persons listed on the card to vote at their discretion in the best interest of
the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ CHARLES D. KISSNER
Charles D. Kissner
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
San Jose, California
July 7, 1999
18
<PAGE>
PROXY CARD PROXY CARD
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF DIGITAL MICROWAVE CORPORATION
FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 10, 1999
The undersigned stockholder of DIGITAL MICROWAVE CORPORATION, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated July 7, 1999, and the 1999
Annual Report to Stockholders, and hereby appoints Charles D. Kissner, Carl
A. Thomsen and Carol A. Goudey or any one of them, proxies, with full power
to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the 1999 Annual Meeting of Stockholders of
DIGITAL MICROWAVE CORPORATION to be held on August 10, 1999 at 3:00 p.m.,
local time, at the Company's executive offices located at 170 Rose Orchard
Way, San Jose, California, and at any adjournment or adjournments thereof,
and to vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set
forth below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE ADOPTION OF
THE DIGITAL MICROWAVE CORPORATION 1999 STOCK INCENTIVE PLAN, FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS OF DIGITAL MICROWAVE CORPORATION, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark your /X/
votes as indicated
in this example
PROPOSAL 1. FOR ALL nominees WITHHOLD AUTHORITY
listed below to vote for all nominees
(except as indicated) listed below
/ / / /
1. ELECTION OF OFFICERS
Nominees: (If you wish to withhold authority to vote for any individual
nominee, strike a line through that nominee's name in the list below.
Charles D. Kissner
Richard C. Alberding
Paul S. Bachow
John W. Combs
James D. Meindl
V. Frank Mendicino
Howard Oringer
2. PROPOSAL TO APPROVE THE ADOPTION OF FOR AGAINST ABSTAIN
THE DIGITAL MICROWAVE CORPORATION / / / / / /
1999 STOCK INCENTIVE PLAN:
3. PROPOSAL TO RATIFY THE APPOINTMENT FOR AGAINST ABSTAIN
OF ARTHUR ANDERSEN LLP AS THE / / / / / /
INDEPENDENT PUBLIC ACCOUNTANTS
OF DIGITAL MICROWAVE CORPORATION
FOR FISCAL 2000:
Signature Signature Dated ,1999
-------------------- -------------------- --------
This Proxy should be marked, dated and signed by the stockholder(s) exactly
as his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.
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FOLD AND DETACH HERE
