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
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
NETWORK PERIPHERALS INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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 29, 1999
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 29, 1999 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 II directors of the Company to serve for
the ensuing three-year term and until their successors are
duly elected.
2. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company for the fiscal year
ending December 31, 1999.
3. 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 March 10, 1999
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,
Wilson Cheung
Secretary
Milpitas, California
March 15, 1999
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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.
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<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 29, 1999 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 office is located at 1371 McCarthy Boulevard,
Milpitas, California 95035.
These proxy solicitation materials were mailed on or about March 15,
1999, together with the Company's 1998 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 March 10, 1999 (the
"Record Date") are entitled to notice of and to vote at the meeting. On the
Record Date, 12,342,681 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. Certain of the Company's directors, officers
and regular employees, without additional compensation, may also solicit
proxies, 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, but only shares voted "FOR" or
"AGAINST" are treated as shares "representing and voting" at the Annual Meeting
(the "Votes Cast") with respect to such matter. Accordingly, abstentions and
broker non-votes will be counted for purposes of determining the number of Votes
with respect to a proposal.
2
<PAGE>
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 December 1, 1999, and must otherwise comply with the
requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), 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 Board of Directors fixes, from time to time, the number of
directors authorized by the Company's By-Laws. The Board of Directors has
currently set the number of directors at six. The Company's By-Laws provides
that the directors shall be divided into three classes, with the classes of
directors serving for staggered, three-year terms. The two Class II directors to
be elected at the Annual Meeting are to hold office until the Annual Meeting to
be held in 2002 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 who 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 the
nominees listed below, and, in such event, the specific nominees to be voted for
will be determined by the proxy holders.
The following table sets forth the name and age of the 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 II Director Serving for a Term Expiring in 2002:
<CAPTION>
Principal Occupation Director
Name During the Past Five Years Age Since
---- -------------------------- --- -----
<S> <C> <C> <C>
William Rosenberger Mr. Rosenberger has served as the President, Chief 49 1998
Executive Officer and a director of the Company
since July 1998. From January 1996 to June 1998,
Mr. Rosenberger was President and Chief Executive
Office of NetAccess, Inc., a wide area networking
equipment manufacturer. From October 1995 to
December 1995, Mr. Rosenberger was Vice President
of Sales and Business development for NetVision
Corporation, an Ethernet switching company. From
March 1993 to June 1995, Mr. Rosenberger was
General Manager of ACSYS, Inc., a networking
equipment manufacturer. Prior to March 1993, Mr.
Rosenberger was President and Chief Executive
Officer of Netronix, Inc., a networking hardware
designer and manufacturer.
3
<PAGE>
Principal Occupation Director
Name During the Past Five Years Age Since
---- -------------------------- --- -----
Steve Bell Mr. Bell has served as a director of the Company 44 1998
since July 1998. From 1998 to the present, Mr. Bell
has served as President and Chief Executive Officer
of the Silicon Valley Networking Laboratory, Inc.,
a provider of networking testing services. From
September 1993 to April 1998, Mr. Bell was founder
and President of Bell Consulting, Inc., a
networking products marketing company. From August
1992 to August 1993, Mr. Bell was Vice President of
Marketing for Make Systems, Inc., a provider of
networking software. Mr. Bell has also held
marketing and engineering management positions at
AT&T Bell Labs, Western Digital, National
Semiconductor and Hughes LAN Systems.
Incumbent Directors Not Standing for Re-election at the 1999 Annual Meeting:
Principal Occupation Director
Name During the Past Five Years Age Since
---- -------------------------- --- -----
Michael Gardner Mr. Gardner has served as a director of the Company 54 1998
since May 1998. From February 1998 to the present,
Mr. Gardner has served as Senior Vice President for
Sybase, Inc., an information management software
company. From November 1996 to February 1998, Mr.
Gardner was Chief Operating Officer for ACT
Networks, a wide-area network access products
manufacturer. From May 1995 to November 1996, Mr.
Garnder was President of Whittaker Communications
(formerly Hughes LAN Systems), a networking
company. From April 1993 to April 1995, Mr. Gardner
was Senior Vice President of Worldwide Sales for UB
Networks, a supplier of networking systems.
Glenn Penisten Mr. Penisten has served as the Chairman of the 67 1996
Board of Directors since June 1996. From 1985 to
present, 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; Superconductor Technologies,
Inc., from May 1987 to June 1988; American
Microsystems, Inc., from July 1976 to December
1984, and Data Transmission Co., from February 1972
to April 1976. Mr. Penisten has also held director
level positions at Dataproducts Corporation,
Sanders Associates and Gould, Inc. He served as a
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.
4
<PAGE>
Principal Occupation Director
Name During the Past Five Years Age Since
---- -------------------------- --- -----
Charles Hart Mr. Hart has served on the Board of Directors since 61 1996
November 1996. From 1998 to present, he has been
the Chief Executive Officer of Gigalabs, Inc., a
manufacturer of networking interface cards and
switches. Previously in 1998, he served as the
Chief Executive Officer and a director of Micronics
Computers Inc., a supplier of advanced system
boards for high-performance personal computers.
From April 1997 through February 1998, he served as
the Executive Vice President, Business Development,
for the Company. From August 1995 to May 1997, he
was a founding board member of InsWeb Corporation,
an internet technology company providing a
vertically integrated marketplace for the insurance
industry on the World Wide Web. From July 1992
through July 1995, he was President and Chief
Executive Officer of Semaphore Communications
Corporation. Previously, he held positions of
President and Chief Executive Officer with Phaser
Systems and Etak, Inc.
</TABLE>
There are no family relationships among any directors or officers of
the Company.
Certain Business Relationships
During 1998, the Company contracted with Quadrus Manufacturing, a
subsidiary of Bell Microproducts, whereby Quardrus functioned as the Company's
turnkey manufacturing subcontractor. Mr. Penisten serves on the Board of
Directors of Bell Microproducts. In 1998, the Company made payments of
approximately $7 million to Quadrus for products and services. The Company
expects to terminate the relationship with Quadrus in mid-1999 when all the
Company's manufacturing activities will transition to its internal facilities in
Taiwan.
Compliance with Section 16(a) of the Exchange Act
During 1998, Mr. Wilson Cheung, Mr. William Rosenberger, Mr. James
Sullivan, Mr. Oliver Szu (former officer), and Mr. Robert Zecha, executive
officers of the Company, and Mr. Steve Bell, a director of the Company, were
delinquent in filing Form 3. Mr. Robert Hersh (former officer) and Mr.
Rosenberger were delinquent in filing Form 4. Mr. Zecha was delinquent in filing
Form 5.
Vote Required and Board of Directors Recommendation
Directors are elected by a plurality of votes cast. THE BOARD OF
DIRECTORS RECOMMEND 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 six meetings
during the fiscal year ended December 31, 1998. No action was taken by written
consent. No current director participated in fewer than 75% of all such meetings
and actions by the Board of Directors, if any, and the committees, upon which
such directors served, at the time they were directors of the Company.
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, consisting of directors
Mr. Penisten and Mr. Gardner, the latter replacing Mr. Kenneth Levy in the
committee, met four times during fiscal 1998. Mr.
5
<PAGE>
Levy resigned from the Board in May 1998. 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 Mr. Hart and Mr. Bell, the latter replacing Mr. Marengi in the
committee, held two meetings during fiscal 1998. Mr. Marengi resigned from the
Board in October 1998. 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 1997 Stock Plan.
Compensation of Directors
Directors who are not employees of the Company (an "Outside Director")
are entitled to receive a director fee of $3,750 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 Outside Directors Plan, as
amended, provides for the automatic granting of nonstatutory stock options to
Outside Directors of the Company. Each new Outside Director will be granted an
option to purchase 15,000 shares of Common Stock on their date of election. Each
continuing Outside Director will be granted an option to purchase 5,000 shares
of Common Stock on the date of each annual meeting of stockholders.
During 1998, the Company granted options to non-employee directors Mr.
Hart for 5,000 shares and Mr. Gardner for 15,000 shares from the 1994 Option
Plan. Mr. Penisten and Mr. Rosenberger, employee-directors of the Company, were
granted 100,000 shares and 500,000 shares, respectively, from the 1997 Option
Plan. Prior to joining the Company, Mr. Bell was granted 25,000 shares from the
1997 Option plan for services performed as a consultant. Subsequently, Mr. Bell
was granted 15,000 shares from the 1994 Option Plan and 5,000 shares from the
1997 Option Plan as he joined the Company as a non-employee director.
6
<PAGE>
OTHER INFORMATION
Share Ownership by Principal Stockholders and Management
<TABLE>
The following table sets forth the beneficial ownership of Common Stock
of the Company as of March 10, 1999 by: (a) each director; (b) each of the
current 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
March 10, 1999 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
12,342,681 shares of the Company's Common Stock were issued and outstanding as
of March 10, 1999.
<CAPTION>
Shares Beneficially Owned
-------------------------
Name Number Percent
---- ------ -------
<S> <C> <C>
Seneca Ventures (1).............................................. 1,296,000 9.9%
Pauline Lo Alker (2)(6).......................................... 899,667 6.9%
Glenn Penisten (3)............................................... 327,182 2.2%
William F. Rosenberger (4)....................................... 86,332 *
Robert Zecha (5)................................................. 45,000 *
Steve Bell (5).................................................... 25,000 *
James Sullivan (5)............................................... 18,749 *
Charles Hart (5)................................................. 12,187 *
Wilson Cheung (5)................................................ 5,675 *
Michael Gardner.................................................. -- *
Fred Kiremidjian (6)............................................. -- *
All directors and current executive officers as a group (7)...... 479,559 3.7%
<FN>
* 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 Ms. Alker's son,
as to which shares Ms. Alker disclaims beneficial ownership; and 258,667
shares issuable upon the exercise of outstanding stock option which were
exercisable at the Record Date or within 60 days thereafter. The
aforementioned was based upon information provided by the Stockholder as of
May 26, 1998, which is the most recent information available to the
Company.
(3) Includes 286,666 shares issuable upon the exercise of outstanding stock
options, which were exercisable at the Record Date or within 60 days
thereafter.
(4) Includes 83,332 shares issuable upon the exercise of outstanding stock
options, which were exercisable at the Record Date or within 60 days
thereafter.
(5) Represents the number of shares issuable upon the exercise of outstanding
stock options, which were exercisable at the Record Date or within 60 days
thereafter.
(6) Ms. Alker and Mr. Kiremidjian are included in the Summary Compensation
Table but are former executive officers of the Company.
(7) Includes 476,609 shares issuable upon exercise of outstanding stock
options, which were exercisable at the Record Date or within 60 days
thereafter.
</FN>
</TABLE>
7
<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 whose salary and bonus for
the year ended December 31, 1998 exceeded $100,000, and two former executive
officers of the Company whose salary and bonus exceeded $100,000, but who were
not executive officers at December 31, 1998 (collectively the "Named Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------------- Awards
Name and Securities Underlying
Principal Position Year Salary Bonus(1) Options(1)
------------------ ---- ------ -------- ----------
<S> <C> <C> <C> <C>
William F. Rosenberger 1998 $125,000 $ 50,000(2) 500,000
President and CEO
James Sullivan 1998 $253,574(4) -- 60,000
VP of Sales 1997 $ 80,567(4) -- 100,000(6)
Robert Zecha 1998 $167,875 -- 20,000
Wilson Cheung 1998 $ 93,433 $ 23,925(3) 10,000
VP of Finance and CFO
Pauline Lo Alker 1998 $275,400(5) -- --
(former President and CEO) 1997 $175,000 $149,048 286,667(7)
1996 $175,000 $ 49,500 280,000(8)
Fred Kiremidjian 1998 $190,449(5) -- --
(former VP of Engineering) 1997 $183,656 $ 45,150 300,000(9)(10)
1996 $ 80,881 -- 200,000(9)(10)
<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. No bonus was paid to executive officers in 1998 for performance
in such capacity. Bonuses paid in 1997 were earned in 1996 and bonuses paid
in 1996 were partially earned in 1995.
(2) Bonus paid to Mr. Rosenberger in 1998 was pursuant to "sign-on" provisions
in the employment contract.
(3) Bonus paid to Mr. Cheung in 1998 was based on performance prior to him
being appointed to executive office.
(4) Included in salary are commissions of $103,574 in 1998 and $15,664 in 1997.
(5) Included in salary are severance payments of $175,000 to Ms. Alker and
$66,667 to Mr. Kiremidjian.
(6) Option to purchase 50,000 shares was issued on 10/31/97, replacing option
to purchase 50,000 shares granted on 7/7/97.
(7) Option to purchase an aggregate of 66,667 shares was issued on 10/31/97,
replacing option to purchase 100,000 shares granted on 3/6/97. Option to
purchase an aggregate of 120,000 shares issued on 10/31/97 replaces option
to purchase 180,000 shares granted on 9/18/96 (see Note (8) below).
(8) Option to purchase an aggregate of 180,000 shares was issued on 9/18/96,
replacing option to purchase 100,000 shares granted on 4/9/96 and option to
purchase 80,000 shares granted in 1995.
8
<PAGE>
(9) Option to purchase 250,000 shares was issued on 10/31/97, replacing option
to purchase 50,000 shares granted on 3/6/97 and 200,000 shares granted on
6/3/96.
(10) These options expired without being exercised within three months after
termination of the officers' employment by the Company prior to December
31, 1998.
</FN>
</TABLE>
Option Grants in Last Fiscal Year
<TABLE>
The following table sets forth details regarding stock options granted
to the current Named Officers in 1998. The Company granted no stock appreciation
rights in 1998. In addition, in accordance with SEC rules, the table shows the
hypothetical gains or "option 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.
<CAPTION>
Individual Grants
--------------------------------------------------- Potential Realizable Value
Number of Percent of at Assumed Annual Rates of
Securities Total Options Exercise Stock Price Appreciation for
Underlying Granted to or Base Option Term (1)
Options Employees in Price Expiration ----------------------------
Name Granted Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
William Rosenberger 500,000 43% $ 4.13 6/11/08 $1,297,095 $3,287,094
James Sullivan 60,000 5% $ 2.63 10/19/08 $ 99,051 $ 251,014
Robert Zecha 20,000 2% $ 2.63 10/19/08 $ 33,017 $ 83,671
Wilson Cheung 10,000 1% $ 2.63 10/19/08 $ 16,508 $ 41,836
Pauline Lo Alker -- -- -- -- -- --
Fred Kiremidjian -- -- -- -- -- --
<FN>
(1) 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.
</FN>
</TABLE>
9
<PAGE>
Aggregated Option Exercises and Fiscal Year End Option Values
<TABLE>
The following table sets forth certain information concerning options
exercised by the current Named Officers during 1998, including the aggregate
value of gains on the date of exercise. In addition, this table includes the
number of shares covered by both exercisable and nonexercisable 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.
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised Options In-the-Money Options at
Acquired at Fiscal Year End Fiscal Year End (1)
On Value ----------------------------- -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William Rosenberger -- -- 50,000 450,000 $ 18,750 $168,750
James Sullivan -- -- 14,582 95,418 -- $112,500
Robert Zecha -- -- 34,999 105,001 -- $ 37,500
Wilson Cheung -- -- 4,373 20,627 -- $ 18,750
Pauline Lo Alker -- -- 258,667 -- $298,800 --
Fred Kiremidjian -- -- -- -- -- --
<FN>
(1) 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, 1998 of $4.50, minus the exercise price.
</FN>
</TABLE>
Employment Agreements and Change in Control Arrangements
Management Salary Continuation Agreements
During 1998, the Company entered into Salary Continuation Agreements
with William Rosenberger and Jerry McDowell. These agreements provide that in
the event the individual is terminated, including "constructive termination" by
demotion, relocation or reduction of the salary of the individual, beginning 30
days prior to public announcement and ending one year after the "change in
control" of the Company, the individual would be entitled to continued salary
and bonus payments for a period of one year. Each executive would also be
entitled to continued medical coverage by the Company during the period of
salary continuation, unless the executive is covered by another employer's group
health plan. In addition, the Salary Continuation Agreements provide for the
acceleration of all options to purchase shares of the Company's Common Stock
granted to that individual prior to the "change of control".
The 1997 Stock Plan provides that the Board of Directors may, in its
sole discretion, accelerate the vesting and the ability to exercise options held
by executive officers in the event of a change of control of the Company.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
During 1998, no members of the Compensation Committee were officers or
employees of the Company or any of its subsidiaries.
10
<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 1997 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. Each Committee member weighs objective and subjective
performance factors and a consensus is obtained through discussion. 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 subjective judgment of the Company's financial
performance and the achievement of established goals. No performance bonus was
paid to executive officers in 1998.
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
1998 were based upon available data concerning option grants to executive
officers of 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.
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, he does not participate
in the discussions regarding his compensation or performance.
11
<PAGE>
Upon joining the Company in June 1998, Mr. Rosenberger agreed to an
annual salary of $250,000 and received a signing bonus of $50,000. Further, Mr.
Rosenberger received 500,000 shares of stock options from the Company's 1997
Option Plan. Mr. Rosenberger also accepted a Management Salary Continuation
Agreement as previously noted.
Qualifying Compensation
The Committee has considered the potential impact of Section 162(m) of
the Internal Revenue Code ("Section 162(m)") adopted under the Federal Revenue
Reconciliation Act of 1993. Section 162(m) disallows a tax deduction for any
publicly-held corporation for certain executive officers' compensation exceeding
$1 million per person in any taxable year unless it is "performance based"
within the meaning of Section 162(m). Since to date the cash compensation plus
restricted stock vesting of each of the Company's executive officers has been
below the $1 million threshold and since the Committee believes that any options
granted under the Company's option plan will meet the requirement of being
performance-based under the provisions of Section 162(m), the Committee believes
that Section 162(m) will not reduce the tax deduction available to the Company
for fiscal year 1997 or prior years. The Company's policy is, to the extent
reasonable, to qualify its executive officers' compensation for deductibility
under the applicable tax laws.
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<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 six month periods 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>
Cumulative Comparison of Total Return
<CAPTION>
6/94 12/94 6/95 12/95 6/96 12/96 6/97 12/97 6/98 12/98
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NPI $100 $445 $356 $192 $280 $290 $115 $118 $ 72 $ 73
Nasdaq U.S. Market $100 $108 $134 $152 $172 $187 $209 $230 $275 $318
Nasdaq Computer $100 $141 $181 $222 $257 $298 $323 $360 $525 $782
Manufacturers
<FN>
* Assumes $100 invested on June 28, 1994 in the Company's Common Stock and in
each index listed above.
** Data points are as of the last business day of the respective month.
*** 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>
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<PAGE>
Summary of the 1997 Stock Plan, as Amended
The purpose of the 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 and consultants and by motivating such persons to
contribute to the Company's growth and profitability. A maximum of 2,500,000 of
the authorized but unissued or reacquired shares of Common Stock of the Company
may be issued under the Plan. The Board of Directors or a duly appointed
committee of the Board administers the Plan. Subject to the provisions of the
Plan, the Board determines the persons to whom awards are to be granted and all
other terms and conditions of the awards. Awards may be granted under the Plan
to employees (including officers), directors and consultants of the Company. The
exercise price of each incentive stock option granted under the 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. Options granted under the 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. If a Change in Control occurs, as defined by the Plan, the Board 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. The 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. The Board may terminate or
amend the Plan at any time.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as the
independent accountants to audit the financial statements of the Company for the
fiscal year ending December 31, 1999. PricewaterhouseCoopers has audited the
Company's financial statements since 1989. A representative of
PricewaterhouseCoopers is expected to be present at the Annual Meeting with the
opportunity to make a statement if he so desires, and is expected to be
available to respond to appropriate questions.
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 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 PricewaterhouseCoopers,
the Board of Directors will reconsider the appointment of the independent
accountants. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS.
14
<PAGE>
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 15, 1999
15
