<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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 Section240.14a-11(c) or
Section240.14a-12
NETWORK COMPUTING DEVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(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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<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 26, 1999
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
Network Computing Devices, Inc., a Delaware corporation (the "Company"), will be
held at the Company's offices at 301 Ravendale Drive, Mountain View, California,
on Wednesday, May 26, 1999, at 10:00 a.m. for the following purposes:
1. To elect directors of the Company to serve for the ensuing year and
until their successors are duly elected and qualified. Management's
nominees for Director are Robert G. Gilbertson, Philip Greer, Douglas H.
Klein, Paul Low, Stephen A. MacDonald, Rudolph G. Morin and Peter Preuss.
2. To approve the Company's 1999 Stock Option Plan.
3. To approve an amendment to the Company's 1992 Employee Stock Purchase
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 200,000 shares.
4. To approve an amendment to the Company's 1994 Outside Directors' Stock
Option Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 50,000 shares.
5. To ratify the selection of KPMG Peat Marwick LLP as independent auditors
of the Company for the current fiscal year.
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on April 5, 1999, are
entitled to notice of and to vote at the meeting. The transfer books will not be
closed.
All shareholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend the meeting, please mark, sign and date the
enclosed proxy and return it as promptly as possible in the envelope enclosed
for that purpose. Any shareholder attending the meeting may vote in person even
if he has returned a proxy.
By Order of the Board of Directors
/s/ ROBERT G. GILBERTSON
Robert G. Gilbertson
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mountain View, California
April 19, 1999
<PAGE>
NETWORK COMPUTING DEVICES, INC.
350 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
------------------------
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of Network Computing Devices,
Inc., a Delaware corporation (the "Company"), for use at the Annual Meeting of
Shareholders to be held Wednesday, May 26, 1999 at 10:00 a.m., local time, or at
any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at the Company's offices located at 301 Ravendale Drive, Mountain View,
California. The telephone number at that address is (650) 694-0650.
These proxy solicitation materials were mailed on or about April 19, 1999 to
all shareholders entitled to vote at the Annual Meeting.
RECORD DATE
Shareholders of record at the close of business on April 5, 1999 are
entitled to notice of, and to vote at, the Annual Meeting. At the record date,
15,995,683 shares of the Company's Common Stock, $0.001 par value, were issued
and outstanding.
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 delivery to the Company of a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person.
VOTING
The shares represented by the proxies received will be voted as you direct.
If you give no direction, the shares will be voted as recommended by the Board
of Directors.
In connection with the Delaware reincorporation, we eliminated cumulative
voting. Each shareholder is entitled to one vote for each share of stock held by
him or her on all matters.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional soliciting materials sent to shareholders. The Company has
retained the services of ChaseMellon Shareholders Services, L.L.C. ("Chase") to
aid in the solicitation of proxies, deliver proxy materials to brokers,
nominees, fiduciaries and other custodians for distribution to beneficial owners
of stock and to solicit proxies therefrom. Chase will receive a fee of
approximately $5,000 and reimbursement of all reasonable out-of-pocket expenses.
In addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
The Company's bylaws require advance notice of any shareholder proposals to
be brought before a shareholders' meeting. Under the bylaws, in order for
business to be properly brought before a meeting by
<PAGE>
a shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary of the Company.
To be timely, a shareholder proposal to be presented at an annual meeting
must be received at the Company's principal executive offices not less than 120
calendar days in advance of the date that the Company's proxy statement was
released to shareholders in connection with the previous year's annual meeting
of shareholders, except that if no annual meeting was held in the previous year
or the date of the annual meeting has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a special meeting, notice by the shareholder to be timely
must be received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made.
Accordingly, proposals of shareholders intended to be presented at the 2000
Annual Meeting of Shareholders must be received by the Company no later than
December 31, 1999. 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 (the "SEC").
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
A board of seven directors will be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the seven nominees named below, all of whom are currently directors of the
Company. The Company is not aware of any nominee who will be unable or will
decline to serve as a director. In the event that any such 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 who shall be designated by the present Board of
Directors to fill the vacancy. The seven candidates receiving the highest number
of affirmative votes of the shares voting at the Annual Meeting will be elected
directors of the Company. The term of office of each person elected as a
director will continue until the next Annual Meeting of Shareholders or until
such time as his successor has been duly elected and qualified.
The names of the Company's nominees for director and certain information
about them are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ------------------------------- --- ------------------------------------------------------------ -------------
<S> <C> <C> <C>
Robert G. Gilbertson........... 57 President and Chief Executive Officer of the Company 1996
Philip Greer................... 63 Senior Managing Director, Weiss, Peck & Greer, L.L.C. (an 1992
investment management company)
Douglas H. Klein............... 44 President and Chief Operating Officer, NuvoMedia, Inc. (a 1998
company that designs/develops electronic books)
Paul Low....................... 66 President and Chief Executive Officer, PRL Associates (a 1995
technology consulting firm)
Stephen A. MacDonald........... 53 Independent Consultant 1995
Rudolph G. Morin............... 61 Executive Vice President, Operations & Finance and Chief 1998
Financial Officer of the Company
Peter Preuss................... 56 President, The Preuss Foundation, Inc. (a non-profit 1995
corporation)
</TABLE>
Mr. Gilbertson has served as President, Chief Executive Officer and a
director of the Company since May 1996. From 1993 to May 1996, Mr. Gilbertson
served as President and Chief Executive Officer of CMX Systems, Inc., a
manufacturer of precision measurement and positioning products. From 1985 to
1992, Mr. Gilbertson served as President and Chief Executive Officer of Data
Switch Corporation, a manufacturer of high-speed computer and communication
equipment. Mr. Gilbertson also presently serves as a director of DSL.net, Inc.,
a privately-held company headquartered in New Haven, Connecticut.
2
<PAGE>
Mr. Greer has served as a director of the Company since November 1992. Mr.
Greer has been a senior managing director of Weiss, Peck & Greer, L.L.C., an
investment management company, or its predecessor, since 1970. Mr. Greer is also
a director of Federal Express Corporation and Robert Mondavi Corp., a winemaker.
Mr. Klein has served as a director of the Company since March 1998. Since
January 1998, Mr. Klein has served as President and Chief Operating Officer of
NuvoMedia, Inc., a designer and developer of electronic books. From February
1988 to December 1997, Mr. Klein served in various capacities with the Company,
most recently as the Company's Chief Technical Officer from June 1996 to
December 1997.
Dr. Low has served as a director of the Company since December 1995. Dr. Low
has been President and Chief Executive Officer of PRL Associates, a technology
consulting firm, since 1992. Prior to forming PRL Associates, from 1957 to 1992,
Dr. Low served in various capacities at International Business Machines
Corporation ("IBM"), most recently as President of the General Products Division
from 1987 to 1990 and as General Manager, Technology and Products and a member
of IBM's Corporate Management Board from 1990 to 1992. Dr. Low held the title of
Vice President at IBM from 1984 to 1992. Dr. Low is also a director of Applied
Materials Corporation, a semiconductor equipment manufacturer, Solectron
Corporation, Veeco Instruments and Xionics Corporation, as well as several
privately-held corporations.
Mr. MacDonald has served as a director of the Company since May 1995. From
October 1997 to April 1998, Mr. MacDonald served as a consultant for Active
Software, Inc., a software company. Mr. MacDonald also served as President and
Chief Executive Officer of Active Software from April 1996 to September 1997.
Mr. MacDonald was employed by Adobe Systems Incorporated, a software company,
from 1983 to March 1996, where he served as Vice President, Sales and Marketing
from 1983 to 1989 and as Senior Vice President and General Manager from 1989 to
1996. Mr. MacDonald is also a director of Verity, Inc., a software company, as
well as an independent consultant for various companies in the software
industry.
Mr. Morin has served as Executive Vice President, Operations & Finance and
Chief Financial Officer of the Company since May 1996 and as a director since
March 1998. From 1993 to 1996, Mr. Morin served as Senior Vice President of
Finance and Administration for Memorex Telex Corporation, a computer networking
and tape storage equipment manufacturer. From 1984 to 1992, Mr. Morin served as
Executive Vice President of Data Switch Corporation, a manufacturer of
high-speed computer and communication equipment.
Mr. Preuss has served as a director of the Company since April 1995 and as
Chairman of the Board since January 1996. Mr. Preuss has served as President of
The Preuss Foundation, Inc., a non-profit corporation that sponsors cancer
research and related seminars and conferences, since it was founded in 1985.
From 1970 to 1986, Mr. Preuss was President and Chairman of the Board of
Integrated Software Systems Corporation, which he founded. Mr. Preuss currently
serves as a director of DepoTech Corporation, a developer and manufacturer of
pharmaceutical products, a director of Centrax, a privately-held computer
securities company and a director of Overland Data, a manufacturer of
high-performance tape solutions for back-up, interchange and archival storage.
Mr. Preuss is also a Regent of the University of California.
There are no family relationships among directors or executive officers of
the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held four meetings during the year
ended December 31, 1998. The Board of Directors has an Audit Committee, an
Executive Committee, and a Compensation and Stock Committee. The Board of
Directors has no standing nominating committee or committee performing similar
functions. During the year ended December 31, 1998, no director attended fewer
than 82% of the aggregate of (i) all meetings of the Board of Directors (held
during the period in which such director served) and (ii) all meetings of
committees of the Board on which such director served.
3
<PAGE>
The Audit Committee of the Board of Directors currently consists of Messrs.
Greer, Low and MacDonald. The Audit Committee recommends the engagement of
independent auditors, consults with the independent auditors regarding the scope
of annual audits and reviews the Company's system of internal accounting
controls. The Audit Committee held four meetings during the fiscal year ended
December 31, 1998.
In late December 1995, the Executive Committee of the Board of Directors was
formed to focus primarily on technology issues related to the Company. The
Executive Committee currently consists of Messrs. Preuss and Low. Three
Executive Committee meetings were held during the fiscal year ended December 31,
1998.
The Compensation and Stock Committee of the Board of Directors (the
"Compensation Committee") currently consists of Messrs. Preuss and MacDonald.
The Compensation Committee makes recommendations to the Board regarding
executive compensation and related matters and is responsible for the
administration of option grants under the Company's 1989 Stock Option Plan. The
Compensation Committee held one meeting during the fiscal year ended December
31, 1998.
4
<PAGE>
PRINCIPAL SHAREHOLDERS AND SHARE OWNERSHIP BY MANAGEMENT
The following table sets forth certain information known to the Company
relating to the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each executive officer named in the
tables under "Executive Compensation," (iii) each director, and (iv) all
executive officers and directors as a group, as of March 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OWNED(1) PERCENT
- -------------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Dimensional Fund Advisors Inc.(2)..................................................... 906,600 5.67%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Robert G. Gilbertson(3)............................................................... 712,807 4.46%
Rudolph G. Morin(4)................................................................... 353,883 2.21%
Peter Preuss(5)....................................................................... 109,375 *
Douglas H. Klein(6)................................................................... 141,968 *
Paul Low(7)........................................................................... 101,875 *
Lorraine J. Hariton(8)................................................................ 79,952 *
Cecil M. Dye(9)....................................................................... 79,062 *
Philip Greer(10)...................................................................... 56,948 *
Stephen A. MacDonald(11).............................................................. 31,875 *
All executive officers and directors as a group (9 persons)(12)....................... 1,667,745 10.43%
</TABLE>
- ------------------------
* Less than 1%
(1) Except as indicated and pursuant to applicable community property laws, the
Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other investment vehicles, including commingled group trusts.
(These investment companies and investment vehicles are the "Portfolios.")
In its role as investment advisor and investment manager, Dimensional
possesses both voting and investment power over the securities described in
this table and owned by the Portfolios. All securities reported in this
table are owned by the Portfolios, and Dimensional disclaims beneficial
ownership of such securities.
(3) Includes 700,000 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1999.
(4) Includes 350,000 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1999.
(5) Includes 50,000 vested shares underlying options held by Stephen A. Hurwitz
as Trustee for Mr. Preuss' son, with respect to which Mr. Preuss disclaims
beneficial ownership. Also includes 59,375 shares of Common Stock that may
be acquired upon exercise of stock options that are currently exercisable
or will become exercisable within 60 days of March 31, 1999.
(6) Includes 134,750 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1999.
(7) Includes 101,875 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1999.
(8) Includes 66,314 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1999.
5
<PAGE>
(9) Includes 68,749 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1999.
(10) Includes 7,200 shares held by Norman Gold as Trustee for Mr. Greer's
daughters, with respect to which Mr. Greer disclaims beneficial ownership.
Also includes 45,000 shares of Common Stock that may be acquired upon
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of March 31, 1999.
(11) Includes 31,875 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1999.
(12) Includes 1,604,055 shares of Common Stock that may be acquired upon
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of March 31, 1999.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file with the
SEC 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 10% beneficial owners are required by SEC regulation to furnish the
Company with copies of all reports they file under Section 16(a). To the
Company's knowledge, based solely on its review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with during the
year ended December 31, 1998.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the three other most highly compensated
executive officers of the Company (determined as of December 31, 1998)
(collectively, the "Named Officers") for the fiscal years ended December 31,
1996, 1997 and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -------------
---------------------- STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS (SHARES) COMPENSATION(2)
- ------------------------------------------------ --------- ---------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Robert G. Gilbertson(3)......................... 1998 $ 314,583 $ 9,591 -- $ 5,213
President and Chief Executive Officer 1997 300,000 37,500 -- 4,950
1996 196,038 93,269 700,000 2,681
Cecil M. Dye(4)................................. 1998 $ 201,346 $ 47,520 -- $ 3,140
Former Senior Vice President, Americas Sales 1997 185,000 28,739 -- 2,881
1996 68,071 7,708 100,000 960
Lorraine J. Hariton(5).......................... 1998 $ 214,583 $ 68,096 50,000 $ 763
Former Vice President, Marketing and Business 1997 178,711 212,408 31,875 9,192(6)
Development 1996 144,923 100,274 50,000 469
Rudolph G. Morin(7)............................. 1998 $ 276,667 $ -- -- $ 14,267(8)
Executive Vice President, Operations & Finance 1997 257,500 31,250 -- 14,172(8)
and Chief Financial Officer 1996 149,680 74,840 350,000 2,532
</TABLE>
- ------------------------
(1) Includes amounts (if any) deferred under the Company's 401(k) Plan.
(2) Except as otherwise noted, consists of the dollar value of premiums paid on
life insurance for the benefit of the Named Officer.
(3) Mr. Gilbertson joined the Company as an officer in May 1996.
(4) Mr. Dye joined the Company in August 1996 and became an officer in September
1996. Mr. Dye's employment with the Company terminated in December 1998.
(5) Ms. Hariton's employment with the Company terminated in January 1999.
(6) Consists of $8,550 paid for relocation expenses and $642 in premiums paid on
life insurance for Ms. Hariton's benefit.
(7) Mr. Morin joined the Company as an officer in May 1996.
(8) Includes $7,200 and $7,800 paid for automobile allowance in 1998 and 1997,
respectively.
7
<PAGE>
STOCK OPTION GRANTS
The following table contains information concerning grants of stock options
under the Company's 1989 Stock Option Plan (the "1989 Option Plan") to the Named
Officers during the year ended December 31, 1998:
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(1)
GRANTED EMPLOYEES IN FISCAL PRICE EXPIRATION ----------------------
NAME (SHARES)(2) YEAR(3) ($/SHARE) DATE 5%($) 10%($)
- ------------------------------------ ----------- ------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Gilbertson................ -- -- -- -- -- --
Cecil M. Dye........................ -- -- -- -- -- --
Lorraine J. Hariton................. 50,000 8.98% $ 7.9844 5/28/08 $ 251,066 $ 636,252
Rudolph G. Morin.................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Gains are reported net of the option exercise price but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Company's Common Stock, as well
as the optionee's continued employment through the vesting period.
(2) Except as set forth below, each option vests and becomes exercisable to the
extent of 25% of the underlying shares one year following the date of grant,
with the remainder vesting on a monthly basis ratably over the 36-month
period thereafter.
(3) The Company granted options to purchase an aggregate of 556,600 shares of
Common Stock to employees during the year.
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table provides information with respect to the Named Officers
concerning the exercise of options during 1998 and unexercised options held as
of December 31, 1998:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- --------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Gilbertson........... -- -- 627,083 72,917 $ 2,194,790 $ 255,209
Cecil M. Dye................... -- -- 58,333 41,667 $ 109,374 $ 78,126
Lorraine J. Hariton............ 50,000 -- 61,198 88,836 $ 155,756 $ 69,272
Rudolph G. Morin............... -- -- 313,541 36,459 $ 1,097,393 $ 127,606
</TABLE>
- ------------------------
(1) Based on the closing price of $7.00, as reported on The Nasdaq National
Market on December 31, 1998 (the last trading day prior to the fiscal
year-end).
(2) Sale price at time of exercise less exercise price.
8
<PAGE>
COMPENSATION OF DIRECTORS
The Company pays non-employee directors an annual retainer of $15,000 per
calendar year, payable semiannually, plus a fee of $1,500 for each meeting of
the Board of Directors they attend and $500 for each meeting of a committee they
attend, plus reimbursement for transportation and other expenses incurred in
attending such meetings. In addition to the foregoing compensation, Directors
Preuss and Low also receive a fee of $1,500 for each meeting of the Executive
Committee they attend. Under the 1994 Outside Directors' Stock Option Plan (the
"Directors' Plan"), each non-employee director of the Company is granted an
initial option for 30,000 shares of the Company's Common Stock, followed by
annual grants of options for 7,500 shares each, subject to the director's
continuous service on the Board of Directors. In 1998, no other compensation was
paid to the directors of the Company in their capacity as such.
EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
The Company and Robert G. Gilbertson, its President and Chief Executive
Officer, entered into an Employment Agreement on May 17, 1996. The agreement had
an initial two-year term, commencing May 20, 1996, with a provision for
automatic annual renewals of successive one-year terms unless either party
provides notice of termination at least 60 days prior to the end of each term.
On May 28, 1998, the Compensation Committee approved an increase in Mr.
Gilbertson's annual salary from $300,000 to $325,000 effective June 1, 1998. The
agreement remains subject to further annual increases, if any, and provides for
an incentive bonus award based on the achievement of certain financial
objectives, up to a maximum amount equal to 300% of base salary. The agreement
also provides for reimbursement of reasonable out-of-pocket and ordinary
expenses for commuting or relocating to the Mountain View area and necessary
business expenses incurred in performing services as President and Chief
Executive Officer. As part of the agreement, Mr. Gilbertson has been granted
options to purchase 700,000 shares of the Company's Common Stock. The agreement
provides that these options will become fully exercisable in the event of a
change of control of the Company. The agreement provides that all stock options
currently held by Mr. Gilbertson under the Company's 1989 Option Plan and other
outside plans will vest in full and become fully exercisable in the event of any
change in control of the Company after six months from employment date. In the
event Mr. Gilbertson is terminated other than for cause, or if he voluntarily
terminates his employment because of a material change in his job duties or
title or specified acts of misconduct by the Company, he is entitled under the
agreement to receive a severance payment equal to his then-current base salary
for a period equal to the term of employment remaining under the agreement (but
not less than 12 months) and to receive up to $40,000 in outplacement
assistance.
The Company and Rudolph G. Morin, its Executive Vice President, Operations &
Finance and Chief Financial Officer, entered into an Employment Agreement on May
24, 1996. The agreement had an initial two-year term, commencing May 28, 1996,
with a provision for automatic annual renewals of successive one-year terms
unless either party provides notice of termination at least 60 days prior to the
end of each term. On May 28, 1998, the Compensation Committee approved an
increase in Mr. Morin's annual salary from $250,000 to $285,000 effective June
1, 1998. The agreement remains subject to further annual increases, if any, and
provides for an incentive bonus award based on the achievement of certain
financial objectives, up to a maximum amount equal to 300% of base salary. The
agreement also provides for reimbursement of reasonable out-of-pocket and
ordinary expenses for commuting or relocating to the Mountain View area and
necessary business expenses incurred in performing services as Executive Vice
President, Operations & Finance and Chief Financial Officer. As part of the
agreement, Mr. Morin has been granted options to purchase 350,000 shares of the
Company's common stock under the 1989 Option Plan. The agreement provides that
these options will vest in full and become fully exercisable in the event of any
change in control of the Company. In the event Mr. Morin is terminated other
than for cause, or if he voluntarily terminates his employment because of a
material change in his job duties or title or specified acts of misconduct by
the Company, he is entitled under the agreement to receive a severance payment
equal to his then-current base salary for a period equal to the term of
employment remaining under the agreement (but not less than 12 months) and to
receive up to $40,000 in outplacement assistance.
9
<PAGE>
The Company and Cecil M. Dye have entered into a Confidential Separation
Agreement dated January 15, 1999. Pursuant to the agreement, Mr. Dye resigned as
Sr. Vice President, Americas Sales, effective December 31, 1998. The agreement
provides that, for a period of six (6) months after December 31, 1998, Mr. Dye
will receive severance payments of $16,667 per month. Under the agreement, Mr.
Dye has agreed to provide consulting services to the Company through June 30,
1999 to facilitate the transfer of his responsibilities as Sr. Vice President,
Americas Sales and to hold himself available to provide additional part-time
consulting services as needed, on a schedule consistent with such duties as Mr.
Dye may have as a full-time employee elsewhere. The agreement also provides that
the stock options granted to Mr. Dye will continue to vest through June 1999.
REPORT OF THE COMPENSATION AND STOCK COMMITTEE
OF THE BOARD OF DIRECTORS
Annual compensation of the Company's executive officers is determined by the
Compensation Committee, which recommends the amount of salary and bonus to be
paid to each executive officer, subject to approval and ratification by the
Board of Directors. The Compensation Committee is also responsible for
administering the 1989 Option Plan, including the awarding of options under such
plan.
COMPENSATION PHILOSOPHY
The Company's compensation programs for executive officers are designed to
align compensation with business objectives and performance and to enable the
Company to attract, retain and reward executive officers who are likely to
contribute to the long-term success of the Company. The Company also believes
that a strong link should exist between executive compensation and the value
received by shareholders.
COMPONENTS OF COMPENSATION
SALARY
In setting base salary levels, the Company initially reviews the salary
structure and pay practice data of other companies in similar industries. In
doing so, the Company compares itself to a group of computer, networking and
systems companies of similar size and capitalization using information compiled
by an independent compensation consulting firm. There are currently
approximately 300 companies in this comparison group.
Salaries are generally reviewed annually by the Compensation Committee and
are subject to increases based on (i) the Compensation Committee's determination
that the individual's level of contribution to the Company has increased since
his or her salary had last been reviewed and (ii) increases in median
competitive pay levels.
The salaries paid to Robert G. Gilbertson and Rudolph G. Morin, the
Company's Chief Executive Officer and Chief Financial Officer, respectively, are
determined in accordance with Employment Agreements that the Company has entered
into with these persons (the "Employment Agreements"). On May 28, 1998, the
Compensation Committee approved increases in the annual salaries of Messrs.
Gilbertson and Morin from $300,000 to $325,000 in the case of Mr. Gilbertson and
$250,000 to $285,000 in the case of Mr. Morin effective June 1, 1998. Both
agreements remain subject to further annual increases, if any. Each agreement
also entitles Mr. Gilbertson and Mr. Morin an annual incentive bonus based upon
the achievement of certain financial objectives. The incentive bonus award will
be equal to 50% of base salary when 100% of the financial objectives are met,
and if overall performance exceeds these financial objectives, the bonus award
is increased by an amount representing a percentage of annual salary that is 1.5
times the percentage by which these objectives are exceeded, up to a maximum
bonus award equal to 300% of base salary. The terms of each of the Employment
Agreements were negotiated between the Company and Messrs. Gilbertson and Morin
at arm's length in connection with the Company's effort to recruit these persons
to join the Company. See "Executive Compensation - Employment, Severance and
Change of Control Arrangements."
10
<PAGE>
BONUS PLAN
Effective January 1, 1997, the Company adopted its All-Employee Incentive
Plan (the "Incentive Plan"). Employees of the Company, including officers, are
eligible to participate in the Incentive Plan. The Incentive Plan has been
designed to align the interests of employees with those of shareholders, and to
reward employees for contributing to the ongoing financial success of the
Company. The Incentive Plan pays employees, at varying percentages of base
salary, a bonus which is funded by a percentage of the Company's pretax,
prebonus operating income.
The bonuses earned by Messrs. Gilbertson and Morin are determined in
accordance with the Employment Agreements, each of which provides for an
incentive bonus award based on the achievement of financial objectives set by
the Compensation Committee for the fiscal year. The bonus award is equal to 50%
of base salary when 100% of the financial objectives are met. In the event
overall performance exceeds these financial objectives, the bonus award is
increased by an amount representing a percentage of base salary that is 1.5
times the percentage by which these objectives are exceeded, up to a maximum
bonus award equal to 300% of base salary. See "Executive Compensation -
Employment, Severance and Change of Control Arrangements."
STOCK OPTION PLAN
As is typical with emerging growth high-technology companies, a significant
component of the compensation provided to the Company's executive officers is in
the form of equity participation through stock options granted under the 1989
Option Plan. As a result, the Company's executive officers are directly rewarded
for the Company's success and provided an economic incentive to contribute to
the Company's future success and maximize shareholder value. Options granted
under the 1989 Option Plan generally vest over a four-year period, to encourage
employees to remain with the Company on a long-term basis.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The compensation payable to Mr. Gilbertson is determined in accordance with
Mr. Gilbertson's Employment Agreement, as described above, which provides for an
annual incentive bonus award based on the achievement of financial objectives
set by the Compensation Committee for that fiscal year. The bonus award is equal
to 50% of base salary when 100% of the financial objectives are met. In the
event overall performance exceeds these financial objectives, the bonus award is
increased by an amount representing a percentage of base salary that is 1.5
times the percentage by which these objectives are exceeded, up to a maximum
bonus award equal to 300% of base salary. In 1998, the Compensation Committee
set financial objectives based upon the Company's net operating income for 1998.
Because the Company's 1998 net operating income fell short of this target, Mr.
Gilbertson was not awarded a bonus for 1998.
COMPENSATION AND STOCK COMMITTEE
Peter Preuss
Stephen A. MacDonald
11
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph indicating cumulative total return at December
31, 1994, 1995, 1996, 1997 and 1998 on $100 invested, alternatively, in the
Company's Common Stock, the CRSP Total Return Index for the Nasdaq Stock Market
and the Nasdaq Computer Manufacturing Stocks Index at the close of business on
December 31, 1993.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
NETWORK COMPUTING DEVICES, INC.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DATE COMPANY MARKET
<S> <C> <C> <C>
Index Index
12/31/93 100 100
1/31/94 96.296 103.035
2/28/94 114.815 102.073
3/31/94 88.889 95.798
4/29/94 88.889 94.554
5/31/94 79.63 94.785
6/30/94 51.852 91.319
7/29/94 53.704 93.192
8/31/94 59.259 99.135
9/30/94 55.556 98.881
10/31/94 53.704 100.824
11/30/94 62.963 97.479
12/30/94 62.963 97.752
1/31/95 66.667 98.309
2/28/95 77.778 103.509
3/31/95 100 106.579
4/28/95 100 109.937
5/31/95 107.407 112.775
6/30/95 127.778 121.914
7/31/95 142.593 130.876
8/31/95 107.407 133.531
9/29/95 101.852 136.601
10/31/95 92.593 135.813
11/30/95 125 139.004
12/29/95 105.556 138.265
1/31/96 107.407 138.944
2/29/96 90.741 144.233
3/29/96 59.259 144.708
4/30/96 57.407 156.71
5/31/96 62.037 163.906
6/28/96 75.926 156.517
7/31/96 51.852 142.559
8/30/96 77.778 150.547
9/30/96 91.667 162.062
10/31/96 114.815 160.271
11/29/96 127.778 170.179
12/31/96 150 170.025
1/31/97 227.778 182.109
2/28/97 187.037 172.037
3/31/97 157.407 160.804
4/30/97 144.444 165.831
5/30/97 187.037 184.696
6/30/97 172.222 190.353
7/31/97 133.333 210.432
8/29/97 175.926 210.179
9/30/97 164.815 222.58
10/31/97 127.778 211.02
11/28/97 124.074 212.164
12/31/97 138.889 208.532
1/30/98 138.889 215.158
2/27/98 187.037 235.389
3/31/98 155.555 244.025
4/30/98 137.963 248.054
5/29/98 126.852 234.261
6/30/98 120.37 250.681
7/31/98 115.741 247.694
8/31/98 97.222 198.8
9/30/98 89.815 226.45
10/30/98 96.296 236.226
11/30/98 106.481 260.132
12/31/98 103.704 293.832
Legend
Symbol
CRSP Total Returns Index for:
Network Computing Devices, Inc.
Nasdaq Stock Market (US Companies)
Nasdaq Computer Manufacturers Stocks SIC 3570-3579 US & Foreign
Notes:
A.The lines represent monthly index levels derived from compounded daily returns that include all
dividends.
B.The indexes are reweighted daily, using the market capitalization on the previous trading day.
C.If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding
trading day is used.
D.The index level for all series was set to $100.0 on 12/31/1993.
<CAPTION>
DATE PEER
<S> <C> <C>
Index
12/31/93 100
1/31/94 104.926
2/28/94 107.468
3/31/94 96.947
4/29/94 90.612
5/31/94 84.4
6/30/94 78.618
7/29/94 83.867
8/31/94 92.108
9/30/94 95.592
10/31/94 104.312
11/30/94 103.215
12/30/94 109.847
1/31/95 107.388
2/28/95 110.36
3/31/95 115.765
4/28/95 121.665
5/31/95 125.061
6/30/95 140.741
7/31/95 151.885
8/31/95 161.647
9/29/95 169.329
10/31/95 177.095
11/30/95 183.592
12/29/95 172.955
1/31/96 173.577
2/29/96 190.964
3/29/96 178.222
4/30/96 204.251
5/31/96 218.144
6/28/96 200.345
7/31/96 179.834
8/30/96 192.254
9/30/96 220.923
10/31/96 221.817
11/29/96 241.474
12/31/96 231.875
1/31/97 252.363
2/28/97 217.234
3/31/97 194.896
4/30/97 202.906
5/30/97 249.781
6/30/97 251.899
7/31/97 306.626
8/29/97 305.644
9/30/97 316.197
10/31/97 292.488
11/28/97 295.502
12/31/97 280.504
1/30/98 306.049
2/27/98 346.723
3/31/98 345.164
4/30/98 369.664
5/29/98 360.983
6/30/98 408.885
7/31/98 428.085
8/31/98 371.354
9/30/98 447.455
10/30/98 464.865
11/30/98 509.808
12/31/98 607.765
Legend
Symbol
CRSP Total Returns Index for:
Network Computing Devices, Inc. 100.0
Nasdaq Stock Market (US Companies) 100.0
Nasdaq Computer Manufacturers Stocks SIC 3570-3579 US & Foreign 100.0
Notes:
A.The lines represent monthly index levels derived from compounded daily returns that include all
dividends.
B.The indexes are reweighted daily, using the market capitalization on the previous trading day.
C.If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding
trading day is used.
D.The index level for all series was set to $100.0 on 12/31/1993.
<CAPTION>
DATE
12/31/93
1/31/94
2/28/94
3/31/94
4/29/94
5/31/94
6/30/94
7/29/94
8/31/94
9/30/94
10/31/94
11/30/94
12/30/94
1/31/95
2/28/95
3/31/95
4/28/95
5/31/95
6/30/95
7/31/95
8/31/95
9/29/95
10/31/95
11/30/95
12/29/95
1/31/96
2/29/96
3/29/96
4/30/96
5/31/96
6/28/96
7/31/96
8/30/96
9/30/96
10/31/96
11/29/96
12/31/96
1/31/97
2/28/97
3/31/97
4/30/97
5/30/97
6/30/97
7/31/97
8/29/97
9/30/97
10/31/97
11/28/97
12/31/97
1/30/98
2/27/98
3/31/98
4/30/98
5/29/98
6/30/98
7/31/98
8/31/98
9/30/98
10/30/98
11/30/98
12/31/98
Legend
Symbol
CRSP Total Returns Index for:
Network Computing Devices, Inc. 63.0 105.6 150.0
Nasdaq Stock Market (US Companies) 97.8 138.3 170.0
Nasdaq Computer Manufacturers Stocks SIC 3570-3579 US & Foreign 109.8 173.0 231.9
Notes:
A.The lines represent monthly index levels derived from compounded daily returns that include all
dividends.
B.The indexes are reweighted daily, using the market capitalization on the previous trading day.
C.If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding
trading day is used.
D.The index level for all series was set to $100.0 on 12/31/1993.
<CAPTION>
DATE
12/31/93
1/31/94
2/28/94
3/31/94
4/29/94
5/31/94
6/30/94
7/29/94
8/31/94
9/30/94
10/31/94
11/30/94
12/30/94
1/31/95
2/28/95
3/31/95
4/28/95
5/31/95
6/30/95
7/31/95
8/31/95
9/29/95
10/31/95
11/30/95
12/29/95
1/31/96
2/29/96
3/29/96
4/30/96
5/31/96
6/28/96
7/31/96
8/30/96
9/30/96
10/31/96
11/29/96
12/31/96
1/31/97
2/28/97
3/31/97
4/30/97
5/30/97
6/30/97
7/31/97
8/29/97
9/30/97
10/31/97
11/28/97
12/31/97
1/30/98
2/27/98
3/31/98
4/30/98
5/29/98
6/30/98
7/31/98
8/31/98
9/30/98
10/30/98
11/30/98
12/31/98
Legend
Symbol
CRSP Total Returns Index for:
Network Computing Devices, Inc. 138.9 103.7
Nasdaq Stock Market (US Companies) 208.5 293.8
Nasdaq Computer Manufacturers Stocks SIC 3570-3579 US & Foreign 280.5 607.8
Notes:
A.The lines represent monthly index levels derived from compounded daily returns that include all
dividends.
B.The indexes are reweighted daily, using the market capitalization on the previous trading day.
C.If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding
trading day is used.
D.The index level for all series was set to $100.0 on 12/31/1993.
</TABLE>
12
<PAGE>
CERTAIN TRANSACTIONS
As discussed above, the Company has entered into Employment Agreements with
Robert G. Gilbertson and Rudolph G. Morin. See "Executive Compensation -
Employment, Severance and Change of Control Agreements."
The Company's bylaws provide that the Company shall indemnify its directors
and officers to the full extent permitted by Delaware law. The Company has
entered into indemnification agreements with certain of its officers and
directors containing provisions that may require the Company, among other
things, to indemnify such officers and directors against certain liabilities
that may arise by reason of their status or service as officers or directors
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified and to obtain directors' and officers'
insurance if available on reasonable terms. The Company maintains insurance
covering officers and directors.
PROPOSAL NO. 2
APPROVAL OF THE 1999 STOCK OPTION PLAN
At the Annual Meeting, the shareholders will be asked to approve the Network
Computing Devices, Inc. 1999 Stock Option Plan (the "1999 Plan"). On March 31,
1999, the Board of Directors adopted the 1999 Plan, subject to its approval by
the shareholders. The 1999 Plan is intended to replace the Company's 1989 Stock
Option Plan (the "Predecessor Plan"), which expires on April 28, 1999.
The Board of Directors believes that in order to successfully attract and
retain the best possible candidates for positions of responsibility, the Company
must continue to offer a competitive equity incentive program. The proposed 1999
Plan will replace the expiring Predecessor Plan and ensure that the Company will
continue to have available a reasonable number of shares for its stock option
program. As of April 8, 1999, options to purchase an aggregate of 3,048,000
shares of the Company's Common Stock were outstanding and 481,000 shares
remained available for grant under the Predecessor Plan. Subject to further
limitations described below, the maximum number of shares authorized for
issuance under the proposed 1999 Plan consists only of the sum of those shares
that remain available for grant under the Predecessor Plan immediately prior to
its termination and any shares which subsequently would have become available
upon the termination, cancellation or expiration of options outstanding under
the Predecessor Plan had it not terminated.
SUMMARY OF THE 1999 PLAN
The following summary of the 1999 Plan is qualified in its entirety by the
specific language of the plan, a copy of which is available to any shareholder
upon request.
GENERAL. The purpose of the 1999 Plan is to advance the interests of the
Company and its shareholders by providing an incentive to attract, retain and
reward the Company's employees, directors and consultants and by motivating such
persons to contribute to the Company's growth and profitability. The 1999 Plan
provides for the grant to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the grant to employees, directors and consultants of nonstatutory
stock options.
SHARES SUBJECT TO 1999 PLAN. The maximum number of shares that may be issued
under the 1999 Plan will be the sum of (i) the number of shares that remain
available for grant under the Predecessor Plan immediately prior to its
termination (not to exceed 481,000 shares) and (ii) the number of unissued
shares subject to options outstanding under the Predecessor Plan immediately
prior to its termination which for any reason subsequently expire or are
terminated or canceled (not to exceed 67,000 shares). Shares issued under the
1999 Plan will consist of the authorized but unissued or reacquired shares of
Common Stock of the Company. Appropriate adjustments will be made to the shares
subject to the 1999 Plan, the "Grant Limit" described below and to outstanding
options upon any stock dividend, stock split, reverse stock split,
13
<PAGE>
recapitalization, combination reclassification, or similar change in the capital
structure of the Company. If any option outstanding under the 1999 Plan expires,
terminates or is canceled, or if shares acquired pursuant to an option are
repurchased by the Company at their original exercise price, the expired or
repurchased shares are returned to the 1999 Plan and again become available for
grant.
To enable the Company to deduct in full for federal income tax purposes the
compensation recognized by certain executive officers in connection with options
granted under the 1999 Plan, the plan is designed to qualify such compensation
as "performance-based compensation" under Section 162(m) of the Code. To comply
with Section 162(m), the 1999 Plan limits the number of shares for which options
may be granted to any employee. Under this limitation (the "Grant Limit"), no
employee serving as the Chairman of the Board, Chief Executive Officer or Chief
Operating Officer at any time during a fiscal year may be granted options for
more than 500,000 shares in such fiscal year, and no other employee may be
granted options for more than 250,000 shares in any fiscal year. The Grant Limit
is subject to appropriate adjustment in the event of certain changes in the
Company's capital structure, as previously described.
ADMINISTRATION. The 1999 Plan will be administered by the Board of Directors
or a duly appointed committee of the Board, which, in the case of options
intended to qualify for the performance-based compensation exemption under
Section 162(m) of the Code, must be comprised solely of two or more "outside
directors" within the meaning of Section 162(m). (For purposes of this
discussion, the term "Board" refers to either the Board of Directors or such
committee.) Subject to the provisions of the 1999 Plan, the Board determines the
persons to whom options are to be granted, the number of shares to be covered by
each option, whether an option is to be an incentive stock option or a
nonstatutory stock option, the timing and terms of exercisability and vesting of
each option, the purchase price and the type of consideration to be paid to the
Company upon the exercise of each option, the time of expiration of each option,
and all other terms and conditions of the options. The Board may amend, modify,
extend, cancel, renew, or grant a new option in substitution for, any option,
waive any restrictions or conditions applicable to any option, and accelerate,
continue, extend or defer the exercisability or vesting of any option. The 1999
Plan provides, subject to certain limitations, for indemnification by the
Company of any director, officer or employee against all reasonable expenses,
including attorneys' fees, incurred in connection with any legal action arising
from such person's action or failure to act in administering the 1999 Plan. The
Board will interpret the 1999 Plan and options granted thereunder, and all
determinations of the Board will be final and binding on all persons having an
interest in the 1999 Plan or any option.
ELIGIBILITY. Options may be granted under the 1999 Plan to employees,
directors and consultants of the Company or of any present or future parent or
subsidiary corporations of the Company. In addition, options may be granted to
prospective service providers in connection with written offers of employment or
other service relationship, provided that no shares may be purchased prior to
such person's commencement of service. As of March 31, 1999, the Company had
approximately 382 employees, including 2 executive officers, 5 directors and 10
consultants who would be eligible under the 1999 Plan. While any eligible person
may be granted a nonstatutory stock option, only employees may be granted
incentive stock options.
TERMS AND CONDITIONS OF OPTIONS. Each option granted under the 1999 Plan
will be evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the 1999 Plan.
Incentive stock options must have an exercise price at least equal to the fair
market value of a share of the Common Stock on the date of grant, while
nonstatutory stock options must have an exercise price equal to at least 85% of
such fair market value. However, any incentive stock option granted to a person
who at the time of grant owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary corporation of the Company (a "Ten Percent Shareholder") must have an
exercise price equal to at least 110% of the fair market value of a share of
Common Stock on the date of grant. As of April 5, 1999, the closing price of the
Company's Common Stock, as reported on the Nasdaq National Market, was $5.3125
per share.
14
<PAGE>
The 1999 Plan provides that the option exercise price may be paid in cash,
by check, or in cash equivalent; by the assignment of the proceeds of a sale or
loan with respect to some or all of the shares being acquired upon the exercise
of the option; to the extent legally permitted, by tender of shares of Common
Stock owned by the optionee having a fair market value not less than the
exercise price or by means of a promissory note if the optionee is an employee;
by such other lawful consideration as approved by the Board; or by any
combination of these. Nevertheless, the Board may restrict the forms of payment
permitted in connection with any option grant. No option may be exercised unless
the optionee has made adequate provision for federal, state, local and foreign
taxes, if any, relating to the exercise of the option.
Options will become vested and exercisable at such times or upon such events
and subject to such terms, conditions, performance criteria or restrictions as
specified by the Board. The maximum term of an option granted under the 1999
Plan is ten years, provided that an incentive stock option granted to a Ten
Percent Shareholder must have a term not exceeding five years. However, the
Board currently intends to generally limit the term of all options granted under
the 1999 Plan to a period of five years. An option generally will remain
exercisable for 30 days following the optionee's termination of service.
However, if such termination results from the optionee's death or disability,
the option generally will remain exercisable for three months or six months,
respectively. In any event, the option must be exercised no later than its
expiration date. Options are nontransferable by the optionee other than by will
or by the laws of descent and distribution, and are exercisable during the
optionee's lifetime only by the optionee.
CHANGE IN CONTROL. The 1999 Plan defines a "Change in Control" of the
Company as any of the following events upon which the shareholders of the
Company immediately before the event do not retain immediately after the event,
in substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before the event, direct or indirect
beneficial ownership of more than 50% of the total combined voting power of the
stock of the Company, its successor or the corporation to which the assets of
the Company were transferred: (i) a sale or exchange by the shareholders in a
single or series of related transactions of more than 50% of the Company's
voting stock; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company. If a Change
in Control occurs, the surviving, continuing, successor or purchasing
corporation or parent corporation thereof may either assume the Company's rights
and obligations under the outstanding options or substitute substantially
equivalent options for such corporation's stock. In addition, the 1999 Plan
authorizes the Board to provide in any option agreement for acceleration of the
vesting and exercisability of the option upon such circumstances in connection
with a Change in Control as the Board determines. Options that are not assumed,
replaced or exercised prior to the Change in Control will terminate.
TERMINATION OR AMENDMENT. The 1999 Plan will continue in effect until the
earlier of its termination by the Board or the date on which all shares
available for issuance under the plan have been issued and all restrictions on
such shares under the terms of the plan and the agreements evidencing options
granted under the plan have lapsed, provided that all incentive stock options
must be granted within ten years of the date on which the Board adopted the 1999
Plan. The Board may terminate or amend the 1999 Plan at any time. However,
without shareholder approval, the Board may not amend the 1999 Plan to increase
the total number of shares of Common Stock issuable thereunder, change the class
of persons eligible to receive incentive stock options, or effect any other
change that would require shareholder approval under any applicable law,
regulation or rule. No termination or amendment may affect an outstanding option
unless expressly provided by the Board, and, in any event, may not adversely
affect an outstanding option without the consent of the optionee, unless the
amendment is required to preserve an option's status as an incentive stock
option or is necessary to comply with any applicable law, regulation or rule.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the U.S.
federal income tax consequences under current law of participation in the 1999
Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
15
<PAGE>
INCENTIVE STOCK OPTIONS. An optionee recognizes no taxable income for
regular income tax purposes as a result of the grant or exercise of an incentive
stock option qualifying under Section 422 of the Code. Optionees who neither
dispose of their shares within two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a capital gain or loss equal to the difference, if any, between the
sale price and the purchase price of the shares. If an optionee satisfies such
holding periods upon a sale of the shares, the Company will not be entitled to
any deduction for federal income tax purposes. If an optionee disposes of shares
within two years after the date of grant or within one year after the date of
exercise (a "disqualifying disposition"), the difference between the fair market
value of the shares on the determination date (see discussion under
"Nonstatutory Stock Options" below) and the option exercise price (not to exceed
the gain realized on the sale if the disposition is a transaction with respect
to which a loss, if sustained, would be recognized) will be taxed as ordinary
income at the time of disposition. Any gain in excess of that amount will be a
capital gain. If a loss is recognized, there will be no ordinary income, and
such loss will be a capital loss. Any ordinary income recognized by the optionee
upon the disqualifying disposition of the shares generally should be deductible
by the Company for federal income tax purposes, except to the extent such
deduction is limited by applicable provisions of the Code.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is treated as an adjustment
in computing the optionee's alternative minimum taxable income and may be
subject to an alternative minimum tax which is paid if such tax exceeds the
regular tax for the year. Special rules may apply with respect to certain
subsequent sales of the shares in a disqualifying disposition, certain basis
adjustments for purposes of computing the alternative minimum taxable income on
a subsequent sale of the shares and certain tax credits which may arise with
respect to optionees subject to the alternative minimum tax.
NONSTATUTORY STOCK OPTIONS. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options having no special tax
status. An optionee generally recognizes no taxable income as the result of the
grant of such an option. Upon exercise of a nonstatutory stock option, the
optionee normally recognizes ordinary income in the amount of the difference
between the option exercise price and the fair market value of the shares on the
determination date (as defined below). If the optionee is an employee, such
ordinary income generally is subject to withholding of income and employment
taxes. The "determination date" is the date on which the option is exercised
unless the shares are subject to a substantial risk of forfeiture (as in the
case where an optionee is permitted to exercise an unvested option and receive
unvested shares which, until they vest, are subject to the Company's right to
repurchase them at the original exercise price upon the optionee's termination
of service) and are not transferable, in which case the determination date is
the earlier of (i) the date on which the shares become transferable or (ii) the
date on which the shares are no longer subject to a substantial risk of
forfeiture. If the determination date is after the exercise date, the optionee
may elect, pursuant to Section 83(b) of the Code, to have the exercise date be
the determination date by filing an election with the Internal Revenue Service
no later than 30 days after the date the option is exercised. Upon the sale of
stock acquired by the exercise of a nonstatutory stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the
determination date, will be taxed as capital gain or loss. No tax deduction is
available to the Company with respect to the grant of a nonstatutory stock
option or the sale of the stock acquired pursuant to such grant. The Company
generally should be entitled to a deduction equal to the amount of ordinary
income recognized by the optionee as a result of the exercise of a nonstatutory
stock option, except to the extent such deduction is limited by applicable
provisions of the Code.
NEW PLAN BENEFITS
No options will be granted under the 1999 Plan prior to its approval by the
shareholders of the Company. Future grants under the 1999 Plan will be made at
the discretion of the Board, and, accordingly, are not yet determinable. In
addition, benefits under the 1999 Plan will depend on a number of factors,
including the fair market value of the Company's Common Stock on future dates
and the exercise
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decisions made by the optionees. Consequently it is not possible to determine
the benefits that might be received by optionees receiving discretionary grants
under the 1999 Plan.
REQUIRED VOTE
Approval of this proposal requires a number of votes "For" the proposal that
exceeds the number of votes "Against" the proposal, provided a quorum
representing a majority of all outstanding shares of Common Stock is present or
represented by proxy and voting "For" or "Against" the proposal. Abstentions and
broker non-votes will be disregarded for purposes of determining whether a
quorum is voting on the proposal but otherwise will have no effect on the
outcome of the vote.
As described above, the 1999 Plan is intended to preserve the treatment of
option-related compensation as "performance-based compensation" for purposes of
Section 162(m) of the Code. By approving this proposal, the shareholders will be
approving, among other things, the eligibility requirements for participation in
the 1999 Plan and the Grant Limit.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE 1999 STOCK OPTION PLAN.
PROPOSAL NO. 3
AMENDMENT TO THE 1992 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, shareholders are being asked to approve an amendment
to the Company's 1992 Employee Stock Purchase Plan (the "Purchase Plan") to
increase the number of shares of Common Stock reserved for issuance thereunder
by 200,000 shares, to a total of 1,650,000 shares. As of March 31, 1999,
1,284,307 shares of Common Stock had been purchased under the Purchase Plan, at
an average purchase price of $5.43 per share, and 165,693 shares remained
available for purchase.
Employee stock purchase plans of this type are a standard and competitive
perquisite in high-technology companies. The Company believes that the Purchase
Plan is necessary to attract and retain qualified employees, and that the
increase is necessary to ensure that there will be a sufficient number of shares
issuable thereunder to satisfy near term requirements.
The number of shares of Common Stock purchased under the Purchase Plan by
certain persons during the year ended December 31, 1998 are as follows: Mr.
Gilbertson, Mr. Dye, Ms. Hariton and Mr. Morin purchased 1,942 shares, 2,964
shares, 1,942 shares and 1,942 shares, respectively; all current executive
officers as a group purchased 8,790 shares; and all current employees, including
officers who are not executive officers, as a group purchased 159,081 shares.
During such year no shares were purchased under the Purchase Plan by any
directors who are not executive officers, any other nominees for election as
directors or any associates of such directors or nominees or of any executive
officers, and no person purchased five percent or more of the total number of
shares issued under the Purchase Plan during that year.
SUMMARY OF THE PURCHASE PLAN
GENERAL. The Purchase Plan was adopted by the Company's Board of Directors
and shareholders in March 1992. An aggregate of 1,450,000 shares of Common Stock
have been reserved for issuance under the Purchase Plan. Subject to shareholder
approval, the Board of Directors has approved an amendment to increase the
number of shares reserved for issuance under the Purchase Plan by 200,000
shares, to a total of 1,650,000 shares.
The Purchase Plan, and the rights of participants to make purchases
thereunder, is intended to qualify as an "employee stock purchase plan" under
Sections 421 and 423 of the Internal Revenue Code. See "Federal Income Tax
Consequences" below.
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The Purchase Plan is not qualified under Section 401(a) of the Internal
Revenue Code and is not subject to the Employee Retirement Income Security Act
of 1974, as amended.
PURPOSE. The purpose of the Purchase Plan is to enable the Company to offer
incentives to its employees, so as to attract and retain the best available
officers and employees for positions of substantial responsibility, and to
promote the success of the Company's business.
ADMINISTRATION. The Purchase Plan may be administered by the Board of
Directors or by a committee appointed by the Board (the "Committee") and is
currently being administered by the Board of Directors. Members of the Board of
Directors who are eligible employees are permitted to participate in the
Purchase Plan; however, no member of the Committee, while serving as such, shall
be eligible to participate in the Purchase Plan. All costs and expenses incurred
in plan administration are paid by the Company without charge to participants.
ELIGIBILITY. Any individual (including officers and employee directors) who
is customarily employed by the Company or a designated subsidiary for at least
20 hours per week and more than five months per calendar year is eligible to
participate in the Purchase Plan.
No employee is permitted to purchase shares under the Purchase Plan if such
employee owns, directly or indirectly (including stock purchasable under any
outstanding purchase rights), five percent or more of the total combined voting
power or value of all classes of stock of the Company or any of its
subsidiaries. In addition, purchase options granted to a participant under the
Purchase Plan (and all other purchase plans of the Company and its subsidiaries)
may not permit such individual to purchase Common Stock having a fair market
value of more than $25,000 (valued at the time each purchase right is granted)
during any one calendar year.
OFFERING DATES. The Purchase Plan is implemented in one-year offering
periods beginning on June 1 and ending on May 31 of the following year. The
Board or Committee, at its discretion, may redesignate the commencement and
termination date of subsequent offering periods and may designate special short
offering periods in connection with such redesignations, but no such
redesignation shall affect an offering period in progress.
Each offering is divided into two six-month "purchase periods" during which
contributions are made through payroll deductions and at the end of which (the
"Purchase Date") shares are issued based on the contributions made during the
purchase period. A purchase period commencing on June 1 ends on the following
November 30. A purchase period commencing on December 1 ends on the following
May 31.
GRANT OF OPTION; PURCHASE OF STOCK. At the beginning of an offering period,
each participant is granted a purchase option to purchase up to the number of
shares equal to the participant's accumulated payroll deductions at the end of
each purchase period (at the rate designated by such employee, not to exceed an
amount equal to 10% of the participant's compensation during the applicable
purchase period) divided by 85% of the fair market value of a share of the
Company's Common Stock at the beginning of the offering period. If the total
number of shares that would otherwise be subject to options exceeds the number
of shares then available under the Purchase Plan (after deduction of all shares
for which options have been exercised or are then outstanding), the Company will
make a pro rata allocation of the shares remaining available for option grant in
as uniform a manner as shall be practicable and as it shall determine to be
equitable.
Executing the enrollment agreement to participate in the Purchase Plan does
not obligate the employee to make the stock purchase; the enrollment agreement
is merely an election by the employee to have shares placed under option to him
or her. Unless the employee's participation is withdrawn as provided in the
Purchase Plan, his or her option for the purchase of shares will be exercised
automatically at each Purchase Date, and the maximum number of full shares
subject to option that are purchasable with the accumulated payroll deductions
in his or her account will be purchased for him or her at the applicable option
price. Any cash remaining to the credit of a participant's account under the
Purchase Plan after the purchase of shares at the end of an offering period is
returned to the participant without interest.
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PURCHASE PRICE. The purchase price of the Common Stock acquired at the end
of a purchase period will be equal to the lesser of (i) 85% of the fair market
value per share of Common Stock on the date on which such offering period begins
or (ii) 85% of the fair market value per share of Common Stock on the Purchase
Date. The fair market value of the Common Stock shall be the opening sales price
as reported on The Nasdaq National Market on the date of determination.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS. The purchase price of the
shares to be acquired under the Purchase Plan is accumulated by payroll
deductions over the offering period. The deductions may not exceed 10% of the
total compensation which a participant receives during the offering period, and
shall not be less than $10.00 per month. A participant may discontinue his or
her participation in the Purchase Plan (see "Withdrawal from the Purchase Plan"
below) or may decrease, but not increase, his or her rate of payroll deductions
at any time during the offering period. Payroll deductions for a participant
shall commence on the first payday following the commencement of the offering
period and shall continue until altered or terminated as provided in the
Purchase Plan.
All payroll deductions made for a participant are credited to his or her
account under the Purchase Plan and are deposited with the general funds of the
Company. All payroll deductions received or held by the Company under the
Purchase Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
NONASSIGNABILITY. Purchase rights will be exercisable only by the
participant. No purchase rights, including but not limited to accumulated
payroll deductions and any rights with regard to the exercise of a purchase
option or to receive shares under the Purchase Plan, may be assigned,
transferred, pledged or otherwise disposed of in any way (other than upon death
of a participant as provided in the Purchase Plan) for any reason.
WITHDRAWAL FROM THE PURCHASE PLAN. A participant may terminate his or her
participation in the Purchase Plan and his or her interest in the then-current
offering period in whole, but not in part, by giving written notice to the
Company of his or her election to withdraw all of the accumulated payroll
deductions credited to his or her account under the Purchase Plan. Such
withdrawal may be elected by a participant at any time prior to the end of the
applicable offering period. Any withdrawal by the participant of his or her
accumulated payroll deductions for a given offering period automatically
terminates the participant's interest in that offering period of the Purchase
Plan. A participant's withdrawal from an offering period will not have any
effect upon his or her eligibility to participate in subsequent offerings under
the Purchase Plan or in any similar plan which may hereafter be adopted by the
Company.
TERMINATION OF EMPLOYMENT. Termination of a participant's employment for
any reason, including retirement or death, or the failure of the participant to
remain in the continuous employ of the Company or any designated subsidiary for
at least 20 hours per week during the applicable offering period, cancels his or
her participation in the Purchase Plan immediately. In such event, the payroll
deductions credited to the participant's account will be returned to him or her
or, in the case of death, to the person or persons entitled thereto as provided
in the Purchase Plan.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event that any change is
made to the Company's outstanding Common Stock (whether by reason of any
recapitalization, stock dividend, stock split, combination of shares, or other
similar change in corporate structure effected without receipt of
consideration), appropriate adjustments will be made to (i) the class and
maximum number of shares purchasable under the Purchase Plan, (ii) the class and
maximum number of shares purchasable per participant under any outstanding
purchase right or over the term of the Purchase Plan, and (iii) the class and
number of shares purchasable and the price per share payable under all
outstanding purchase rights.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN. The Purchase Plan will
terminate upon the earlier of (i) March 12, 2012 or (ii) the date on which all
shares available for issuance thereunder are sold pursuant to exercised purchase
rights. However, the Board may from time to time alter, amend, suspend or
discontinue the provisions of the Purchase Plan. If such right is exercised by
the Company, then the
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Purchase Plan will terminate in its entirety and no further purchase rights will
be granted or exercised thereunder.
The Board may not, without shareholder approval, (i) increase the number of
shares issuable under the Purchase Plan, except in connection with certain
changes in the Company's capital structure, (ii) permit payroll deductions at a
rate in excess of 10% of the participant's compensation rate, (iii) materially
increase the benefits accruing to participants under the Plan, or (iv)
materially modify the requirements for eligibility to participate in the
Purchase Plan.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Internal Revenue Code. Under these provisions, no income will be taxable
to a participant at the time of grant or exercise of a purchase option. As
summarized below, a participant may become liable for tax upon disposition of
the shares acquired, and the method of taxation will depend upon the
participant's holding period.
In order to receive the favorable Federal income tax consequences associated
with the Purchase Plan, the participant generally must not sell or dispose of
the shares acquired upon exercise of the purchase option within two years from
the grant date (the first day of the offering period) or within 12 months after
the Purchase Date. If the participant satisfies these requirements, then the
lesser of (a) the excess of the fair market value of the shares at the time of
sale or disposition over the option price, or (b) the excess of the fair market
value of the shares at the grant date over the option price (which is computed
as if exercised on the grant date), will be treated as ordinary income to the
participant. Any further gain upon the sale or disposition will generally be
taxed as a long-term capital gain calculated by adding the amount of ordinary
income to the basis of the shares. If the selling price is less than the option
price, there is no ordinary income and the participant would have a long-term
capital loss on the difference.
If the participant fails to satisfy the holding period requirements outlined
above, the disposition of shares of Common Stock he or she receives under the
Purchase Plan generally will be treated as a "disqualifying disposition." In the
event of a disqualifying disposition, the participant generally will recognize
ordinary income in the year of disposition equal to the amount by which the fair
market value of the stock at the date of exercise exceeded the exercise price.
Any additional gain will be long-term or short-term gain, depending on how long
the participant has held the stock. The Company may be allowed a deduction to
the extent of the ordinary income recognizable by the participant. These holding
period requirements do not apply to options exercised or stock transferred after
the participant's death.
The Company is not entitled to a deduction for amounts taxed as ordinary
income to a participant, except to the extent that ordinary income must be
reported upon sales or other dispositions of shares before the expiration of the
holding period described above.
------------------------
The foregoing summary of the effect of current Federal income taxation upon
participants in the Purchase Plan and the Company with respect to the grant of
options for, and the purchase and subsequent disposition by the participant of,
shares under the Purchase Plan does not purport to be complete, and reference is
made to the applicable provisions of the Internal Revenue Code. The discussion
of laws herein, is based only on such laws, court decisions and administrative
rulings as of the date hereof. The foregoing summary also does not reflect
provisions of the income tax laws of any state or foreign jurisdiction in which
participants may reside, and does not address prospective estate, gift and other
tax consequences of acquiring stock under the Purchase Plan.
REQUIRED VOTE
Approval of this proposal requires a number of votes "For" the proposal that
exceeds the number of votes "Against" the proposal, provided a quorum
representing a majority of all outstanding shares of Common Stock is present or
represented by proxy and voting "For" or "Against" the proposal. Abstentions and
broker non-votes will be disregarded for purposes of determining whether a
quorum is voting on the proposal but otherwise will have no effect on the
outcome of the vote.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL NO. 4
AMENDMENT TO THE 1994 OUTSIDE DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, shareholders are being asked to approve an amendment
to the Company's 1994 Outside Directors' Stock Option Plan (the "Directors'
Plan") to increase the number of shares of Common Stock reserved for issuance
thereunder by 50,000 shares, to a total of 300,000 shares.
The Directors' Plan currently provides for the issuance of 250,000 shares of
Common Stock upon the exercise of options granted thereunder. As of March 31,
1999, options for 217,500 shares of Common Stock were outstanding at a weighted
average price of $7.1595 per share. As of March 31, 1999, no options had been
exercised and the amount of shares of Common Stock underlying options which were
available to grant were 32,500 shares. The closing price of the Company's Common
Stock reported on the Nasdaq National Market on March 31, 1999 was $5.00 per
share.
Management believes that the ability to grant stock options to outside
directors is important to the Company's ability to retain qualified outside
directors and to contract new qualified outside directors, who are essential to
the long-term success of the Company. The Company believes that the number of
remaining shares available for issuance under the Directors' Plan will be
insufficient to accomplish these purposes. The Company anticipates that this
increase in shares reserved under the Directors' Plan should meet the Company's
goals of retaining and attracting qualified outside directors.
SUMMARY OF THE PROVISIONS OF THE DIRECTORS' PLAN
Set forth below is a summary of the principal features of the Directors'
Plan. Such summary is qualified in its entirety by the specific language of the
Directors' Plan, a copy of which is available to any shareholder upon request.
GENERAL. The directors of the Company who are not employees of the Company
or of any present or future parent and/or subsidiary corporations of the Company
and who are not affiliates of holders of 10% or more stock of the Company
("Outside Directors") are eligible to participate in the Directors' Plan. The
Directors' Plan provides that each Outside Director, on the effective date of
the plan or upon such director's initial appointment or election to the Board of
Directors, will receive a one-time grant of an option to purchase 30,000 shares
(the "Initial Grant"). The Directors' Plan further provides that, following
receipt of the Initial Grant, each Outside Director will be granted an option to
purchase 7,500 shares (an "Additional Grant") on the day immediately following
each Annual Meeting of Shareholders occurring on or after the date six months
after the Initial Grant, provided the optionee has served on the Board
continuously since the Initial Grant. Each option granted pursuant to an Initial
Grant or an Additional Grant becomes exercisable in four equal annual
installments, subject to the optionee's continuous service on the Board of
Directors. Options must have a per share exercise price equal to the fair market
value of a share of the Company's Common Stock on the date of grant. On March
31, 1999 the closing price of the Company's Common Stock as reported on the
Nasdaq National Market was $5.00 per share.
TERMS AND CONDITIONS OF OPTIONS. Options granted under the Directors' Plan
may be exercised by payment of the exercise price (i) in cash, by check, or
equivalent, (ii) by tender to the Company of shares of the Common Stock of the
Company which have a market value not less than the option price, or (iii) by
the assignment of the proceeds of a sale of some or all of the shares being
acquired upon the exercise of an option. Options expire 10 years after the date
of grant. During the lifetime of the optionee, the option may be exercised only
by the optionee. An option may not be transferred, except by will or the laws of
descent and distribution.
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If an optionee ceases to be a director of the Company for any reason except
death or disability, the optionee may exercise his or her options (to the extent
exercisable on the date of termination) within three (3) months after the date
of termination, but in any event not later than the expiration date. If an
optionee ceases to be a director of the Company due to death or disability, the
optionee (or his or her legal representative) may exercise the option (to the
extent exercisable on the date of termination) within twelve (12) months after
the date of termination, but in any event not later than the expiration date. An
optionee's service as a director will be deemed to have terminated on account of
death if the optionee dies within three (3) months after such termination. The
portion of an option which is unexercisable as of the date of termination will
be canceled. In connection with any transfer of control of the Company, any
unexercisable portion of an option shall become immediately exercisable, subject
to the consummation of the transfer of control. Upon consummation of any
transfer of control, any options that have not been assumed or substituted for
by the successor or purchaser of the Company or exercised as of the date of the
transfer of control shall terminate and cease to be outstanding effective as of
the transfer of control.
TERMINATION OR AMENDMENT. The Board of Directors may terminate or amend the
Directors' Plan at any time, provided that without shareholders' approval, the
Board of Directors may not amend the Directors' Plan to increase the number of
shares covered by the Directors' Plan or to expand the class of persons eligible
to receive options under the Directors' Plan, and provided further, that the
provisions of the Directors' Plan addressing eligibility to participate and the
amount, price and timing of the option grants generally may not be amended more
than once every six (6) months.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
Options granted under the Directors' Plan are nonstatutory stock having no
special tax status. An optionee generally recognizes no taxable income as the
result of the grant of such an option. Upon exercise of the option, the optionee
normally recognizes ordinary income with respect to the acquired shares in the
amount of the difference between the option price and the fair market value of
the shares on the date of exercise. Such ordinary income generally is subject to
withholding of income and employment taxes. Upon the sale of stock acquired by
the exercise of a nonstatutory stock option, any gain or loss, based on the
difference between the sale price and the fair market value of the shares on the
date of recognition of income, will be taxed as long-term or short-term capital
gain or loss, depending upon the length of time the optionee has held the stock
from the date of recognition of income. No tax deduction is available to the
Company with respect to the grant. The Company should be entitled to a deduction
equal to the amount of ordinary income recognized by the optionee as a result of
the exercise of the option.
REQUIRED VOTE
Approval of this proposal requires a number of votes "For" the proposal that
exceeds the number of votes "Against" the proposal. Abstentions and broker
non-votes will each be counted as present for purposes of determining the
presence of a quorum but will have no effect on the outcome of the vote.
Abstentions and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum, but will have no effect on the outcome of
the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE 1994 OUTSIDE DIRECTORS' STOCK
OPTION PLAN.
PROPOSAL NO. 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG") as the
independent auditors of the Company for the current fiscal year. The selection
of the independent auditors is being submitted to the shareholders for
ratification at the Annual Meeting. In the event that ratification by the
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shareholders of the selection of KPMG as the Company's independent auditors is
not obtained, the Board of Directors will reconsider such selection.
KPMG has audited the Company's financial statements since 1988. Its
representatives are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions.
The ratification of the selection of KPMG will require the affirmative vote
of not less than a majority of the shares of the Company's Common Stock
represented and voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE RATIFICATION OF THE SELECTION OF KPMG.
OTHER BUSINESS
The Company currently knows of no other matters to be submitted at the
Annual Meeting. If any other matters properly come before the Annual Meeting, it
is the intention of the persons named in the enclosed form of proxy to vote the
shares they represent as the Board of Directors may recommend.
Dated: April 19, 1999 THE BOARD OF DIRECTORS
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NETWORK COMPUTING DEVICES, INC.
1999 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Network Computing Devices, Inc., a
Delaware corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated: April 19, 1999, and
the Annual Report on Form 10-K for the year ended December 31, 1998, and
hereby appoints Robert G. Gilbertson and Joseph L. Ramirez, or either of
them, proxies and attorneys-in-fact, 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 Shareholders of Network Computing Devices, Inc.,
to be held on May 26, 1999, at 10:00 a.m., local time, at 301 Ravendale
Drive, Mountain View, California, and at any adjournment(s) 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 on the
reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE>
PLEASE MARK /X/
YOUR CHOICES
LIKE THIS
FOR* AGAINST
1. ELECTION OF / / / /
DIRECTORS
Nominees
Robert G. Gilbertson, Philip Greer, Douglas H. Klein, Paul Low, Stephen
MacDonald, Rudolph G. Morin, Peter Preuss
- ------------------------------------------------------------------------
For all nominees, except as noted above
* FOR all nominees listed or, in the discretion of the proxies, for such
other persons as may be nominated if any such nominee does not or cannot
stand for election (except as indicated).
FOR AGAINST ABSTAIN
2. Proposal to approve the Company's 1999 Stock / / / / / /
Option Plan.
FOR AGAINST ABSTAIN
3. Proposal to approve an amendment to the 1992 / / / / / /
Employee Stock Purchase Plan to increase the
number of shares of Common Stock reserved for
issuance thereunder by 200,000 shares.
4. Proposal to approve an amendment to the 1994 / / / / / /
Outside Directors' Stock Option Plan to increase
the number of shares of Common Stock reserved
for issuance thereunder by 50,000 shares.
5. Proposal to ratify the appointment of KPMG Peat / / / /
Marwick LLP as the independent auditors of the
Company.
6. In their discretion, the proxies are authorized
to vote upon such other matter or matters that
may properly come before the meeting and any
adjournment thereof.
This Proxy should be marked, dated, signed by the shareholder(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.
This proxy will be voted as directed or, if no direction is indicated, will
be voted for the election of named directors, for approval of the Company's
1999 Stock Option Plan, for the amendment to the 1992 Employee Stock Purchase
Plan, for the amendment to the 1994 outside Directors' Stock Option Plan and
for the ratification of the appointment of KPMG Peat Marwick as the
independent auditors of the Company.
Signature(s) Date
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Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
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