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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
SBE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not applicable
- --------------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(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:
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(4) Date Filed:
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[SBE LOGO]
SBE, INC.
4550 NORRIS CANYON ROAD
SAN RAMON, CALIFORNIA 94583
DEAR STOCKHOLDERS:
You are invited to attend the Annual Meeting of Stockholders of SBE, Inc. to
be held Tuesday, March 24, 1998, at 5:00 p.m. local time at the Company's
Corporate Headquarters at 4550 Norris Canyon Road, San Ramon, California.
At this meeting you are being asked to vote on several matters recommended
by the Board of Directors. I want to emphasize the importance of Proposal 2--our
proposed increase in the number of shares of Common stock under our employee
stock option plan.
To succeed, SBE must recruit and retain extraordinarily talented people at a
time when the competition for these individuals is at an all-time high. For
example, it is not uncommon for networking equipment companies in Silicon Valley
to experience voluntary turnover of salaried personnel in excess of 10% per
year. According to industry salary surveys, cash compensation among engineers
has been increasing recently at rates of 12% per year and greater. In the midst
of this, SBE must offer engineers, sales and marketing individuals and other key
personnel a meaningful participation in the future appreciation of the Company's
stock. Without this, I believe we will lose our ability to attract and retain
many of the people we most need.
Over the last year, we focused the Company's efforts on the high-growth
areas of telecommunications, communications servers and remote access products.
Our engineering activities now clearly target these markets. We have outsourced
the manufacturing operation of the Company, with significant economies being
realized. Our sales and marketing organization has delivered significantly
improved sales over the past year with expanded customer accounts.
I have seen the kind of value that can be created by motivated and
high-energy employees, and how hard we must work to recruit and retain these
individuals. Not all of that effort is financial. As executives, we are
responsible for creating an environment where work and achievement are both
enjoyable and professionally rewarding, separate and apart from money. But
without creating an exciting financial opportunity for our employees--and in our
industry, that means stock incentives-- we will lose our ability to compete for
the people who can really make a difference for our customers and our
stockholders. As your President and CEO, my responsibility is not limited to
preserving past successes or merely holding even with our competition. Rather, I
firmly believe that a continuing investment in our most critical resource--our
employees--is needed to vigorously strengthen areas of weakness and inspire
creative solutions to the challenges before us.
The management team at SBE is dedicated to improving the financial
performance of the Company and to increasing the market value of the Common
Stock. I believe that the proposed increase in our Stock Option Plan is an
essential part of our ability to achieve that objective. The Board of Directors
urges you to carefully review the accompanying proxy statement and to vote yes
on amending the 1996 Stock Option Plan.
Please sign, date and promptly mail the enclosed proxy in the prepaid
envelope enclosed. Thank you for your attention to this matter.
<TABLE>
<S> <C>
/s/ William B. Heye
William B. Heye, Jr.
PRESIDENT AND CEO
</TABLE>
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[SBE LOGO]
SBE, INC.
4550 NORRIS CANYON ROAD
SAN RAMON, CALIFORNIA 94583
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 24, 1998
TO THE STOCKHOLDERS OF SBE, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of SBE, Inc.,
a Delaware corporation (the "Company"), will be held on Tuesday, March 24, 1998,
at 5:00 p.m. local time, at the Company's principal offices at 4550 Norris
Canyon Road, San Ramon, California, for the following purposes:
1. To elect two directors to hold office until the 2001 Annual Meeting of
Stockholders.
2. To approve the Company's 1996 Stock Option Plan, as amended, to increase
the aggregate number of shares of Common Stock authorized for issuance under
such plan by 200,000 shares.
3. To ratify the selection of Coopers & Lybrand LLP as the Company's
independent auditors for the fiscal year ending October 31, 1998.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on February 18, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ Timothy J. Repp
Timothy J. Repp
CHIEF FINANCIAL OFFICER, VICE
PRESIDENT, FINANCE AND SECRETARY
San Ramon, California
February 24, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT ATTENDANCE AT THE MEETING WILL NOT BY ITSELF REVOKE A PROXY.
FURTHERMORE, IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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SBE, INC.
4550 NORRIS CANYON ROAD
SAN RAMON, CALIFORNIA 94583
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 24, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of SBE, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held on Tuesday,
March 24, 1998, at 5:00 p.m. local time, or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Company's offices at 4550
Norris Canyon Road, San Ramon, California. The Company intends to mail this
proxy statement and accompanying proxy card on or about February 24, 1998 to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on February
18, 1998 (the "Record Date") will be entitled to notice of and to vote at the
Annual Meeting. At the close of business on the Record Date, the Company had
outstanding and entitled to vote 2,659,655 shares of Common Stock.
Each holder of record of Common Stock on the Record Date will be entitled to
one vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's
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principal executive office, 4550 Norris Canyon Road, San Ramon, California
94583, a written notice of revocation or a duly executed proxy bearing a later
date, or it may be revoked by attending the meeting and voting in person.
Attendance at the meeting will not, by itself, revoke a proxy. Furthermore, if
the shares are held of record by a broker, bank or other nominee and the
stockholder wishes to vote at the meeting, the stockholder must obtain from the
record holder a proxy issued in the stockholder's name.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company not later
than October 27, 1998, in order to be included in the proxy statement and proxy
relating to that annual meeting. In addition, any stockholder that desires to
make a proposal to be presented at the Company's Annual Meeting of Stockholders
must comply with the provisions relating to advance notice contained in the
Company's By-laws.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended Certificate of Incorporation and By-laws provide that
the Board of Directors shall be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the Board of Directors) shall serve for the remainder of the full
term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of five members. There are two
directors in the class whose term of office expires in 1998. Each of the
nominees for election to this class is currently a director of the Company who
was previously elected by the stockholders. If elected at the Annual Meeting,
each of the nominees would serve until the 2001 annual meeting and until his or
her successor is elected and has qualified, or until such director's earlier
death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM
EXPIRING AT THE 2001 ANNUAL MEETING
RAIMON L. CONLISK
Mr. Conlisk, 75, has served as a director since 1991 and currently serves as
Chairman of the Board. From 1977 to date, Mr. Conlisk has been President of
Conlisk Associates, a management consulting firm serving high-technology
companies in the United States and foreign countries. Since April 1994, Mr.
Conlisk has served as Chairman of the Board of Directors of Exar Corporation
("Exar"), a manufacturer of application-specific integrated circuits. Mr.
Conlisk also has served as a director of Exar since 1985. Since 1991 Mr. Conslik
has served as a director of XeTel Corporation, a contract manufacturer of
electronic equipment. Mr. Conlisk was President, from 1984 to 1989, and Chairman
of the Board of Directors, from 1989 until retirement in June 1990, of Quantic
Industries, Inc. ("Quantic"), a manufacturer of electronic systems and devices
for aerospace, defense, and factory automation applications, and he served as a
director of Quantic from 1970 until retirement.
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From 1970 to 1973 and from 1987 to 1990, Mr. Conlisk served as a director of the
American Electronics Association.
RANDALL L-W. CAUDILL
Dr. Caudill, 50, has served as a director since 1997. From January 1997 to
date, Dr. Caudill has been President of Dunford Hill Capital Partners, a
consulting firm serving high-technology and biotechnology companies in the
United States and abroad. From June 1987 to December 1996, Dr. Caudill served as
Managing Director of the San Francisco corporate finance office of Prudential
Securities, an investment banking firm. From June 1987 to February 1993, Dr.
Caudill was Managing Director in charge of Prudential Securities' Mergers and
Acquisitions Department, and he served as co-head of the Investment Banking
department in 1991. Dr. Caudill serves as a director of PLM International, Inc.,
an international diversified equipment leasing company, and is a director of
VaxGen, Inc., a pharmaceuticals company developing commercial HIV vaccines. Dr.
Caudill received a D. Phil. from Oxford University, where he was a Rhodes
Scholar and a teaching fellow.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
DIRECTOR CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
GEORGE E. GREGA
Mr. Grega, 68, has served as a director since 1991. From January 1985 to
date, Mr. Grega has been President of George E. Grega Associates, an
international business and management consulting firm. From 1985 to date, Mr.
Grega has served as a director of Exar. Mr. Grega was an employee of General
Electric Company, a diversified international manufacturer of defense,
electrical and other products, from 1950 through 1984, including service from
1970 to 1973 as President and Chief Executive Officer of General Electric Japan,
Ltd.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
WILLIAM B. HEYE, JR.
Mr. Heye, 59, has served as President, Chief Executive Officer and a
director of the Company since November 1991. From 1989 to November 1991, he
served as Executive Vice President of Ampex Corporation, a manufacturer of
high-performance scanning recording systems, and President of Ampex Video
Systems Corporation, a wholly-owned subsidiary of Ampex Corporation and a
manufacturer of professional video recorders and editing systems for the
television industry. From 1986 to 1989, Mr. Heye served as Executive Vice
President of Airborn, Inc., a manufacturer of components for the aerospace and
military markets. Prior to 1986, Mr. Heye served in various senior management
positions at Texas Instruments, Inc. in the United States and overseas,
including Vice President and General Manager of Consumer Products and President
of Texas Instruments Asia, Ltd., with headquarters in Tokyo, Japan.
RONALD J. RITCHIE
Mr. Ritchie, 57, has served as a director since 1997. Since February 1998,
Mr. Ritchie has been Chairman of the Board of VXI Electronics, Inc., a supplier
of power conversion components. Mr. Ritchie was President and CEO of Akashic
Memories Corporation, a firm supplying thin film hard disk media to
manufacturers of disk drive products, from November 1996 to January 1998. Mr.
Ritchie was President of Ritchie Associates, a business and management
consulting firm, from May 1994 to November 1996. From August 1992 to April 1994,
Mr. Ritchie was President and Chief Operating
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Officer of Computer Products, Inc., a supplier of power conversion components
and system applications for the computer and networking industry. Prior to
August 1992, Mr. Ritchie held President or senior executive positions at Ampex
Corporation, Canaan Computer Corporation, Allied Signal Corporation and Texas
Instruments.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended October 31, 1997, the Board held five meetings.
The Board has an Audit Committee and a Compensation Committee, but does not have
a nominating committee or any committee performing a similar function.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained;
receives and considers the auditors' comments as to controls, adequacy of staff
and management performance and procedures in connection with audit and financial
controls; and performs other related duties delegated to such committee by the
Board. The Audit Committee, which consisted of two non-employee directors, Dr.
Caudill and Mr. Conlisk, held one meeting during fiscal 1997.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee, which consists of three non-employee
directors, Messrs. Conlisk, Ritchie and Grega, held nine meetings during fiscal
1997.
During fiscal 1997, each Board member attended 75% or more of the aggregate
of the meetings of the Board and of the committees on which he served during the
fiscal year, held during the period for which he was a director or committee
member, respectively.
PROPOSAL 2
APPROVAL OF 1996 STOCK OPTION PLAN, AS AMENDED
In July 1987, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1987 Supplemental Stock Option Plan. This
plan was amended and restated on January 18, 1996 and retitled the 1996 Stock
Option Plan (the "1996 Plan"). At October 31, 1997, the aggregate number of
shares of the Company's Common Stock authorized for issuance under the 1996 Plan
was 1,130,000.
On October 31, 1997, options (net of canceled or expired options) covering
an aggregate of 663,775 shares of the Company's Common Stock had been granted
and were outstanding under the 1996 Plan, and only 36,917 shares (plus any
shares that might in the future be returned to the 1996 Plan as a result of
cancellations or expiration of options) remained available for future grant
under the 1996 Plan. During the last fiscal year, under the 1996 Plan, the
Company granted to all current executive officers as a group options to purchase
40,000 shares at exercise prices of $4.25 to $5.25 per share, and to all
employees (excluding executive officers) as a group, options to purchase 162,100
shares at exercise prices of $3.69 to $17.25 per share. No options may be
granted under the 1996 Plan to non-employee directors.
On December 9, 1997, the Board approved an amendment to the 1996 Plan,
subject to stockholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees. The
amendment increases the number of shares authorized for issuance under the 1996
Plan from a total of 1,130,000 shares to 1,330,000 shares. The Board adopted
this amendment to ensure that the Company can continue to grant stock options to
employees at levels determined appropriate by the Board and the Compensation
Committee.
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Stockholders are requested in this Proposal 2 to approve the 1996 Plan, as
amended. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the 1996 Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on this matter and will have the same effect
as negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
The essential features of the 1996 Plan are outlined below:
GENERAL
The 1996 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1996 Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1996 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The 1996 Plan was adopted to provide a means by which selected employees and
employee-directors of and consultants to the Company and its affiliates could be
given an opportunity to purchase stock in the Company, to assist in retaining
the services of employees holding key positions, to secure and retain the
services of persons capable of filling such positions and to provide incentives
for such persons to exert maximum efforts for the success of the Company.
Approximately 85 of the Company's approximately 90 employees and consultants are
eligible to participate in the 1996 Plan.
ADMINISTRATION
The 1996 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1996 Plan and, subject to the
provisions of the 1996 Plan, to determine the persons to whom and the dates on
which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of such option may be exercised, the exercise price, the type of
consideration and other terms of the option. The Board of Directors is
authorized to delegate administration of the 1996 Plan to a committee composed
of not fewer than two members of the Board. The Board has delegated
administration of the 1996 Plan to the Compensation Committee of the Board. As
used herein with respect to the 1996 Plan, the "Board" refers to the
Compensation Committee as well as to the Board of Directors itself. In addition,
the 1996 Plan provides that, in the Board's discretion, directors who grant
options to employees covered under Section 162(m) of the Code generally will be
"outside directors" as defined in Section 162(m). See "Federal Income Tax
Information" below for a discussion of the application of Section 162(m).
ELIGIBILITY
Incentive stock options may be granted under the 1996 Plan only to selected
employees (including officers) of the Company and its affiliates. Selected
employees (including officers), employee-directors and consultants are eligible
to receive nonstatutory stock options under the 1996 Plan. Directors who are not
salaried employees of or consultants to the Company or to any affiliate of the
Company are not eligible to participate in the 1996 Plan.
No option may be granted under the 1996 Plan to any person who, at the time
of the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair
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market value of the stock subject to the option on the date of grant, and the
term of the option does not exceed five years from the date of grant. For
incentive stock options granted under the 1996 Plan, the aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which such options are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company and its
affiliates) may not exceed $100,000.
No person may be granted options under the 1996 Plan during any calendar
year to purchase in excess of 150,000 shares of Common Stock. This limitation
permits the Company under Section 162(m) of the Code to continue to be able to
deduct as a business expense certain compensation attributable to the exercise
of options granted under the 1996 Plan. Section 162(m) denies a deduction to any
publicly held corporation for certain compensation paid to specific employees in
a taxable year to the extent that the compensation exceeds $1,000,000 for any
covered employee, unless certain conditions are satisfied. See "Federal Income
Tax Information" below for a discussion of the application of Section 162(m).
STOCK SUBJECT TO THE 1996 PLAN
If options granted under the 1996 Plan expire or otherwise terminate without
being exercised, the Common Stock not purchased pursuant to such options again
becomes available for issuance under the 1996 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
1996 Plan. Individual option grants may be more restrictive as to any or all of
the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the 1996 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1996 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant. However, if options were granted with exercise
prices below market value, deductions for compensation attributable to the
exercise of such options could be limited by Section 162(m). See "Federal Income
Tax Information." At February 10, 1998, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market was $8.50 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. The Company has provided that opportunity to employees in
the past. To the extent required by Section 162(m), an option repriced under the
1996 Plan is deemed to be canceled and a new option granted. Both the option
deemed to be canceled and the new option deemed to be granted will be counted
against the 150,000 share per calendar year limitation.
The exercise price of options granted under the 1996 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (iii) in any other form of
legal consideration acceptable to the Board.
OPTION EXERCISE. Options granted under the 1996 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the 1996 Plan typically vest at the rate of
1/48th per month (25% per year) with one-year cliff vesting, during the
optionee's employment or services as a consultant. Shares covered by options
granted in the future under the 1996 Plan may be subject to different vesting
terms. The Board has
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the power to accelerate the time during which an option may be exercised. In
addition, options granted under the 1996 Plan may permit exercise prior to
vesting, but in such event the optionee may be required to enter into an early
exercise stock purchase agreement that allows the Company to repurchase shares
not yet vested at their exercise price should the optionee leave the employ of
the Company before vesting. To the extent provided by the terms of an option, an
optionee may satisfy any federal, state or local tax withholding obligation
relating to the exercise of such option by a cash payment upon exercise, by
authorizing the Company to withhold a portion of the stock otherwise issuable to
the optionee, by delivering already-owned stock of the Company or by a
combination of these means.
TERM. The maximum term of options under the 1996 Plan is ten years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1996 Plan terminate three months after termination of the
optionee's employment or relationship as a consultant to the Company or any
affiliate of the Company, unless (a) such termination is due to such person's
permanent and total disability (as defined in the Code), in which case the
option may, but need not, provide that it may be exercised at any time within
one year of such termination; (b) the optionee dies while employed by or serving
as a consultant to the Company or any affiliate of the Company, or within three
months after termination of such relationship, in which case the option may, but
need not, provide that it may be exercised (to the extent the option was
exercisable at the time of the optionee's death) within eighteen months of the
optionee's death by the person or persons to whom the rights to such option pass
by will or by the laws of descent and distribution; or (c) the option by its
terms specifically provides otherwise. Individual options by their terms may
provide for exercise within a longer period of time following termination of
employment or the consulting relationship. The option term may also be extended
in the event that exercise of the option within these periods is prohibited for
specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1996 Plan or subject to
any option granted under the 1996 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1996 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares that
may be granted to an employee during a calendar year, and the class, number of
shares and price per share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1996 Plan provides that, in the event of a dissolution or liquidation of
the Company, specified type of merger or other corporate reorganization, to the
extent permitted by law, any surviving corporation will be required to either
assume options outstanding under the 1996 Plan or substitute similar options for
those outstanding under such plan, or such outstanding options will continue in
full force and effect. In the event that any surviving corporation declines to
assume or continue options outstanding under the 1996 Plan, or to substitute
similar options, then the time during which such options may be exercised will
be accelerated and the options terminated if not exercised during such time. The
acceleration of an option in the event of an acquisition or similar corporate
event may be viewed as an antitakeover provision, which may have the effect of
discouraging a proposal to acquire or otherwise obtain control of the Company.
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DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1996 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1996 Plan will terminate on January 17, 2006.
The Board may also amend the 1996 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the 1996 Plan for stockholder approval, including,
but not limited to, amendments intended to satisfy the requirements of Section
162(m) of the Code regarding the exclusion of performance-based compensation
from the limitation on the deductibility of compensation paid to certain
employees.
RESTRICTIONS ON TRANSFER
Under the 1996 Plan, an incentive stock option may not be transferred by the
optionee otherwise than by will or by the laws of descent and distribution and
during the lifetime of the optionee, may be exercised only by the optionee. A
nonstatutory stock option may not be transferred except by will or by the laws
of descent and distribution or pursuant to a "qualified domestic relations
order." In any case, the optionee may designate in writing a third party who may
exercise the option in the event of the optionee's death. In addition, shares
subject to repurchase by the Company under an early exercise stock purchase
agreement may be subject to restrictions on transfer which the Board deems
appropriate.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1996 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term, mid-term or short-term depending on how long the
optionee holds the stock. Long-term capital gains currently are generally
subject to lower tax rates than ordinary income. Slightly different rules may
apply to optionees who acquire stock subject to certain repurchase options or
who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions
8
<PAGE>
of Section 162(m) of the Code and the satisfaction of a tax reporting
obligation) to a corresponding business expense deduction in the tax year in
which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
1996 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be
long-term, mid-term or short-term depending on how long the optionee holds the
stock. Slightly different rules may apply to optionees who acquire stock subject
to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with proposed Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-based
compensation, provided that the option is granted by a compensation committee
comprised solely of "outside directors" and either: (i) the option plan contains
a per-employee limitation on the number of shares for which options may be
granted during a specified period, the per-employee limitation is approved by
the stockholders, and the exercise price of the option is no less than the fair
market value of the stock on the date of grant; or (ii) the option is granted
(or exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in writing
by the compensation committee while the outcome is substantially uncertain, and
the option is approved by stockholders.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board has selected Coopers & Lybrand LLP as the Company's independent
auditors for the fiscal year ending October 31, 1998 and has further directed
that management submit the selection of independent auditors for ratification by
the stockholders at the Annual Meeting. Coopers & Lybrand LLP has audited the
Company's financial statements since 1974. Representatives of Coopers & Lybrand
LLP are expected to be present at the Annual Meeting, will have an opportunity
to make a statement if they so desire and will be available to respond to
appropriate questions.
Stockholder ratification of the selection of Coopers & Lybrand LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Coopers & Lybrand
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board
9
<PAGE>
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board in its discretion may direct the appointment of different
independent auditors at any time during the year if it determines that such a
change would be in the best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and voting at the Annual Meeting will be required
to ratify the selection of Coopers & Lybrand LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP TABLE
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1997 by (a) all those
known by the Company to be beneficial owners of more than 5% of its Common
Stock; (b) each director and nominee for director; (c) each of the executive
officers named in the Summary Compensation Table; and (d) all executive officers
and directors of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
----------------------------
NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF TOTAL (2)
- --------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Mr. Steven T. Newby ............................................................. 302,250 11.4%
6116 Executive Boulevard, Suite 701
Rockville, MD 20852
Mr. William B. Heye, Jr. (3) .................................................... 149,349 5.3%
4550 Norris Canyon Road
San Ramon, CA 94583
Mr. Franklin P. Johnson ......................................................... 133,995 5.0%
2275 E. Bayshore Road, Suite 150
Palo Alto, CA 94301
Mr. Raimon L. Conlisk (3)........................................................ 13,500 *
Mr. George E. Grega (3).......................................................... 13,500 *
Mr. Ronald J. Ritchie (3)........................................................ 1,250 *
Dr. Randall L-W. Caudill (3)..................................................... 1,250 *
Mr. Michael R. Coker (3)......................................................... 57,600 2.1%
Mr. Timothy J. Repp (3).......................................................... 34,200 1.3%
Mr. Samuel J. Penny (3).......................................................... 32,837 1.3%
All executive officers and directors as a group (8 persons) (3).................. 303,486 10.3%
</TABLE>
- ------------------------------
* Less than one percent.
(1) This table is based on information supplied by officers, directors and
principal stockholders of the Company and on any Schedules 13D or 13G filed
with the Securities and Exchange Commission. Unless otherwise indicated in
the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned.
(2) Applicable percentages are based on 2,659,655 shares outstanding on December
31, 1997, adjusted as required by rules promulgated by the Securities and
Exchange Commission.
(3) Includes 146,900, 13,500, 13,500, 1,250, 1,250, 33,500, 55,000 and 16,000
shares that Messrs. Heye, Conlisk, Grega, Ritchie, Caudill, Repp, Coker and
Penny, respectively, have the right to acquire within 60 days of the Record
Date under the Company's option plans.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act 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 ("Commission") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent stockholders are required by
Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year
11
<PAGE>
ended October 31, 1997, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
During fiscal 1997, non-employee directors received for their services as
directors a quarterly participation fee of $3,000 plus fees of $1,000 for each
Board and Committee meeting attended and a fee of $500 for each telephone
conference Board or Committee meeting in which such director participated. Each
Committee Chairman also receives an additional quarterly fee of $750. The
Chairman of the Board receives, in lieu of all other fees, a fee of $40,000. In
fiscal 1997, the total compensation paid to non-employee directors as directors'
fees was $103,500. The members of the Board are also eligible for reimbursement
for their expenses in connection with attendance at Board meetings in accordance
with Company policy.
Each non-employee director of the Company also receives stock option grants
under the 1991 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan are
intended by the Company not to qualify as incentive stock options under the
Code.
Option grants under the Directors' Plan are non-discretionary. On April 1 of
each year (or the next business day should such date be a legal holiday), each
member of the Company's Board who is not an employee of the Company is
automatically granted under the Directors' Plan, without further action by
either the Company, the Board or the stockholders, an option to purchase 5,000
shares of Common Stock of the Company. No other options may be granted at any
time under the Directors' Plan. The exercise price of options granted under the
Directors' Plan is 100% of the fair market value of the Common Stock subject to
the option on the date of the option grant. Options granted under the Directors'
Plan vest in four equal installments commencing on the date one year after the
grant of the option, provided that the optionee has, during the entire year
prior to each such vesting date, provided continuous service to the Company as a
non-employee director or as an employee of the Company or an affiliate of the
Company. The term of options granted under the Directors' Plan is five years. In
the event of a merger of the Company with or into another corporation or a
consolidation, acquisition of assets or other change-in-control transaction
involving the Company, the vesting of each option will accelerate and the option
will terminate if not exercised prior to the consummation of the transaction
unless any surviving corporation assumes such options or substitutes similar
options for such options.
During fiscal 1997, the Company granted options covering an aggregate of
20,000 shares to the non-employee directors of the Company at an exercise prices
of $4.38 to $4.88 per share, the fair market value of such Common Stock on the
date of grant (based on the closing sales price as reported on the Nasdaq
National Market on the date of grant). As of December 31, 1997, 12,250 options
had been exercised under the Directors' Plan.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended October 31, 1997, 1996
and 1995, as applicable, compensation awarded or paid to, or earned by, the
Company's Chief Executive Officer and its other three executive officers at
October 31, 1997 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------------
ANNUAL NUMBER OF
COMPENSATION SHARES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS OPTIONS (2) COMPENSATION (3)
- ------------------------------------ --------- ----------- ----------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Mr. William B. Heye, Jr. ........... 1997 $ 210,060 $ 236,094 -- $ 13,906
President and Chief Executive 1996 $ 210,060 -- 15,000 $ 6,573
Officer 1995 $ 200,060 -- -- $ 6,865
Mr. Michael R. Coker (4) ........... 1997 $ 264,962 $ 71,624 20,000 $ 11,244
Vice President, Sales and 1996 $ 128,540 $ 20,000 60,000 $ 2,533
Marketing
Mr. Timothy J. Repp ................ 1997 $ 126,206 $ 102,714 -- $ 9,659
Vice President, Finance, Chief 1996 $ 105,000 $ 3,000 27,500 $ 3,539
Financial Officer and Secretary 1995 $ 93,000 -- 5,000 $ 1,727
Mr. Samuel J. Penny (5) ............ 1997 $ 128,307 $ 58,476 20,000 $ 10,207
Vice President, Engineering
</TABLE>
- ------------------------------
(1) Includes amounts earned but deferred at the election of the Named Executive
Officer pursuant to the Company's Savings and Investment Plan and Trust.
(2) Includes $2,394, $357, $184 and $1,673 attributable in fiscal 1997 to
Messrs. Heye, Coker, Repp and Penny, $1,995, $283, and $167 attributable in
fiscal 1996 to Messrs. Heye, Coker and Repp and $995 and $152 attributable
in fiscal 1995 to Messrs. Heye and Repp, respectively, to premiums paid by
the Company for group term life insurance. The remaining sum for each Named
Executive Officer was paid by the Company as matching contributions to the
Company's Savings and Investment Plan and Trust.
(3) Fiscal 1996 amounts include certain options granted in fiscal 1996 and prior
fiscal years that were repriced in fiscal 1996.
(4) Mr. Coker became an executive officer in March, 1996. Therefore, no amounts
are shown for fiscal 1995.
(5) Mr. Penny became an executive officer in March, 1997. Therefore, no amounts
are shown for fiscal 1996 or 1995.
13
<PAGE>
STOCK OPTION INFORMATION
The Company grants options to its executive officers under the 1996 Plan. As
of October 31, 1997, options to purchase a total of 663,375 shares had been
granted and were outstanding under the 1996 Plan and options to purchase 36,917
shares remained available for grant thereunder.
The following tables show for fiscal 1997 certain information regarding
options granted to the Named Executive Officers during fiscal 1997 and options
held by the Named Executive Officers at fiscal year end. No Named Executive
Officer exercised any options during fiscal 1997.
STOCK OPTION GRANTS DURING FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN OR BASE PRICE EXPIRATION --------------------
NAME GRANTED (1) FISCAL YEAR (2) PER SHARE (3) DATE 5% 10%
- ----------------------------------- ------------- ----------------- --------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mr. William B. Heye, Jr............ -- -- -- -- -- --
Mr. Michael R. Coker............... 20,000 9.9% $ 5.25 4/16/04 $ 42,746 $ 99,614
Mr. Timothy J. Repp................ -- -- -- -- -- --
Mr. Samuel J. Penny................ 20,000 9.9% $ 4.25 3/26/04 $ 34,604 $ 80,641
</TABLE>
- ------------------------------
(1) Generally, options granted vest annually in equal increments over a period
of four years and have a term of seven years.
(2) Options to purchase 202,100 shares of Common Stock were granted to employees
in fiscal 1997.
(3) Exercise price is the closing sales price of the Company's Common Stock as
reported on the Nasdaq National Market on the date of grant.
14
<PAGE>
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END (1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Mr. William B. Heye, Jr.......................... 143,150 11,250 $ 1,372,275 $ 39,375
Mr. Michael R. Coker............................. 45,000 35,000 $ 413,550 $ 261,250
Mr. Timothy J. Repp.............................. 30,375 8,125 $ 245,633 $ 35,938
Mr. Samuel J. Penny.............................. 10,000 22,000 $ 86,240 $ 208,000
</TABLE>
- ------------------------------
(1) Fair market value of the Company's Common Stock at October 31, 1997 ($14.00)
minus the exercise price of the options.
EMPLOYMENT AGREEMENT
On August 23, 1997, the Company entered into a Severance Agreement with its
Vice President of Sales and Marketing, Michael R. Coker providing that, if Mr.
Coker's employment is terminated without cause prior to August 23, 1999, the
Company will continue to pay Mr. Coker his base salary, commission, bonus and
health benefits for six months following termination and all of Mr. Coker's
outstanding stock options will immediately vest. Furthermore, pursuant to the
Severance Agreement, in the event Mr. Coker is terminated within one year after
an acquisition of the Company or similar corporate event, and prior to August
23, 1999, the Company will continue to pay Mr. Coker his base salary,
commission, bonus and health benefits for one year following termination and all
of Mr. Coker's outstanding stock options will immediately vest.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION (1)
The Compensation Committee of the Board is responsible for the
administration of the compensation programs in effect for the Company's
executive officers. These programs have been designed to ensure that the
compensation paid to the executive officers is substantially linked to both
Company and individual performance. Accordingly, a significant portion of the
compensation for which an executive officer is eligible is comprised of variable
components based upon individual achievement and Company performance measures.
EXECUTIVE COMPENSATION PRINCIPLES
The design and implementation of the Company's executive compensation
programs are based on a series of general principles. These principles may be
summarized as follows:
- Align the interests of management and stockholders to build stockholder
value by the encouragement of consistent, long-term Company growth.
- Attract and retain key executive officers essential to the long-term
success of the Company.
- Reward executive officers for long-term corporate success by facilitating
their ability to acquire an ownership interest in the Company.
- Provide direct linkage between the compensation payable to executive
officers and the Company's attainment of annual and long-term financial
goals and targets.
- Emphasize reward for performance at the individual and corporate level.
- ------------------------------
(1) This Section is not "soliciting material", is not deemed "filed" with the
Commission and it not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended (the "Securities Act")
or the Exchange Act, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
15
<PAGE>
COMPONENTS OF EXECUTIVE COMPENSATION
The components of the Company's executive compensation programs may be
listed as follows, with a detailed summary provided below:
- Base Salary
- Cash Bonus
- Long-Term Incentives
- Benefits and Perquisites
Each component is calibrated to a competitive market position, with market
information provided by compensation surveys prepared by independent consulting
firms and information collected from companies selected by the Company's
Compensation Committee as appropriate comparators of compensation practices. The
companies selected by the Compensation Committee as appropriate comparators are
generally represented in the Nasdaq Computer Manufacturing Index, whose
performance over the past five years is compared to that of the Company in the
chart appearing under the heading "Performance Measurement Comparison."
BASE SALARY
The base salary for each executive officer is determined on the basis of
individual performance, the functions performed by the executive officer and the
scope of the executive officer's ongoing responsibilities, and the salary levels
in effect for comparable positions based on information provided by the
compensation surveys referenced above and comparator information. The weight
given to each of these factors varies from individual to individual. In general,
base salary is designed primarily to be competitive within the relevant industry
and geographic market. Most executive officer salaries in fiscal 1997 remained
unchanged from fiscal 1996.
Each executive officer's base salary is reviewed annually to ensure
appropriateness, and increases to base salary are made to reflect competitive
market increases and individual factors. Company performance does not play a
significant role in the determination of base salary.
CASH BONUS
The Company's Management Incentive Plan provides for the funding of a bonus
pool based upon the Company's year-to-year rate of revenue growth and profit
before tax. No funding of the bonus pool occurs if profit before tax does not
exceed a threshold determined by comparing the cost of capital to the return on
assets employed. The year-to-year sales growth combined with the profit before
tax generated a bonus pool of $453,308 which was paid to execute officers in
fiscal 1998.
LONG-TERM INCENTIVES
Long-term incentives are provided through stock option grants. These option
grants are intended to motivate the executive officers to manage the business to
improve long-term Company performance. Customarily, option grants are made with
exercise prices equal to the market price of the shares on the date of grant and
will be of no value unless the market price of the Company's outstanding common
shares appreciates, thereby aligning a substantial part of the executive
officer's compensation package with the return realized by the stockholders.
The size of each option grant is designed to create a meaningful opportunity
for stock ownership and is based upon several factors, including relevant
information contained in the compensation surveys described above, an assessment
of the option grants of comparable companies and the individual performance of
each executive officer.
Each option grant allows the executive officer to acquire shares of the
Company's Common Stock at a fixed price per share (customarily the market price
on the grant date) over a specified period of
16
<PAGE>
time (customarily four years). The option generally vests in equal installments
over a period of four years, contingent upon the executive officer's continued
employment with the Company.
Accordingly, the option will provide a return to the executive officer only
if the executive officer remains employed by the Company and the market price of
the underlying shares appreciates over the option term.
In fiscal 1997, the Committee granted stock options to its executive
officers as set forth in the table entitled "Option Grants in Fiscal Year 1997"
contained elsewhere in this proxy statement. The Committee believes that stock
options, particularly incentive stock options, encourage long-term Company stock
ownership, and therefore that such grants are in the best interests of the
Company and its stockholders.
BENEFITS AND PERQUISITES
The benefits and perquisites component of executive compensation is
generally similar to that which is offered to all of the Company's employees.
CHIEF EXECUTIVE OFFICER (CEO) COMPENSATION
In setting the compensation payable to the Chief Executive Officer, William
B. Heye, Jr., the goal is to provide compensation competitive with other
companies in the industry while at the same time making a significant percentage
of Mr. Heye's potential earnings subject to consistent, positive, long-term
Company performance. In general, the factors utilized in determining Mr. Heye's
compensation were similar to those applied to the other executive officers in
the manner described in the preceding paragraphs.
Mr. Heye's salary in fiscal 1997 remained unchanged from fiscal 1996. As a
result of the Company's performance during fiscal 1997, the Committee granted
Mr. Heye a cash bonus of $236,094. The Committee had not awarded a cash bonus to
Mr. Heye with respect to either of the Company's two preceding fiscal years due
to the Company's performance. During fiscal 1997, Mr. Heye purchased 336 shares
of Common Stock at a price of $5.20 per share under the Company's 1992 Employee
Stock Purchase Plan.
George E. Grega, Chairman
Raimon L. Conlisk
Ronald J. Ritchie
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, during the fiscal year ended October 31, 1997, the
Compensation Committee consisted of Messrs. Conlisk, Ritchie and Grega, none of
whom is an employee of the Company. In December 1996, the Company sold all the
assets of its manufacturing operation to XeTel Corporation, a contract
manufacturing company. Additionally, the Company entered into a four-year
exclusive agreement to purchase manufacturing services from XeTel and subleased
a portion of its San Ramon facility to XeTel. Mr. Conlisk, a director of the
Company, is also a director of XeTel Corporation.
17
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON (1)
The following chart shows the value of an investment of $100 on October 31,
1992 in cash of (a) the Company's Common Stock, (b) the Nasdaq Computer
Manufacturing Index ("Nasdaq Computers") and (c) the CRSP Total Return Index for
the Nasdaq Stock Market (United States companies) ("Nasdaq Total Return"). All
values assume reinvestment of the full amount of all dividends and are
calculated as of October 31 of each year.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN ON INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SBE, INC. THE NASDAQ COMPUTERS THE NASDAQ
<S> <C> <C> <C>
Common Stock Manufacturers Index Total Return Index
Oct-92 100.00 100.00 100.00
Oct-93 75.93 101.81 128.80
Oct-94 57.41 115.27 129.49
Oct-95 90.74 195.79 174.40
Oct-96 30.56 249.02 205.78
Oct-97 103.70 323.93 271.02
</TABLE>
<TABLE>
<CAPTION>
OCT. 92 OCT. 93 OCT. 94 OCT. 95 OCT. 96 OCT. 97
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SBE................................................. 100.000 75.926 57.407 90.741 30.556 103.704
Nasdaq Computers.................................... 100.000 101.812 115.269 195.794 249.019 323.929
Nasdaq Total Return................................. 100.000 128.801 129.486 174.397 205.780 271.020
</TABLE>
- ------------------------------
(1) This Section is not "soliciting material", is not deemed "filed" with the
Commission and is not to be incorporated by reference in any filing of the
Company under the Securities Act or the Exchange Act, whether made before or
after the date hereof and irrespective of any general incorporation language
in any such filing.
18
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers and
directors that provide, among other things, that the Company will indemnify such
officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings to which he is or may be made a party
by reason of his position as a director, officer or other agent of the Company,
and otherwise to the full extent permitted under Delaware law and the Company's
Certificate of Incorporation, as amended, and the Company's By-laws.
OTHER BUSINESS
The Board knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the meeting, however, it is the intention of the persons named in the
accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
By Order of the Board of Directors
/s/ Timothy J. Repp
Timothy J. Repp
CHIEF FINANCIAL OFFICER, VICE
PRESIDENT,
FINANCE AND SECRETARY
February 24, 1998
19
<PAGE>
1570-PS-98
<PAGE>
SBE, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 24, 1998
The undersigned hereby appoints WILLIAM B. HEYE, JR. and TIMOTHY J.
REPP, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of SBE, Inc.
that the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of SBE, Inc. to be held at 4550 Norris Canyon Road, San Ramon,
California, at 5:00 p.m. local time on March 24, 1998, and at any and all
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND, FOR PROPOSALS 2 AND 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect two directors to hold office until the 2001 Annual
Meeting of Stockholders and until their successors are elected.
/ / FOR all nominees listed / / WITHHOLD AUTHORITY
below (except as written below) to vote for all nominees
below
NOMINEES: Raimon L. Conlisk and Randall L-W. Caudill
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH
NOMINEE(S)' NAME(S) BELOW:
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MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2 BELOW.
PROPOSAL 2: To approve the 1996 Stock Option Plan, as amended, to increase
the number of shares of Common Stock authorized for issuance
under such Plan by 200,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3 BELOW.
PROPOSAL 3: To ratify the selection of Coopers & Lybrand LLP as the Company's
independent auditors for the fiscal year ending October 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
Dated: , 1998
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Signature(s)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON.
IF THE STOCK IS REGISTERED IN THE NAMES OF TWO OR
MORE PERSONS, EACH SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARDIANS AND
ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES.
IF SIGNER IS A CORPORATION, PLEASE GIVE FULL
CORPORATE NAME AND HAVE A DULY AUTHORIZED OFFICER
SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED
PERSON.
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
