NETWORK PERIPHERALS INC, DEF 14A, 1997-03-14

NETWORK PERIPHERALS INC
DEF 14A, 1997-03-14
COMPUTER COMMUNICATIONS EQUIPMENT

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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)

Filed by the Registrant /X/
Filed by a party other than the Registrant / /

Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12

NETWORK PERIPHERALS INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)

NETWORK PERIPHERALS INC.
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A

/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transactions applies:

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(2) Aggregate number of securities to which transactions applies:

- ----------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

- ----------------------------------------------------------------------------

(5) Total fee paid:

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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

(1) Amount previously paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing party:

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(4) Date filed:

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<PAGE>

NETWORK PERIPHERALS INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 24, 1997

TO THE STOCKHOLDERS:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Network
Peripherals Inc., a Delaware corporation (the "Company"), will be held on
Thursday, April 24, 1997 at 11:00 a.m., local time, in the Tivoli Ballroom of
the Sheraton San Jose Hotel, 1801 Barber Lane, Milpitas, California, for the
following purposes:

1. To elect two Class III directors of the Company to serve for the
ensuing three year term and until their successors are duly elected.

2. To approve the Company's 1997 Stock Plan.

3. To approve amendments to the Company's 1994 Outside Directors Stock
Option Plan to (i) change the formula for granting options, (ii) change the
option vesting provisions applicable in the event of a change in control of
the Company, and (iii) revise the requirements for stockholder approval of
subsequent amendments to the plan.

4. To ratify the appointment of Price Waterhouse LLP as independent
accountants for the Company for the fiscal year ending December 31, 1997.

5. To transact such other business as may properly come before the
meeting or any adjournment thereof.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.

Only stockholders of record at the close of business on February 24, 1997,
are entitled to notice of and to vote at the meeting and any adjournment
thereof.

All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-paid, return envelope enclosed for that purpose. Any stockholder
attending the meeting may vote in person even if he or she has returned a proxy.

Sincerely,

Truman Cole
Secretary

Milpitas, California
March 26, 1997

- --------------------------------------------------------------------------------
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED
TO COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
- --------------------------------------------------------------------------------

<PAGE>

NETWORK PERIPHERALS INC.

----------

PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed Proxy is solicited on behalf of Network Peripherals Inc. (the
"Company") for use at the Annual Meeting of Stockholders to be held on Thursday,
April 24, 1997 at 11:00 a.m., local time, or at any adjournment thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held in the Tivoli Ballroom of the
Sheraton San Jose Hotel, 180l Barber Lane, Milpitas, California. The Company's
principal executive offices are located at 1371 McCarthy Boulevard, Milpitas,
California 95035.

These proxy solicitation materials were mailed on or about March 26, 1997,
together with the Company's 1996 Annual Report to Stockholders, to all
stockholders entitled to vote at the meeting.

RECORD DATE AND PRINCIPAL STOCKHOLDERS

Stockholders of record at the close of business on February 24, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting. On the
Record Date, 12,086,473 shares of the Company's Common Stock were issued and
outstanding. For information regarding security ownership by management and
certain other holders of the Company's Common Stock, see "OTHER INFORMATION--
Share Ownership by Principal Stockholders and Management."

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 delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.

VOTING AND SOLICITATION

Every stockholder voting in the election of directors is entitled to one vote
for each share held. Stockholders are not entitled to cumulate votes for the
election of directors or for any other purpose.

The cost of soliciting proxies will be borne by the Company. The Company may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their reasonable expenses in forwarding solicitation material 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, letter, telegram, facsimile transmission or other
means of electronic communication.

QUORUM; ABSTENTIONS; BROKER NON-VOTES

The required quorum for the transaction of business at the Annual Meeting is
the presence in person or by proxy of a majority of the shares of Common Stock
outstanding on the Record Date. Shares that are voted "FOR," "AGAINST" or
"WITHHELD" from a matter are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as votes eligible to be
cast by the Common Stock present in person or represented by proxy at the Annual
Meeting and "entitled to vote on the subject matter" (the "Votes Cast") with
respect to such matter.

While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions in the election of directors (Proposal
No. 1), the Company believes that abstentions should be counted for purposes of
determining both the presence or absence of a quorum for the transaction of
business and the total number of Votes Cast with respect to a particular matter.
In the absence of controlling precedent to the contrary, the Company intends to
treat abstentions in this manner. Delaware case law suggests that, while broker
non-votes may be counted for purposes of determining the presence

<PAGE>

or absence of a quorum for the transaction of business, broker non-votes should
not be counted for purposes of determining the number of Votes Cast with respect
to the particular proposal on which the broker has expressly not voted. Broker
non-votes with respect to proposals set forth in this Proxy Statement will
therefore not be considered "Votes Cast" and, accordingly, will not affect the
determination as to whether the requisite majority of Votes Cast has been
obtained with respect to a particular matter.

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS

Proposals of stockholders of the Company which are intended to be presented
by such stockholders at next year's Annual Meeting must be received by the
Company no later than November 14, 1997 in order that they may be included in
the proxy statement and form of proxy relating to that meeting.

PROPOSAL 1
ELECTION OF DIRECTORS

NOMINEES

The number of directors authorized by the Company's By-Laws is fixed from
time to time exclusively by the Board of Directors. The Board of Directors has
currently set the number of directors at six. The Company's By-Laws provide that
the directors shall be divided into three classes, with the classes of directors
serving for staggered, three year terms. The two Class III directors to be
elected at the Annual Meeting are to hold office until the Annual Meeting to be
held in 2000 and until their successors have been elected and qualified. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's two nominees named below, both of whom are presently directors
of the Company. In the event that any nominee of the Company 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. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner as will assure the election of as many
of the nominees listed below as possible, and, in such event, the specific
nominees to be voted for will be determined by the proxy holders. The Company is
not aware of any nominee who will be unable or will decline to serve as a
director.

<PAGE>

The following table sets forth the name and age of each nominee, and each
director of the Company whose term of office continues after the Annual Meeting,
the principal occupation of each during the past five years, and the period
during which each has served as a director of the Company:

<TABLE>
NOMINEES FOR ELECTION AS CLASS III DIRECTORS SERVING FOR A TERM EXPIRING IN
2000:

<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------ -------------------------------------------------------- --- ----------
<S> <C> <C> <C>
Glenn E. Penisten Mr. Penisten has served as the Chairman of the Board of 65 1996
Directors since June 1996. Since September 1985, he has been
a partner of Alpha Partners, a venture capital firm. He has
served as Chief Executive Officer for several leading
technology companies including; American Microsystems, Inc.,
from July 1976 to December 1984, Data Transmission Co., from
February 1972 to April 1976, and Superconductor Technologies,
Inc., from May 1987 to June 1988. Prior to these positions,
Mr. Penisten held director level positions at Dataproducts
Corporation, Sanders Associates and Gould, Inc. He also
served as corporate officer at Texas Instruments, Inc., and
chairman of the American Electronics Association. Mr.
Penisten currently serves as director for Ikos Systems, Bell
Microproducts, Pinnacle Systems, and Superconductor
Technologies, Inc.

Charles J. Hart .. Mr. Hart has served on the Board of Directors since November 58 1996
1996. From January 1992 to July 1995, Mr. Hart served as
President and Chief Executive Officer of Semaphore
Communications, a global networking security company. Prior
to joining Semaphore Communications, he has served as Chief
Executive Officer with several innovative hardware and
software companies including Lan pioneer Nestar Systems,
Inc., and Etak, Inc., the leader in geographic information
systems.
</TABLE>

<PAGE>

<TABLE>
INCUMBENT DIRECTORS NOT STANDING FOR RE-ELECTION AT THE 1997 ANNUAL MEETING:

<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------ -------------------------------------------------------- --- ----------
<S> <C> <C> <C>
Pauline Lo Alker Mrs. Alker has served as the President, Chief Executive 54 1991
Officer and a director of the Company since January 1991. In
June 1984, Mrs. Alker co-founded Counterpoint Computers,
Inc., a manufacturer of modular, multi-processor UNIX
systems, where she served as Chairman, President and Chief
Executive Officer until it was acquired by Acer Corporation,
a computer systems manufacturer, for which she subsequently
served as President, Network Computing Division and
President, Sales and Marketing, Acer North American
Operations from October 1987 to September 1990. From 1980 to
1984, Mrs. Alker was Vice President of Marketing and
subsequently Vice President, General Manager at Convergent
Technologies, Inc. ("Convergent"), a workstation
manufacturer. Prior to joining Convergent, Mrs. Alker held
various marketing and engineering management positions with
Intel and Four Phase Systems and Amdahl Corporation, all of
which are computer systems manufacturers. Mrs. Alker also
serves as a member of the board and audit committee at
Tektronix.

Kenneth Levy ..... Mr. Levy has served on the Board of Directors since March 54 1993
1993. Since November 1991, he has served as Chairman of the
Board and Chief Executive Officer of KLA Instruments
Corporation, a semiconductor manufacturing equipment company
which he co-founded in July 1975, and for which he served as
President, Chief Executive Officer and director. Mr. Levy is
also director of Ultratech Stepper, Inc., a manufacturer of
photolithography equipment; and a director of Integrated
Process Equipment Corporation, a manufacturer of
semiconductor processing equipment for chemical, mechanical,
planarization and cleaning of advanced integrated circuits.

Ann S. Bowers ... Ms. Bowers has served on the Board of Directors since June 59 1992
1992. Since June 1990, she has been the President of the
Noyce Foundation, a nonprofit education foundation. From 1970
until 1976, Ms. Bowers was the Director of Human Resources
for Intel Corporation, and from 1980 through 1985, she was
the Vice President of Human Resources for Apple Computer,
Inc.. From 1985 until 1990, Ms. Bowers was a self-employed
consultant in the human resources field. Ms. Bowers is also a
director of the Investment Company of America, a mutual fund.

<PAGE>

PRINCIPAL OCCUPATION DIRECTOR
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------ -------------------------------------------------------- --- ----------
William P. Tai .. Mr. Tai has served on the Board of Directors since March 34 1994
1994. Since September 1991, he has been a partner of the
Walden Group, a venture capital firm. From August 1987 until
September 1991, Mr. Tai worked as a research analyst at Alex.
Brown & Sons Incorporated, an investment banking firm. From
June 1984 until June 1987, Mr. Tai served in various
technical marketing capacities with LSI Logic Corporation, a
semiconductor company. Mr. Tai also serves as a director of
Award Software International, as well as the Western
Association of Venture Capitalists, and several
privately-held companies.

</TABLE>

There are no family relationships among any directors or officers of the
Company.

VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION

The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote at the Annual Meeting of Stockholders, at which a
quorum representing a majority of all outstanding shares of Common Stock of the
Company is present, either in person or by proxy, is required for approval of
this proposal. Abstentions and broker non-votes will each be counted as present
for purposes of determining the presence of a quorum. Abstentions will have the
same effect as a negative vote on this proposal. Broker non-votes will have no
effect on the outcome of this vote.

The two nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ELECTION OF THE NAMED NOMINEES.

BOARD MEETINGS AND COMMITTEES

The Board of Directors of the Company held a total of 8 meetings and took
action by written consent one time during the fiscal year ended December 31,
1996. No director participated in fewer than 75% of all such meetings and
actions of the Board of Directors and the committees, if any, upon which such
director served.

The Board of Directors has an Audit Committee and a Compensation Committee.
It does not have a Nominating Committee or a committee performing the functions
of a Nominating Committee. The functions of a Nominating Committee are performed
by the Board of Directors as a whole.

The Audit Committee of the Board of Directors, which, at the end of 1996,
consisted of directors Levy and Penisten, met 4 times during fiscal year 1996.
In addition, Mr. Tai also served as a member of the Audit Committee for a
portion of 1996. The Audit Committee recommends engagement of the Company's
independent accountants, and is primarily responsible for reviewing and
approving the scope of the audit and other services performed by the Company's
independent accountants and for reviewing and evaluating the Company's
accounting principles and its systems of internal accounting controls.

The Compensation Committee of the Board of Directors, which consists of
directors Bowers, Levy and Tai, held 6 meetings during fiscal year 1996. The
Compensation Committee reviews and approves the Company's executive compensation
policy, and reviews and approves grants of options to employees under the
Company's 1993 Stock Option Plan and 1996 Nonstatutory Stock Option Plan. The
Compensation Committee will be responsible for the administration of the 1997
Stock Plan if it is approved by the stockholders.

<PAGE>

COMPENSATION OF DIRECTORS

Directors who are employees of the Company receive no additional or special
remuneration for their service as directors. Directors who are not employees of
the Company (an "Outside Director") are entitled to receive a director fee of
$4,000 per fiscal quarter so long as they remain directors of the Company.
Directors do not receive any additional or special remuneration for their
service on any of the committees established by the Board of Directors.

Non-employee directors are eligible to participate in the Company's 1994
Outside Directors Stock Option Plan. The Company has proposed certain amendments
to the Outside Directors Plan for approval by the stockholders at the 1997
Annual Meeting of Stockholders which is the subject of this Proxy Statement. The
Outside Directors Plan as amended provides for the automatic granting of
nonstatutory stock options to Outside Directors of the Company. Each continuing
Outside Director will automatically be granted an option to purchase 5,000
shares of Common Stock on the date of each annual meeting of stockholders held
on and after the date of the 1997 Annual Meeting. Each new Outside Director
elected after that date will automatically be granted an option to purchase
15,000 shares of Common Stock on their date of election See "Proposal 3 --
Amendment of the 1994 Outside Directors Stock Option Plan."

During 1996, the Company granted nonstatutory stock options to directors
Penisten, Hart and Tai for 520,000, 15,000 and 15,000 shares, respectively,
pursuant to the 1993 Stock Option Plan. In addition, directors Ann Bowers,
Kenneth Levy and William Tai were each granted nonstatutory stock options for
2,000 shares under the 1994 Outside Directors Stock Option Plan.

<PAGE>

OTHER INFORMATION

SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth the beneficial ownership of Common Stock of
the Company as of February 24, 1997 by: (a) each director; (b) each of the
officers named in the Summary Compensation Table ("Named Officers"); (c) all
directors and executive officers as a group; and (d) each person known to the
Company who beneficially owns 5% or more of the outstanding shares of its Common
Stock. The number and percentage of shares beneficially owned is determined
under rules of the Securities and Exchange Commission ("SEC"), and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has sole or shared voting power or investment power and also any
shares which the individual has the right to acquire within 60 days of February
24, 1997 through the exercise of any stock option or other right. To the
Company's knowledge, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable
and the information contained in the footnotes to this table. A total of
12,086,473 shares of the Company's Common Stock were issued and outstanding as
of February 24, 1997.

SHARES BENEFICIALLY OWNED
-------------------------
NAME NUMBER PERCENT
---- ------- -------
Seneca Ventures(1) .............................. 764,100 6.3%
68 Wheatley Road
Brookview, NY 11545
Pauline Lo Alker(2) ............................. 736,333 6.1%
c/o Network Peripherals Inc.
1371 McCarthy Blvd.
Milpitas, CA 95035
Glenn E. Penisten(3) ............................ 193,574 1.6%
Truman Cole(3) .................................. 42,012 *
Kenneth Levy(4) ................................. 25,824 *
Donald J. Morrison(3) ........................... 25,000 *
Mark S. Smith(3) ................................ 19,247 *
Ann S. Bowers(3) ................................ 16,458 *
Derek S. Obata(3) ............................... 13,214 *
William P. Tai(3) ............................... 3,458 *
Charles J. Hart ................................. -0- *
All directors and current executive officers as
a group (12 persons)(5) ....................... 1,088,872 9.0%
- ----------------
* Less than 1%

(1) Based on information contained in the Schedule 13D filed by the above entity
and other members of a group of which that entity is a part, including
Woodland Venture Group, Woodland Partners, Barry Rubenstein, and Marilyn
Rubenstein.
(2) Includes 36,000 shares held by a trust for the benefit of Mrs. Alker's son,
as to which shares Mrs. Alker disclaims beneficial ownership; and 110,333
shares issuable upon the exercise of outstanding stock options which were
exercisable at the Record Date or within 60 days thereafter.
(3) Includes the following number of shares issuable upon the exercise of
outstanding stock options which were exercisable at the Record Date or
within 60 days thereafter held by the following persons: Mr. Penisten,
173,316 shares; Mr. Cole, 40,210 shares; Mr. Morrison, 25,000 shares; Ms.
Bowers, 16,458 shares; and Mr. Smith, 13,542 shares; Mr. Obata, 12,396
shares; and Mr. Tai, 1,458 shares.
(4) Includes 24,366 shares held by Mr. Levy as the trustee of a family trust;
and 1,458 shares issuable upon the exercise of outstanding stock options
which were exercisable at the Record Date or within 60 days thereafter.
(5) Includes 407,713 shares issuable upon exercise of outstanding stock options
which were exercisable at the Record Date or within 60 days thereafter.

<PAGE>

COMPENSATION OF EXECUTIVE OFFICERS

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer, the three other most
highly compensated executive officers of the Company (collectively the "Named
Officers") whose salary and bonus for the year ended December 31, 1996 exceeded
$100,000 and a former executive officer of the company whose salary and bonus
exceeded $100,000, but who was not an executive officer at December 31, 1996,
for services in all capacities to the Company, during 1994, 1995 and 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
NAME AND -------------------------------- SECURITIES UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS/SARS (#)(1)
- -------------------------------- ------ --------------- --------- ---------------------
<S> <C> <C> <C> <C>
Pauline Lo Alker ................1996 $175,000 $49,500 280,000(5)
President and CEO 1995 $161,250 $42,601 80,000(5)
1994 $150,000 $38,200 --

Donald J. Morrison ..............1996 $152,501(2) $28,500 50,000
Sr. Vice President, Marketing 1995 $ 93,750 $ 5,101 50,000(6)
1994 -- -- --

Derek S. Obata ..................1996 $166,190(2) -- 65,000
Vice President, Worldwide Sales 1995 $ 20,327 $ 109 35,000(7)
1994 -- -- --

Truman Cole .....................1996 $135,000 $25,600 40,000
Vice President and 1995 $126,000 $23,151 --
Chief Financial Officer 1994 $110,923 $11,600 90,000

Mark S. Smith(4) ................1996 $161,315(2)(3) -- --
Former Officer 1995 $191,545(2) $15,101 --
1994 $131,214(2) $ 1,000 50,000
<FN>
- ------------------
(1) From time to time, the Compensation Committee reviews the performance of the
executive officers and may award cash bonuses and/or stock options to
officers. Bonuses paid in 1996 were earned in 1995. Fiscal year 1995 bonuses
include a portion of bonus amounts earned in 1994, but paid in 1995. Bonuses
earned during 1996, if any, have not yet been determined and will be paid
during 1997.
(2) Includes commission payments to the following persons: Mr. Morrison,
$17,501; Mr. Obata, $28,690; and Mr. Smith, $63,527 in 1996, $101,545 in
1995 and $56,214 in 1994.
(3) Includes consulting fees $13,625.
(4) Mr. Smith resigned as vice president of North American sales, but he has
agreed to serve as a consultant to the Company until March 1, 1997.
(5) Option to purchase an aggregate of 180,000 shares issued 9/18/96, replaces
option to purchase 100,000 shares granted 4/9/96 and option to purchase
80,000 shares granted in 1995. See "Report of the Compensation Committee on
Executive Compensation--Chief Executive Officer Compensation."
(6) Option to purchase an aggregate of 50,000 shares was issued 1/19/96,
replacing an option to purchase 50,000 shares granted in 1995. See "Report
of the Compensation Committee on Executive Compensation--Repricing of
Options."
(7) Option to purchase an aggregate of 35,000 shares was issued 1/19/96,
replacing an option to purchase 35,000 shares granted in 1995. See "Report
of the Compensation Committee on Executive Compensation--Repricing of
Options."
</FN>
</TABLE>

<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth details regarding stock options granted to the
Named Officers in 1996. The Company granted no stock appreciation rights in
1996. In addition, in accordance with Securities and Exchange Commission ("SEC")
rules, the table shows the hypothetical gains or "options spreads" that would
exist for the respective options. These gains are based on assumed rates of
annual compound stock price appreciation of 5% and 10% from the date the options
were granted over the full option term. The actual value, if any, an executive
may realize will depend on the spread between the market price and the exercise
price on the date the option is exercised.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------- POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
PERCENT OF OF STOCK PRICE
TOTAL OPTIONS APPRECIATION
NUMBER OF SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM(4)
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($)
- ------------------- -------------------- --------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Pauline Lo Alker .. 180,000(5) 6.3% $15.00 9/18/06 $1,698,015 $4,303,105
100,000(5) 3.5 $13.25 4/09/06 $ 833,285 $2,111,708
Donald J. Morrison 50,000 1.7 $18.63 6/03/06 $ 585,658 $1,484,173
50,000(6) 1.7 $12.00 4/03/05 $ 340,050 $1,484,173
Derek S. Obata ..... 65,000 2.3 $18.63 6/03/06 $ 761,356 $1,929,424
35,000(6) 1.2 $12.00 11/08/05 $ 257,583 $ 649,082
Truman Cole ........ 40,000 1.4 $13.25 4/09/06 $ 333,314 $ 844,684
Mark S. Smith ...... -- -- -- -- -- --

<FN>
- ------------------
(1) All options in this table have exercise prices equal to the fair market
value on the date of grant. Mr. Morrison's and Mr. Obata's options become
exercisable over a period of four years, and Mrs. Alker's and Mr. Cole's
options become exercisable over a period of two years. All options expire
ten years from the original grant date.
(2) The Company granted options for 2,869,155 shares to employees in 1996 under
the 1993 Stock Option Plan and 1996 Nonstatutory Stock Option Plan.
(3) The exercise price may be paid in cash, by delivery of already-owned shares
subject to certain conditions, or pursuant to a cashless exercise procedure
under which the optionee provides irrevocable instructions to a brokerage
firm to sell the purchased shares and to remit to the Company, out of the
sale proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
(4) The potential gain is calculated based on the fair market value of the
Company's Common Stock on the date of grant, which is equal to the closing
price reported on the Nasdaq National Market. These amounts only represent
certain assumed rates of appreciation as established by the SEC. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Company and overall stock market conditions. There can be
no assurance that the amounts reflected in this table or the associated
rates of appreciation will be achieved.
(5) See "Report of the Compensation Committee on Executive Compensation--Chief
Executive Officer Compensation."
(6) See "Report of the Compensation Committee on Executive Compensation --
Repricing of Options."

</FN>
</TABLE>

<PAGE>

AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES

The following table sets forth certain information concerning options
exercised by the Named Officers during 1996, including the aggregate value of
gains on the date of exercise. In addition, this table includes the number of
shares covered by both vested and unvested stock options as of year-end. Also
reported are the values for "in-the-money" options which represent the positive
spread between the exercise price of any such existing stock options and the
year-end price of the Company's Common Stock.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF IN-THE-MONEY
OPTIONS AT FY END (#)(1) OPTIONS AT FY END ($)(2)
SHARES ACQUIRED VALUE REALIZED ------------------------ ------------------------
NAME ON EXERCISE (#) ON EXERCISE ($) VESTED UNVESTED VESTED UNVESTED
- ------------------- --------------- -------------- ------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Pauline Lo Alker .. -- $ -- 75,500 176,500 $ 984,075 $ 763,725
Donald J. Morrison -- $ -- 20,833 79,167 $ 119,790 $ 167,710
Derek S. Obata ..... -- $ -- 9,479 90,521 $ 54,504 $ 146,746
Truman Cole ........ -- $ -- 26,042 64,583 $ 354,845 $ 546,561
Mark S. Smith ...... 15,000 $151,875 9,375 15,625 $ 133,594 $ 222,656

<FN>
- ------------------
(1) A portion of these options were immediately exercisable at the date of
grant, but shares purchased upon exercise of unvested options are subject to
repurchase at the option of the Company at their original issuance price
based upon the scheduled vesting period.
(2) Market value of underlying securities, based on the closing price of the
Company's Common Stock, as reported by the Nasdaq National Market System, on
December 31, 1996 of $17.75, minus the exercise price.

</FN>
</TABLE>

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

MANAGEMENT SALARY CONTINUATION AGREEMENTS

In May 1996, the Company entered into Salary Continuation Agreements with
Truman Cole and Donald J. Morrison. These agreements provide that, in the event
the individual is terminated, including a "constructive termination" by
demoting, relocating or reducing the salary of the individual, within one year
after a "change of control" of the Company, the individual would be entitled to
continued salary and bonus payments for a period of one year and immediate
acceleration of all options to purchase shares of the Company's Common Stock
granted to that individual prior to the "change of control." Each executive
would also be entitled to continued medical coverage by the Company during the
one-year period, unless the executive is covered by another employer's group
health plan. In addition, the Salary Continuation Agreements provide for the
vesting of all stock options prior to a "change of control" in the event the
consideration to be paid to the stockholders of the Company consists, at least
in part, of other than equity securities of the acquiring entity (except for
cash payment for fractional shares).

Change in Control Arrangements

The 1997 Stock Plan, which has been approved by the Board of Directors and is
subject to approval of the stockholders at the 1997 Annual Meeting of
Stockholders which is the subject of this Proxy Statement, provides that the
Board of Directors may, in its sole discretion, accelerate the vesting and
exercisability of options held by executive officers in the event of a change of
control of the Company. See "Proposal 2--Approval of the Company's 1997 Stock
Plan."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

During 1996, no members of the Compensation Committee were officers or
employees of the Company or any of its subsidiaries. During 1996, the Company
granted nonstatutory stock options to directors Bowers, Levy and Tai, all of
whom served on the Compensation Committee in 1996, for 2,000, 2,000 and 17,000
shares, respectively.

<PAGE>

REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors (the "Committee") is
comprised of non-employee directors. The Committee is responsible for setting
and administering policies governing compensation of executive officers. The
Committee reviews the performance and compensation levels for executive
officers, sets salary and bonus levels and makes option grants under the
Company's Option Plans other than the 1994 Outside Directors Stock Option Plan.

COMPENSATION POLICIES

The goals of the Company's executive officer compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align executive officer compensation with the Company's performance
and to motivate executive officers to achieve the Company's business objectives.
The Company uses salary, bonuses and stock options to achieve these goals. The
Committee reviews various available data, including compensation surveys, to
enable the Committee to compare the Company's compensation package with that of
other high technology companies of similar size and growth rates in the
Company's geographic area.

COMPENSATION COMPONENTS

Salaries are set for each executive officer with reference to a range of
salaries for comparable positions among high technology companies of similar
size, growth rate and location. Annual salary adjustments take into account
achievements of individual executive officers during the prior fiscal year as
measured against key Company-wide objectives set each year by the Board of
Directors, as well as the executive officers' performance of their individual
responsibilities. Objective and subjective performance factors are weighed by
each Committee member and a consensus is obtained through discussion. Salaries
for 1996 were set with a target of having a larger portion of executive officer
cash compensation being based on Company performance. The Compensation Committee
also considered relative levels of responsibility among the executive officers
in attempting to reach equitable and appropriate projected compensation levels.

Cash incentive compensation is provided through participation in the
Company's executive bonus plan. The Committee determines the amount of an
individual's bonus based on a subjective judgment of the Company's financial
performance (which, for 1996, were based primarily upon sales, gross margin,
expense control and financial trends) and the achievement of established goals
within each officer's area of responsibility.

During 1996, the Compensation Committee completed the process of awarding
bonuses based on 1995 performance. Depending on the perceived achievement of
individual goals, bonuses to executive officers for 1995 resulted in payments
ranging from 20% to 31% of base salaries for 1995. These bonuses were paid in
1996 and are reflected in the Summary Compensation Table as compensation
received in 1996.

As of this report, the Committee had not yet completed the process of
reviewing performance and awarding bonuses based on 1996 performance. Once
determined, such bonuses will be paid in 1997 and reflected in the Summary
Compensation Tables of the Proxy Statement for the 1998 Annual Meeting of
Stockholders as compensation received in 1997.

The Committee strongly believes that equity ownership by executive officers
provides incentives to build stockholder value and aligns the interests of
executive officers with the stockholders. The size of an initial option grant to
an executive officer has generally been determined with reference to comparable
equity compensation offered by similarly-sized high technology companies for
similar positions, the responsibilities and expected future contributions of the
executive officer, as well as recruitment considerations. In determining the
size of subsequent grants, the Committee has considered the individual executive
officer's performance during the previous fiscal year, the expected
contributions during the coming year, the amount of options already held and the
level of recent grants. Option grants to executive officers during 1996 were
based upon available data concerning option grants to executive officers of

<PAGE>

companies of similar size, growth and location and a review of recent grants.
The Committee believes that future subsequent option grants, with vesting
schedules of up to four years, will provide strong incentives for executive
officers to remain with the Company.

REPRICING OF OPTIONS

Employee stock options are an important element of compensation for the
Company and have been used to attract, retain and motivate its workforce. The
Committee believes that the Company's success in the future will depend in large
part on its ability to attract, retain and motivate a number of highly skilled
personnel and that the competition for such personnel is intense. The Committee
also believes it is important and cost effective to provide equity incentives to
employees and other service providers of the Company to improve the Company's
performance and the value of the Company to its stockholders.

In January 1996, the Committee reviewed the impact of the decline in the
price of the Company's Common Stock and determined that many of the employee
options, which had been previously granted at prices above the then current
market price of $12.00 per share, were significantly less likely to serve their
purposes of retaining and motivating employees. Furthermore, the Committee
determined that many existing, experienced employees, including certain
executive officers, would be likely to perceive an inequity in comparison to
recently hired personnel granted stock options with exercise prices set at the
current, lower fair market value of Common Stock.

The Committee determined that it was in the best interests of the Company and
its stockholders to restore the incentive for officers, employees and other
service providers to remain with the Company and to exert their maximum efforts
on behalf of the Company. Therefore, the Committee approved the repricing of
stock options to a fair market value represented by the closing price of the
Company's Common Stock on January 19, 1996, with the condition that none of the
repriced options were exercisable prior to December 31, 1996. Certain of the
Company's executive officers were beneficiaries of the repricing action as
described in the following table:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES MARKET PRICE EXERCISE PRICE LENGTH OF ORIGINAL
UNDERLYING OPTIONS OF STOCK AT TIME AT TIME OF NEW EXERCISE TERM REMAINING AT
NAME DATE REPRICED OF REPRICING REPRICING PRICE DATE OF REPRICING
- ------------------- ------- ------------------ ---------------- -------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Morrison 1/19/96 50,000 $12.00 $21.875 $12.00 9 Years
Derek S. Obata ..... 1/19/96 35,000 $12.00 $13.875 $12.00 9 Years
John Chan(1) ....... 1/19/96 60,000 $12.00 $23.00 $12.00 9 Years

<FN>
- ------------------
(1) Mr. Chan resigned from the Company during 1996.
</FN>
</TABLE>

CHIEF EXECUTIVE OFFICER COMPENSATION

The compensation of the Chief Executive Officer is based upon the same
criteria outlined above for the other executive officers of the Company. While
the Chief Executive Officer makes recommendations about the compensation levels,
goals and performance of the other executive officers, she does not participate
in discussions regarding her compensation or performance. Based on her
individual performance and the performance of the Company in 1995, the Committee
increased Mrs. Alker's salary during 1996 and provided her a cash bonus of 30%
of her individual base salary for 1995. This bonus was paid in 1996 and is
reflected in the Summary Compensation Tables as compensation received in 1996.

Based on her performance, including the successful acquisition of NuCom
Systems, Inc. and the successful entry of the Company into the Fast Ethernet
switching market, Mrs. Alker was granted options to purchase shares of the
Company's Common Stock at a price equal to the fair market value on the date of
grant. In April, the Committee granted her an option to purchase 100,000 shares
which vested over two years and had a termination date ten years from the date
of grant. Subsequently, the Committee determined that in order to provide an
appropriate incentive to Mrs. Alker, that it was in the best interest of the
Company and its Stockholders to combine the April 1996 option grant with an
option grant made in April 1995 into a single grant for the same number of
shares, with the option price set at the current fair market value for the
Company's Common Stock. Therefore, in September 1996 the Committee granted

<PAGE>

an option to Mrs. Alker to purchase 180,000 shares of the Company's Common Stock
with a vesting period of two years and with a termination date ten years
following the grant date. Concurrently, the options granted in April 1996
(100,000 shares) and April 1995 (80,000) were canceled.

As of this report, the Committee had not yet completed the process of
reviewing Mrs. Alker's performance during 1996. Once completed, any increase
in salary and any bonuses paid will be reflected in the Summary Compensation
Tables of the Proxy Statement for the 1998 Annual Meeting of Stockholders as
compensation received in 1997.

Ann S. Bowers
Kenneth Levy
William P. Tai

<PAGE>

STOCK PERFORMANCE GRAPH

FIVE-YEAR STOCKHOLDER RETURN COMPARISON

The graph below compares the cumulative total return on the Company's Common
Stock for the end of each quarter since the initial public offering in June 1994
compared to the CRSP Total Return Index for the Nasdaq Stock Market (US
companies), an indicator of broad market performance, and the CRSP Total Return
Index for the Nasdaq Computer Manufacturer Stocks (SIC 357), an indicator of the
market performance of this sector. The stock price performance shown on the
graph below is not necessarily indicative of future price performance.

[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]

<TABLE>
<CAPTION>
6/28/94 6/30/94 9/30/94 12/30/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96
------- ------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NETWORK PERIPHERALS $100 $102 $231 $445 $351 $356 $257 $192 $239 $280 $247 $290
NASDAQ U.S. MARKET $100 $101 $109 $108 $117 $134 $150 $152 $159 $172 $179 $187
NASDAQ COMPUTER $100 $101 $123 $141 $149 $181 $217 $222 $229 $257 $284 $298
MANUFACTURERS

<FN>
* Assumes $100 invested on June 28, 1994 in the Company's Common Stock and in
each index listed above.
** The total return for the Company's Common Stock and the indices used assumes
the reinvestment of dividends for securities on which dividends are paid.
Dividends have never been declared on the Company's Common Stock.
</FN>
</TABLE>

<PAGE>

PROPOSAL 2
APPROVAL OF THE COMPANY'S 1997 STOCK PLAN

At the annual meeting, the stockholders will be asked to approve the Network
Peripherals Inc. 1997 Stock Plan (the "1997 Stock Plan"). The 1997 Stock Plan
authorizes the issuance of up to 1,500,000 shares of the Company's Common Stock
(subject to adjustment for certain changes in the capital structure of the
Company) pursuant to awards granted thereunder. Awards may be in the form of
stock options or restricted stock.

The 1997 Stock Plan is intended to replace the Company's Amended and Restated
1993 Stock Option Plan and 1996 Nonstatutory Stock Option Plan (the "Prior
Plans"). Under the Prior Plans, as of February 24, 1997, options to purchase an
aggregate of 2,501,347 shares of Common Stock were outstanding, 1,329,329 shares
had been issued upon the exercise of previously granted options, and 1,047,377
shares remained available for future grants, which are insufficient to meet the
Company's equity compensation objectives. Effective upon stockholder approval of
the 1997 Stock Plan, the Prior Plans will terminate, and no further stock
options will be granted under those plans, although options granted under the
Prior Plans before their termination will remain outstanding in accordance with
the terms of such plans. The Company believes that the additional shares
authorized by the 1997 Stock Plan are necessary to enable it to maintain an
adequate equity incentive program.

In addition to allowing the Company to continue to provide necessary
incentives, the 1997 Stock Plan is designed to enable the Company to meet
certain requirements under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), for tax deductibility in full of related compensation.
Section 162(m) sets a limit of $1,000,000 on the amount of compensation paid to
each of the Company's chief executive officer and four other most highly
compensated executive officers that the Company may deduct as an expense for
federal income tax purposes. However, Section 162(m) exempts from this limit
certain performance-based compensation. The 1997 Stock Plan is intended to
permit the Company to make awards that will qualify as performance-based
compensation. In compliance with the Section 162(m) exemption requirements, the
1997 Stock Plan limits the number of shares for which awards may be granted in
any fiscal year to any employee, including the Company's executive officers, to
500,000, provided that an additional one-time award for up to 250,000 shares may
be granted to any newly-hired employee. These grant limits are subject to
appropriate adjustment in the event of certain changes in the Company's capital
structure. Furthermore, the 1997 Stock Plan permits a committee of the Board of
Directors satisfying the composition requirements of Section 162(m) to condition
the grant or vesting of restricted stock awards upon the attainment of
pre-established performance goals in order to bring them within the Section
162(m) performance-based compensation exemption.

The Board of Directors adopted the 1997 Stock Plan effective February 18,
1997, subject to stockholder approval. Because competition for highly qualified
individuals in the Company's industry is intense, the Board of Directors
believes that to successfully attract the best candidates, the Company must
continue to offer a competitive equity incentive program as an essential
component of its compensation packages. It expects that the 1997 Stock Plan will
be an important factor in attracting and retaining the high caliber employees,
directors and consultants essential to the success of the Company. In addition,
the Board of Directors believes that equity incentives under the 1997 Stock Plan
will serve an important role in motivating such individuals to contribute to the
Company's continued growth and profitability for the benefit of its stockholders
by linking their compensation to the Company's performance and aligning their
long-term interests with those of the stockholders. The proposed 1997 Stock Plan
is intended to ensure that the Company will continue to have available a
reasonable number of shares to meet these goals.

SUMMARY OF THE 1997 STOCK PLAN

The following summary of the 1997 Stock Plan is qualified in its entirety by
the specific language of the 1997 Stock Plan, a copy of which is available to
any stockholder upon request.

General. The purpose of the 1997 Stock Plan is to advance the interests of
the Company and its stockholders by providing an incentive to attract, retain
and reward the Company's employees, directors

<PAGE>

and consultants and by motivating such persons to contribute to the Company's
growth and profitability. The 1997 Stock Plan provides for the grant of
incentive stock options within the meaning of section 422 of the Code,
nonstatutory stock options and restricted stock awards, which may take the form
of a restricted stock purchase right or a restricted stock bonus.

Shares Subject to Plan. A maximum of 1,500,000 of the authorized but unissued
or reacquired shares of Common Stock of the Company may be issued under the 1997
Stock Plan. However, in order to comply with the requirements of the exemption
under Section 162(m) of the Code for performance- based compensation, the 1997
Stock Plan provides that no employee may be granted in any fiscal year of the
Company awards which in the aggregate are for more than 500,000 shares, except
that the Company may grant an additional one-time award to any newly-hired
employee for up to 250,000 shares (the "Grant Limits"). Appropriate adjustments
will be made to the shares subject to the 1997 Stock Plan, to the Grant Limits,
and to outstanding options upon any stock dividend, stock split, reverse stock
split, recapitalization, combination, reclassification, or similar change in the
capital structure of the Company. If any outstanding award expires, terminates
or is canceled, or if shares acquired pursuant to an award are repurchased by or
forfeited to the Company, the shares subject to such terminated award or the
repurchased or forfeited shares are returned to the 1997 Stock Plan and again
become available for grant.

Administration. The 1997 Stock Plan will be administered by the Board of
Directors or a duly appointed committee of the Board, which, in the case of
awards 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) (hereinafter referred
to collectively as the "Board"). Subject to the provisions of the 1997 Stock
Plan, the Board determines the persons to whom awards are to be granted, the
number of shares to be covered by each award, whether an award is to be an
incentive stock option, a nonstatutory stock option or restricted stock award,
the timing and terms of exercisability and vesting of each award, the purchase
price and the type of consideration to be paid to the Company for shares
acquired pursuant to an award, the time of expiration of each award, and all
other terms and conditions of the awards. The Board may amend, modify, extend,
renew, or grant a new award in substitution for, any award, waive any
restrictions or conditions applicable to any award or any shares acquired
thereunder, and accelerate, continue, extend or defer the exercisability of any
option or the vesting of any shares acquired under the 1997 Stock Plan,
including with respect to the period following an optionee's termination of
service with the Company. The 1997 Stock 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 plan. The 1997 Stock Plan permits the Board to delegate
to an officer the authority to grant one or more awards for not more than an
aggregate of 50,000 shares in any fiscal year to any person eligible under the
plan who is not an officer or a director of the Company, subject to guidelines
established by the Board. The Board will interpret the 1997 Stock Plan and
awards granted thereunder, and all determinations of the Board will be final and
binding on all persons having an interest in the 1997 Stock Plan or any award.

Eligibility. Awards may be granted under the 1997 Stock Plan to employees
(including officers), directors and consultants of the Company or of any present
or future parent or subsidiary corporations of the Company. In addition, awards
may be granted to prospective service providers in connection with written
employment or engagement offers, provided that no shares may be purchased prior
to such person's commencement of service. As of February 24, 1997, the Company
had approximately 237 employees, 7 executive officers, 6 directors and one
consultant who would be eligible under the 1997 Stock Plan. While any eligible
person may be granted a nonstatutory stock option or a restricted stock award,
only employees may be granted incentive stock options.

Stock Options. Each stock option granted under the 1997 Stock Plan is
evidenced by a written agreement between the Company and the participant
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the plan. The
exercise price of each incentive stock option granted under the 1997 Stock Plan
may not be less than the fair market value of a share of the Company's Common
Stock on the date of grant, while the exercise price of a nonstatutory stock
option may not be less than 85% of such fair market value. However, any

<PAGE>

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 Stockholder") 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
February 24, 1997, the closing price of the Company's Common Stock, as reported
on the Nasdaq National Market, was $14.75 per share.

The 1997 Stock 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
the Company's Common Stock owned by the participant having a fair market value
not less than the exercise price or by means of a promissory note, 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 until the
participant has made adequate provision for federal, state, local and foreign
taxes, if any, relating to the exercise of the option.

Options granted under the 1997 Stock Plan 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. Historically,
options granted by the Company have vested and become exercisable at a rate of
25% one year after the date of grant and then ratably in monthly installments
over the succeeding three years of service. The maximum term of an incentive
stock option granted under the 1997 Stock Plan is ten years, provided that an
incentive stock option granted to a Ten Percent Stockholder must have a term not
exceeding five years. Generally, options will remain exercisable for three
months following a participant's termination of service, unless such termination
results from the participant's death or disability, in which case the option
will remain exercisable for 36 months following the participant's termination of
service, provided that in any event the option must be exercised no later than
its expiration date. However, the Board, in its discretion, may provide for
longer or shorter post-service exercise periods in particular instances.

Incentive stock options are nontransferable by the participant other than by
will or by the laws of descent and distribution, and are exercisable during the
participant's lifetime only by the participant. Nonstatutory stock options
granted under the 1997 Stock Plan may be assigned or transferred to the extent
permitted by the Board and set forth in the participant's option agreement.

Restricted Stock. The Board may grant restricted stock awards under the 1997
Stock Plan either in the form of a restricted stock purchase right or a
restricted stock bonus. Each restricted stock award is evidenced by a written
agreement between the Company and the participant specifying the number of
shares subject to the award and the other terms and conditions of the award,
consistent with the requirements of the 1997 Stock Plan. Each restricted stock
purchase right will be exercisable at a price established by the Board, while
each restricted stock bonus is granted in consideration for services rendered to
the Company or for its benefit. Generally, the purchase price pursuant to a
restricted stock purchase right may be paid in cash, by check or in cash
equivalent, to the extent legally permitted, by means of a promissory note, by
such other lawful consideration as approved by the Board, or by any combination
of these, provided that the Board may restrict the forms of payment permitted in
connection with any grant. The Company will have no obligation to deliver shares
pursuant to a restricted stock award until the participant has made adequate
provision for federal, state, local and foreign taxes, if any, related to the
award.

Restricted stock awards may be made subject to such vesting restrictions and
other terms and conditions as are established by the Board and specified in a
written restricted stock award agreement. The participant may not transfer
shares of restricted stock as long as they remain subject to vesting
restrictions. However, during the period of restriction, the participant will
have the right to vote the shares and to receive dividends or other
distributions paid with respect to the shares, provided that any dividends or
distributions paid in stock will be subject to the same restrictions. If a
participant's service with the Company terminates for any reason during the
period of restriction, the participant will forfeit to the Company any shares
acquired pursuant to a restricted stock bonus that remain subject to vesting
restrictions, and the Company will have the option to repurchase at the
participant's original purchase price any shares acquired pursuant to a
restricted stock purchase right that remain subject to vesting restrictions.

<PAGE>

A committee of the Board complying with the requirements of Section 162(m)
may condition the grant or vesting of any restricted stock award on the
attainment during a performance period established by the committee of one or
more performance goals. Any such performance goals will be preestablished in
writing pursuant to procedures intended to qualify the award as
performance-based compensation for purposes of the exemption under Section
162(m). Performance goals will be based on one or more of the following business
criteria: revenue, operating income, pre-tax profit, net income, gross margin,
operating margin, earnings per share, return on stockholder equity, return on
capital, return on assets, or the initial shipment of a new product. These
business criteria will generally have the same meaning as used in the Company's
financial statements. Each performance goal established by the committee must be
objectively determinable and may be based on an absolute measure of the selected
business criteria or may be based on a relative measure determined with
reference to an index or other standard selected by the committee. At the end of
the performance period, the committee will certify in writing the extent to
which the performance goals have been attained and number of shares to be
granted or vested under the objective formula pre-established by the committee.
Neither the Board nor the committee may waive the attainment of any performance
goal or increase the number of shares earned in excess of the amount determined
under the pre-established formula. However, the committee retains the discretion
to reduce the number of shares earned by the participant below the amount
determined under the objective formula if such reduction is appropriate in the
committee's determination, provided that any such reduction may not increase the
number of shares issuable to another participant.

Change in Control. The 1997 Stock Plan provides that in the event of (i) a
sale or exchange by the stockholders 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 wherein, upon any such event, the
stockholders of the Company immediately before such event do not retain
immediately after such event direct or indirect beneficial ownership of more
than 50% of the total combined voting power of the voting stock of the Company,
its successor, or the corporation to which the assets of the Company were
transferred (a "Change in Control"), the Board, in its sole discretion, may
provide that any unexercisable or unvested portion of the outstanding awards
will become immediately exercisable and vested in full as of a date determined
by the Board and/or may arrange with the surviving, acquiring or successor
corporation or parent corporation thereof to either assume the Company's rights
and obligations under the outstanding awards or substitute substantially
equivalent awards for such corporation's stock. To the extent that the
outstanding awards are not assumed, substituted for, or exercised prior to the
Change in Control, they will terminate.

Termination or Amendment. The 1997 Stock 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 awards
granted under the plan have lapsed, provided that all incentive stock options
must be granted within ten years of February 18, 1997, the date on which the
Board adopted the 1997 Stock Plan. The Board may terminate or amend the 1997
Stock Plan at any time. However, subject to changes in the law that would permit
otherwise, without stockholder approval, the Board may not amend the 1997 Stock
Plan to increase the total number of shares of the Company's Common Stock
issuable thereunder, change the class of persons eligible to receive incentive
stock options, or effect any other change that would require stockholder
approval under any applicable law, regulation or rule. No termination or
amendment may adversely affect an outstanding award without the consent of the
participant, 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 UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
1997 Stock Plan and does not attempt to describe all possible federal or other
tax consequences of such participation or tax consequences based on particular
circumstances.

<PAGE>

Incentive Stock Options. An optionee recognizes no taxable income for regular
income tax purposes as the result of the grant or exercise of an incentive stock
option qualifying under section 422 of the Code. Optionees who do not dispose of
their shares for two years following the date the option was granted nor within
one year following the exercise of the option will normally recognize a
long-term 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 from 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. A capital gain or loss will be long-term if
the optionee's holding period is more than 12 months. 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 or the regulations thereunder.

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 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. Nonstatutory stock options
have 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 and
are not transferable, in which case the determination date is the earlier of (i)
the date on which the shares are transferable or (ii) the date on which the
shares are not 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 not 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. A capital gain or loss will be long-term if the
optionee's holding period is more than 12 months. 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 or
the regulations thereunder.

Restricted Stock Awards. A participant acquiring shares pursuant to a
restricted stock award will generally recognize ordinary income equal to the
difference between the amount paid, if any, and the fair market value of the
shares on the "determination date" (as defined above under "Nonstatutory Stock
Options"). If the participant is an employee, such ordinary income generally is
subject to withholding of income and employment taxes. If the determination date
is after the date on which the participant acquires the shares, the participant
may elect, pursuant to section 83(b) of the Code, to have the date of
acquisition be the determination date by filing an election with the Internal
Revenue Service not later

<PAGE>

than 30 days after the date the shares are acquired. Upon the sale of stock
acquired pursuant to a restricted stock award, 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. A capital gain or loss will be
long-term if the participant's holding period is more than 12 months. The
Company generally should be entitled to a deduction equal to the amount of
ordinary income recognized by the participant on the determination date, except
to the extent such deduction is limited by applicable provisions of the Code or
the regulations thereunder.

NEW PLAN BENEFITS TABLE

No awards will be granted under the 1997 Stock Plan prior to its approval by
the stockholders of the Company. Future grants under the 1997 Stock Plan will be
made at the discretion of the Board, and, accordingly, are not yet determinable.
In addition, benefits under the 1997 Stock Plan will depend on a number of
factors, including the fair market value of the Company's Common Stock on future
dates and, in the case of stock options, the exercise decisions made by the
optionees. Consequently it is not possible to determine the benefits that might
be received by participants in the 1997 Stock Plan. The following table sets
forth the grants of stock options under the Prior Plans during the fiscal year
ended December 31, 1996, to (1) the Company's Chief Executive Officer and the
Named Executive Officers; (2) all current executive officers as a group; (3) all
current directors who are not executive officers as a group; and (4) all
employees, including all current officers who are not executive officers as a
group.

PRIOR PLANS
--------------------------------
NAME EXERCISE PRICE NUMBER OF
PRINCIPAL POSITION PER SHARE SHARES
--------------------------------- -------------- -----------
Pauline Lo Alker ................. $ 15.00 100,000(1)
President and $ 13.25 180,000(1)
Chief Executive Officer

Truman Cole ...................... $ 13.25 40,000
Vice President and
Chief Financial Officer

Donald J. Morrison ............... $ 12.00 50,000(2)
Sr. Vice President $ 18.625 50,000
Marketing

Derek S. Obata ................... $ 12.00 35,000(3)
Vice President $ 18.625 65,000
Worldwide Sales

Mark S. Smith .................... -- --
Former Officer

All Executive Officers as a Group
(7 Persons) ..................... $ 12.00-18.625 870,000

All Outside Directors as a Group
(5 Persons) ..................... $ 15.00 30,000

All Non-Executive Officer
Employees as a Group ............ $11.625-18.625 1,999,155

(Footnotes on next page.)

<PAGE>

- ------------------
(1) Option to purchase an aggregate of 180,000 shares issued 9/18/96, replaces
option to purchase 100,000 shares granted 4/9/96, and an option to purchase
80,000 shares granted in 1995. See "Report of the Compensation Committee on
Executive Compensation--Chief Executive Officer Compensation."
(2) Option to purchase an aggregate of 50,000 shares issued 1/19/96, replacing
an option to purchase 50,000 shares granted in 1995. See "Report of the
Compensation Committee on Executive Compensation--Repricing of Options."
(3) Option to purchase an aggregate of 35,000 shares issued 1/19/96, replacing
an option to purchase 35,000 shares granted in 1995. See "Report of the
Compensation Committee on Executive Compensation--Repricing of Options."

VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION

The Board of Directors believes that the proposed 1997 Stock Plan and the
reservation of 1,500,000 shares of the Common Stock of the Company for issuance
thereunder are in the best interests of the Company and the stockholders for the
reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE PROPOSAL TO APPROVE THE 1997 STOCK PLAN.

PROPOSAL 3
AMENDMENT OF THE 1994 OUTSIDE DIRECTORS STOCK OPTION PLAN

At the annual meeting, the stockholders will be asked to approve amendments
to the Network Peripherals Inc. 1994 Outside Directors Stock Option Plan (the
"Directors Plan") to (i) change the formula for granting options on and after
the date of the annual meeting scheduled for April 24, 1997, (ii) change the
option vesting provisions applicable in the event of a change in control of the
Company, and (iii) revise the requirements for stockholder approval of
subsequent amendments to the Directors Plan. The Directors Plan was adopted by
the Board of Directors in April 1994 and approved by the stockholders in May
1994. A total of 150,000 shares of the Company's Common Stock are currently
reserved for issuance under the Directors Plan, of which options to purchase an
aggregate of 12,000 shares were outstanding as of February 24, 1997 and 138,000
shares remained available for future option grants.

The Directors Plan is intended to assist the Company to attract and retain
highly qualified individuals to serve as directors of the Company and to provide
incentives directed toward increasing the value of the Company for its
stockholders. As initially adopted, the Directors Plan provides that each newly
elected or appointed nonemployee director is automatically granted an option to
purchase 10,000 shares of the Company's Common Stock, vesting at the rate of 25%
on the first anniversary of the date of grant and thereafter in equal monthly
installments over the succeeding 36 months. In addition, on the date of each
annual meeting of the stockholders occurring at least six months after a
nonemployee director's initial election or appointment to the Board of
Directors, the director is automatically granted an additional option for 2,000
shares, vesting on the basis of a similar four-year schedule. On September 18,
1996, the Board of Directors approved amendments to the Directors Plan,
effective upon stockholder approval, that will increase to 15,000 shares the
size of the initial option granted to any newly elected or appointed nonemployee
director and increase to 5,000 shares the size of the option granted on the date
of each annual meeting of the stockholders to each nonemployee director who has
served at least six months. On February 18, 1997, the Board of Directors further
amended the Directors Plan, subject to stockholder approval, to (i) provide that
any portion of an outstanding option which had not yet vested and become

<PAGE>

exercisable would become fully vested and immediately exercisable beginning ten
days prior to a Change in Control (as defined below) of the Company, and (ii)
eliminate a requirement of stockholder approval of certain plan amendments that
is no longer necessary under current law.

The Board of Directors believes that approval of these amendments to the
Directors Plan is in the best interest of the Company and its stockholders in
order to provide a competitive equity incentive program that will enable the
Company to continue to recruit and retain the capable directors who are
essential to the long-term success of the Company.

SUMMARY OF THE DIRECTORS PLAN, AS AMENDED

The following summary of the Directors Plan, assuming stockholder approval of
the above amendments, is qualified in its entirety by the specific language of
the Directors Plan, a copy of which is available to any stockholder upon
request.

General. The Directors Plan provides for the automatic grant of nonstatutory
stock options to nonemployee directors of the Company and is intended to qualify
as a "formula plan" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended.

Shares Subject to Plan. A maximum of 150,000 of the authorized but unissued
or treasury shares of the common stock of the Company may be issued upon the
exercise of options granted under the Directors Plan. Upon any stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments will be made to the shares subject to the Directors
Plan, to the terms of the automatic grant of options described below, and to
outstanding options. To the extent that any outstanding option under the
Directors Plan expires or terminates prior to exercise in full or if shares
issued upon the exercise of an option are repurchased by the Company, the shares
of Common Stock for which such option is not exercised or the repurchased shares
are returned to the plan and again become available for grant.

Administration. The Directors Plan is intended to operate automatically
without discretionary administration. To the extent administration is necessary,
it will be performed by the Board of Directors or a duly appointed committee of
the Board (hereinafter referred to collectively as the "Board"). However, the
Board has no discretion to select the nonemployee directors of the Company who
are granted options under the Directors Plan, to set the exercise price of such
options, to determine the number of shares for which or the time at which
particular options are granted or to establish the duration of such options. The
Board is authorized to interpret the Directors Plan and options granted
thereunder, and all determinations of the Board will be final and binding on all
persons having an interest in the Directors Plan or any option.

Eligibility. Only directors of the Company who, at the time of grant, are
not employees of the Company or of any parent or subsidiary corporation of the
Company (the "Outside Directors") are eligible to participate in the Directors
Plan. Currently, the Company has 4 Outside Directors.

Automatic Grant of Options. Each person first elected or appointed as an
Outside Director prior to the date of the 1997 Annual Meeting of Stockholders of
the Company scheduled for April 24, 1997 (the "1997 Annual Meeting") is granted
automatically, on the date of such initial election or appointment, an option
(an "Initial Option") to purchase 10,000 shares of Common Stock. On the date of
each annual meeting of stockholders of the Company prior to the 1997 Annual
Meeting, an additional option (an "Annual Option") to purchase 2,000 shares of
Common Stock is granted automatically to each Outside Director, other than an
Outside Director who received an Initial Option within six months prior to the
annual meeting. Provided that the stockholders approve the proposed amendments
to the Directors Plan, on and after the date of the 1997 Annual Meeting each
Initial Option will be for the purchase of 15,000 shares of Common Stock and
each Annual Option will be for the purchase of 5,000 shares of Common Stock.

Terms and Conditions of Options. Each option granted under the Directors Plan
is evidenced by a written agreement between the Company and the Outside Director
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements

<PAGE>

of the Directors Plan. The exercise price per share of any option granted under
the Directors Plan must equal the fair market value, as determined pursuant to
the plan, of a share of the Company's Common Stock on the date of grant.
Generally, the fair market value of the Common Stock will be the closing price
per share on the date of grant as reported on the Nasdaq National Market. The
exercise price may be paid in cash, by check, or in cash equivalent, by tender
of shares of the Company's Common Stock owned by the optionee having a fair
market value not less than the exercise price, by the assignment of the proceeds
of a sale of some or all of the shares of Common Stock being acquired upon the
exercise of the option, or by any combination of these.

Options granted under the Directors Plan become exercisable at a rate of 25%
one year after the date of grant and then ratably in monthly installments over
the succeeding three years of service. The term of each option is 10 years after
the date of grant, subject to earlier termination in the event the optionee's
service with the Company ceases or in the event of a Change in Control of the
Company, as discussed below. The Board has amended the Directors Plan to provide
that options will remain exercisable for 12 months following an optionee's
termination of service, unless such termination results from the optionee's
death or disability, in which case the option remains exercisable for 36 months
following the optionee's termination of service, provided that in any event the
option must be exercised no later than its expiration date. In addition, the
Board has amended the Directors Plan to provide that "service" for purposes of
the plan will mean service to the Company in any capacity, whether as a
director, employee or consultant. Prior to these amendments, the foregoing
post-service exercise periods were three months and six months, respectively,
and "service" for purposes of the Directors Plan included only service as a
director.

In general, during the lifetime of the optionee, the option may be exercised
only by the optionee and may not be transferred or assigned, except by will or
the laws of descent and distribution. However, in order to facilitate estate
planning by the directors, the Board has amended the Directors Plan to provide
that, with the consent of the Board, the optionee may transfer all or a portion
of the option to (i) an immediate family member, (ii) a trust for the exclusive
benefit of the optionee and/or one or more immediate family members, (iii) a
partnership in which the optionee and/or one or more immediate family members
are the only partners, or (iv) such other person or entity as the Board permits.
For this purpose, "immediate family member" means the optionee's spouse, former
spouse, children or grandchildren, whether natural or adopted.

Change in Control. Subject to stockholder approval, the Directors Plan will
provide that, in the event of (i) a merger or consolidation in which the Company
is not the surviving corporation or in which the stockholders of the Company
before such transaction do not retain after such transaction, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company, (ii) the sale, exchange or transfer of all or substantially all
of the assets of the Company other than to one or more subsidiary corporations,
(iii) the direct or indirect sale or exchange by the stockholders of the Company
of all or substantially all of the stock of the Company where the stockholders
of the Company before such transaction do not retain after such transaction,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Company, or (iv) a liquidation or dissolution of the Company
(a "Change in Control"), all options outstanding under the Directors Plan will
become immediately exercisable and vested in full as of the date ten days prior
to the Change in Control. In addition, the acquiring or successor corporation
may assume or substitute substantially equivalent options for the options
outstanding under the Directors Plan. To the extent that the options outstanding
under the Directors Plan are not assumed, substituted for, or exercised prior to
the Change in Control, they will terminate. Prior to this amendment, the
Directors Plan provided only for the termination of any options not assumed,
substituted for, or exercised prior to the Change in Control.

Termination or Amendment. Unless earlier terminated by the Board, the
Directors Plan will terminate on April 24, 2007. As amended by the Board,
subject to stockholder approval, the Directors Plan provides that it may be
terminated or amended by the Board at any time, subject to stockholder approval
only if such amendment would increase the total number of shares of Common Stock
reserved for issuance thereunder. Prior to this amendment, the Directors Plan
also required stockholder approval of

<PAGE>

any amendment that would expand the class of persons eligible to receive
options. No termination or amendment of the Directors Plan may adversely affect
an outstanding option without the consent of the optionee.

SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

For a description of the United States federal income tax consequences under
current law of nonstatutory stock options granted under the Directors Plan,
please see the discussion above under "PROPOSAL TO APPROVE 1997 STOCK
PLAN--Summary of United States Federal Income Tax Consequences."

AMENDED PLAN BENEFITS

The following table sets forth the grants of stock options that will be
received under the Directors Plan during the fiscal year ending December 31,
1997 by all current directors who are not executive officers as a group, if the
foregoing proposal is approved by the stockholders. None of the other groups or
individuals for whom disclosure in this table would otherwise be required in the
following table are eligible to participate in the Directors Plan. Benefits
under the Directors 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
decisions made by the optionees. Consequently it is not possible to determine
the benefits that might be received by persons granted options under the
Directors Plan.

<TABLE>
NEW PLAN BENEFITS

<CAPTION>
AMENDED PLAN CURRENT PLAN
GRANTS IN 1997 GRANTS IN 1996
-------------------------- --------------------------
NAME EXERCISE PRICE NUMBER OF EXERCISE PRICE NUMBER OF
PRINCIPAL POSITION PER SHARE SHARES PER SHARE SHARES
- -------------------------------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Ann S. Bowers ................... * 5,000 $13.00 2,000
Kenneth Levy .................... * 5,000 $13.00 2,000
William P. Tai .................. * 5,000 $13.00 2,000
Charles J. Hart ................. * -- -- --
All Outside Directors as a Group * 15,000 $13.00 6,000
(4 Persons) ....................

<FN>
- ---------------
* Options will be granted at the fair market value of the Common Stock on the
date of the 1997 Annual Meeting.
</FN>
</TABLE>

VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION

The Board of Directors believes that approval of the foregoing amendments to
the Directors Plan is in the best interests of the Company and the stockholders
for the reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE 1994 OUTSIDE DIRECTORS STOCK
OPTION PLAN.

<PAGE>

PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors has selected Price Waterhouse LLP as the independent
accountants to audit the financial statements of the Company for the fiscal year
ending December 31, 1997. Price Waterhouse has audited the Company's financial
statements since 1989. A representative of Price Waterhouse is expected to be
present at the Annual Meeting with the opportunity to make a statement if he or
she so desires, and is expected to be available to respond to appropriate
questions.

VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION

The Board of Directors has conditioned its appointment of the Company's
independent accountants upon the receipt of the affirmative vote. In the event
that the stockholders do not approve the selection of Price Waterhouse, the
appointment of the independent accountants will be reconsidered by the Board of
Directors. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS.

OTHER MATTERS

The Company knows of no other matters to be submitted at the Annual Meeting.
If any other matters are properly brought before the meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as the Board of Directors may recommend.

It is important that your shares be represented at the meeting, regardless of
the number of shares which you hold. You are, therefore, urged to complete,
date, execute and return, at your earliest convenience, the accompanying proxy
card in the envelope which has been enclosed.

THE BOARD OF DIRECTORS

Dated: March 21, 1997

<PAGE>

1334-PS-97