<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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(c)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
TELTREND INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[TELTREND LOGO]
TELTREND INC.
620 STETSON AVENUE
ST. CHARLES, ILLINOIS 60174
-----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
ON DECEMBER 2, 1999
-----------------
TO THE STOCKHOLDERS OF TELTREND INC.:
The Annual Meeting of Stockholders of Teltrend Inc. (the "Company") will be
held on Thursday, December 2, 1999 at 9:00 a.m., local time, at the Company's
headquarters, 620 Stetson Avenue, St. Charles, Illinois 60174, for the following
purposes:
1. To elect directors;
2. To ratify the action of the Board of Directors in appointing Ernst &
Young LLP as the Company's independent auditors for the Company's
fiscal year ending July 29, 2000; and
3. To transact such other business as may properly be brought before the
Annual Meeting or any adjournment or postponement thereof.
The Annual Meeting may be postponed or adjourned from time to time without
any notice other than announcement at the meeting, and any and all business for
which notice is hereby given may be transacted at any such postponed or
adjourned meeting.
The Board of Directors has fixed the close of business on October 6, 1999
as the record date for determination of stockholders entitled to notice of and
to vote at the Annual Meeting.
Stockholders are requested to complete and sign the enclosed proxy, which
is solicited by the Board of Directors, and promptly return it in the
accompanying envelope, whether or not they plan to attend the Annual Meeting in
person. The proxy is revocable at any time before it is voted. Returning the
proxy will in no way limit your right to vote at the Annual Meeting if you later
decide to attend in person.
By Order of the Board of Directors
/s/ DOUGLAS P. HOFFMEYER
Douglas P. Hoffmeyer
Sr. Vice President, Finance;
Chief Financial Officer;
Secretary and Treasurer
St. Charles, Illinois
October 22, 1999
<PAGE> 3
TELTREND INC.
620 STETSON AVENUE
ST. CHARLES, ILLINOIS 60174
---------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 2, 1999
---------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Teltrend Inc., a Delaware corporation (the "Company"),
of proxies for use at the Annual Meeting of Stockholders of the Company to be
held on Thursday, December 2, 1999 at 9:00 a.m., local time, at the Company's
headquarters, 620 Stetson Avenue, St. Charles, Illinois 60174, and at any
postponement or adjournment thereof (the "Annual Meeting"). This Proxy Statement
and accompanying proxy are being mailed to stockholders of the Company
commencing on or about October 22, 1999. The mailing address of the principal
executive offices of the Company is 620 Stetson Avenue, St. Charles, Illinois
60174.
RECORD DATE AND SHARES OUTSTANDING
Holders of record of the Company's common stock, $.01 par value per share
(the "Common Stock"), at the close of business on October 6, 1999 (the "Record
Date") are entitled to notice of and to vote at the Annual Meeting. As of the
Record Date, there were 5,779,720 shares of Common Stock outstanding (exclusive
of 735,000 shares held by the Company) and entitled to vote at the Annual
Meeting, each such share being entitled to cast one vote. The Common Stock is
traded on the Nasdaq National Market.
VOTING AND QUORUM
Two proposals are scheduled for stockholder consideration at the Annual
Meeting, each of which is described more fully herein: (i) the election of seven
individuals to the Company's Board of Directors; and (ii) the ratification of
the action of the Board of Directors in appointing Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending July 29, 2000.
All properly executed, unrevoked proxy cards received pursuant to this
solicitation prior to the close of voting will be voted as directed therein. Any
stockholder who has given a proxy may revoke it at any time prior to its use at
the Annual Meeting by executing and delivering to the Secretary of the Company a
proxy bearing a later date, by giving a written notice of revocation to the
Secretary of the Company or by attending the Annual Meeting and voting in
person. Any written notice of revocation or subsequent proxy should be delivered
to Teltrend Inc., 620 Stetson Avenue, St. Charles, Illinois 60174, Attention:
Secretary, or hand delivered to the Secretary, before the closing of the polls
at the Annual Meeting.
The holders of a majority of the outstanding shares of Common Stock as of
the Record Date, present at the Annual Meeting in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting.
Assuming the presence of a quorum, the affirmative vote of a plurality of the
votes cast and entitled to vote in the election at the Annual Meeting will be
required for the election of directors, and the affirmative vote of a majority
of the votes cast and entitled to vote thereon will be required to act on all
other matters to come before the Annual Meeting.
Stockholders may vote in favor of or withhold authority to vote for the
nominees for election as directors listed herein. Similarly, stockholders may
vote in favor of, vote against or abstain from voting with respect to the
proposal to ratify the appointment of the Company's independent auditors
described herein. Directions to withhold authority, abstentions and broker
non-votes (which occur when a nominee holding shares for a beneficial owner does
not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner) will be counted in
<PAGE> 4
determining the presence or absence of a quorum for the transaction of business
at the Annual Meeting. Directions to withhold authority, because directors are
elected by a plurality of votes cast, will have no effect on the election of
directors. Broker non-votes, because they are not considered "votes cast," are
not counted in the vote totals and will have no effect on any proposal scheduled
for consideration at the Annual Meeting. Abstentions will have the effect of a
vote against the proposal being considered.
If a properly executed, unrevoked proxy does not specifically direct the
voting of the shares covered by such proxy, the proxy will be voted: (a) FOR the
election of all nominees for election as director as listed herein; (b) FOR the
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending July 29, 2000; and (c) in
accordance with the judgment of the persons named in the proxy as to such other
matters as may properly come before the Annual Meeting.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) FOR
THE FISCAL YEAR ENDED JULY 31, 1999 WILL BE PROVIDED TO STOCKHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST TO TELTREND INC., 620 STETSON AVENUE, ST. CHARLES,
ILLINOIS 60174, ATTENTION: SECRETARY.
ANNUAL REPORT
The Company's Annual Report to stockholders for the fiscal year ended July
31, 1999 has been included in the mailing of this Proxy Statement. Stockholders
are referred to the report for financial and other information about the
Company, but such report is not incorporated in this Proxy Statement and is not
to be deemed a part of the proxy soliciting material.
2
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of October 6, 1999 (except as
otherwise indicated) with respect to the beneficial ownership of the Company's
Common Stock by: (a) each director and nominee for director of the Company; (b)
each of the executive officers of the Company named in the Summary Compensation
Table, below; (c) all directors and executive officers of the Company as a
group; and (d) each person known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock. Except as otherwise indicated, all
the persons listed below have sole voting and dispositive power with respect to
all shares held by them, except to the extent such power may be shared with a
spouse.
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OF CLASS
- ------------------------ --------- --------
<S> <C> <C>
Heartland Advisors, Inc.(1)............................... 934,700(1) 15.70%(1)
790 N. Milwaukee St.
Milwaukee, WI 53202
Becker Capital Management Inc.(2)......................... 597,000(2) 10.02%(2)
1211 SW 5th Ave.
Suite 2185
Portland, OR 97204
State of Wisconsin Investment Board(3).................... 642,000(3) 10.77%(3)
P.O. Box 7842
Madison, WI 53707
Fleet Financial Group, Inc.(4)............................ 416,440(4) 6.99%(4)
One Federal Street
Boston, MA 02110
Howard L. Kirby, Jr.*+.................................... 202,050(5) 3.50%
Gilbert H. Hosie*......................................... 52,801(6) **
Douglas P. Hoffmeyer*..................................... 58,700(7) 1.02%
Laurence L. Sheets*....................................... 50,120(8) **
Jack C. Parker*........................................... 18,000(9) **
Frank T. Cary+............................................ 2,315(10) **
William R. Delk+.......................................... 4,000(11) **
Bernard F. Sergesketter+.................................. 2,500(10) **
Susan B. Major+........................................... 3,400(10) **
Donald R. Hollis+......................................... 4,500(12) **
Harry Crutcher, III+...................................... 3,400(10) **
All directors and executive officers as a group (17
persons)................................................ 492,298(13) 8.52%
</TABLE>
- -------------------------
* Executive Officer
+ Director and Nominee
** Less than one percent
(1) The information set forth reflects Common Stock held by Heartland Advisors,
Inc. on February 4, 1999 and is based solely on a Schedule 13G as filed
with the Securities and Exchange Commission (the "SEC") on February 9,
1999. Heartland Advisors, Inc. indicated it had sole dispositive power over
934,700 shares and sole voting power over 401,000 shares.
footnotes continued on next page
3
<PAGE> 6
(2) The information set forth reflects Common Stock held by Becker Capital
Management Inc. on February 11, 1999 and is based solely on a Schedule 13G
as filed with the SEC on February 11, 1999.
(3) The information set forth reflects Common Stock held by the State of
Wisconsin Investment Board on January 16, 1999 and is based solely on a
Schedule 13G as filed with the SEC on February 2, 1999.
(4) The information set forth reflects Common Stock held by Fleet Financial
Group, Inc. on February 12, 1999, and is based solely on a Schedule 13G as
filed with the SEC on February 12, 1999. Fleet Financial Group, Inc.
indicated it had sole dispositive power over 416,440 shares and sole voting
power over 323,540 shares.
(5) Includes options to purchase 134,500 shares of Common Stock which are
currently exercisable.
(6) Includes options to purchase 41,473 shares of Common Stock which are
currently exercisable or will become exercisable within 60 days of October
6, 1999.
(7) Includes options to purchase 33,700 shares of Common Stock which are
currently exercisable.
(8) Includes options to purchase 35,950 shares of Common Stock which are
currently exercisable.
(9) Includes options to purchase 17,500 shares of Common Stock which are
currently exercisable.
(10) Includes options to purchase 1,500 shares of Common Stock which are
currently exercisable.
(11) Includes 1,000 shares of Common Stock currently held by Mr. Delk's wife.
Also includes options to purchase 1,500 shares of Common Stock which are
currently exercisable.
(12) Includes 2,000 shares of Common Stock held by the Hollis Family Limited
Partnership, of which Mr. Hollis and his wife are the two general partners.
Also includes options to purchase 1,500 shares of Common Stock which are
currently exercisable.
(13) Includes options to purchase 333,923 shares of Common Stock which are
currently exercisable or will become exercisable within 60 days of October
6, 1999.
ELECTION OF DIRECTORS
The Company's Amended and Restated Bylaws (the "Bylaws") set the number of
directors of the Company at between three and nine, which number may be changed
from time to time by the Board of Directors. The Board of Directors currently
consists of seven directors. All directors of the Company are elected at the
Company's Annual Meeting and hold office until their respective successors have
been duly elected and qualified, or until their earlier resignation or removal.
The Board of Directors has nominated the following individuals for election
as directors of the Company at the Annual Meeting: Frank T. Cary; Harry
Crutcher, III; William R. Delk; Donald R. Hollis; Howard L. Kirby, Jr.; Susan B.
Major; and Bernard F. Sergesketter.
While the Board of Directors does not contemplate that any nominee for
election as a director will not be able to serve, if any of the nominees for
election shall be unable to or for good cause will not serve as a director, the
persons listed in the enclosed proxy shall vote such proxy, if properly executed
and returned and unrevoked, for such other person or persons as shall be
recommended by the Board of Directors, or the Board of Directors may, in its
discretion, reduce the number of directors to be elected. The affirmative vote
of a plurality of the votes cast and entitled to vote at the Annual Meeting is
required for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" EACH OF THE
NOMINEES LISTED HEREIN.
The name of and certain information regarding the nominees for election as
a director of the Company at the Annual Meeting appears below (each nominee
being a current director of the Company). Prior to the Company's initial public
offering in June 1995 (the "IPO"), the Company's operations were conducted
through an indirect subsidiary (the "Operating Subsidiary"), which the Company
owned through a direct subsidiary (the "Holding Subsidiary"). In connection with
the IPO, the Holding Subsidiary and Operating
4
<PAGE> 7
Subsidiary were merged into the Company (the "Mergers"). Effective April 7,
1995, each executive officer of the Operating Subsidiary was appointed an
executive officer of the Company in contemplation of the IPO and Mergers.
Accordingly, all references to Mr. Kirby's service as an executive officer of
the Company prior to April 7, 1995 shall be deemed to refer to his service as an
executive officer of the Operating Subsidiary.
HOWARD L. KIRBY, JR., PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS -- Mr. Kirby has served as the President, the Chief
Executive Officer and a director of the Company since January 1990. Mr. Kirby
was named Chairman of the Board of Directors in February 1997. Mr. Kirby began
his career in the telecommunications industry in 1962 with Collins Radio Company
(which subsequently became a part of Rockwell International Corporation), where
he spent 20 years in various management positions in engineering, marketing and
sales. From 1982 to 1984, Mr. Kirby was the Director of Planning and Business
Development for U.S. Telephone, now part of Sprint Corporation. In 1984, Mr.
Kirby became the Vice President and General Manager at Pulse Communications,
Inc., a subsidiary of Hubbell Incorporated, and held that position until he
joined the Company in 1990. Mr. Kirby is 63 years old.
FRANK T. CARY, DIRECTOR -- Mr. Cary has been a director of the Company
since January 1989. Mr. Cary is a former Chairman of the Board and Chief
Executive Officer of International Business Machines Corporation. He is a
director of Celgene Corporation, Cygnus Therapeutic Systems, ICOS Corporation,
Lexmark International, Inc., Lincare, Inc. and Vion Pharmaceuticals, Inc. Mr.
Cary is 78 years old.
HARRY CRUTCHER, III, DIRECTOR -- Mr. Crutcher has been a director of the
Company since July 1996. He has been a practicing attorney for more than thirty
years, specializing in financial transactions. He spends the majority of his
time as a business, management and financial consultant. His companies, Crutcher
Enterprises, Inc. and Resorts Financial Services Co., are involved in
acquisitions, restructurings and strategic planning related to operating
businesses, particularly in the resort and hospitality industry. He is also the
Managing Partner of Grouse Mountain Associates, Ltd., a hotel owner and
operator. Mr. Crutcher's son is married to Mr. Kirby's daughter. Mr. Crutcher is
61 years old.
WILLIAM R. DELK, DIRECTOR -- Mr. Delk has been a director of the Company
since January 1996. Mr. Delk has over 35 years experience in the
telecommunications industry, having held various positions from 1959 to 1984
with Southern Bell and from 1984 to 1994 with BellSouth Corporation and its
subsidiaries. Mr. Delk retired in December 1994 as Vice President of BellSouth
Telecommunications, Inc., a position he had held since April 1993 and in which
his responsibilities included procurement, supply handling and delivery, service
management and other support functions for a nine-state operation. From January
1988 through March 1993, Mr. Delk was a Vice President of BellSouth Enterprises,
Inc. and was responsible for personnel and executive compensation, information
systems and public relations. Mr. Delk is 61 years old.
DONALD R. HOLLIS, DIRECTOR -- Mr. Hollis has been a director of the Company
since July 1996. Mr. Hollis is currently the president of DRH Strategic
Consulting, Inc., which assists clients in developing strategies for leveraging
technology. Mr. Hollis is also a director of Deluxe Corp., Open Port Technology
and Edify Corp. From 1981 to 1996, Mr. Hollis was an Executive Vice President of
First Chicago Corporation ("First Chicago") and was responsible for First
Chicago's technology and commercial transaction processing business. Prior to
that, Mr. Hollis held various positions at The Chase Manhattan Bank, Interactive
Data Corporation, the Glidden Company and Smith-Corona Marchant. Mr. Hollis is
63 years old.
SUSAN B. MAJOR, DIRECTOR -- Ms. Major has been a director of the Company
since April 1997. Ms. Major is a Vice President and Managing Director for A.T.
Kearney, Inc., a worldwide executive search company with its corporate
headquarters in Chicago, Illinois. Prior to joining A.T. Kearney in April 1997,
Ms. Major had extensive experience in the telecommunications industry. Most
recently, Ms. Major served as the Director of Paging and Wireless Data for
Ameritech Cellular Services, Inc., where she was responsible for the company's
paging and wireless data operations from April 1995 to March 1997. Prior to
that, Ms. Major held various positions at Motorola Inc. between 1981 and 1995,
including Director of Strategic Marketing for the wireless data group, where she
was involved in the development of cellular subscriber, wireless data and two-
way radio products. Prior to that, she marketed products for the transmission
products division of Western Electric. Ms. Major is 47 years old.
5
<PAGE> 8
BERNARD F. SERGESKETTER, DIRECTOR -- Mr. Sergesketter has been a director
of the Company since January 1996. Since August 1994, Mr. Sergesketter has been
the President and Chief Executive Officer of Sergesketter & Associates Inc., a
firm which provides consulting services in the areas of marketing,
telecommunications and quality management. Prior to that, Mr. Sergesketter held
various positions (including positions in engineering, finance, sales and
marketing) during his 36-year career with AT&T, including, from January 1983 to
August 1994, Vice President -- Central Region. As Vice President -- Central
Region of AT&T, Mr. Sergesketter's principal responsibilities were for AT&T's
sales and marketing operations in the Midwest. Mr. Sergesketter is a director of
the Illinois Institute of Technology, The Cradle, The Sigma Chi Foundation, and
Mather Foundation. Mr. Sergesketter is 63 years old.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors of the Company met five times during the fiscal year
ended July 31, 1999 ("fiscal 1999"). The Board of Directors presently has four
standing committees -- an Audit Committee, a Compensation Committee, a
Nominating Committee and an Executive Committee. The Audit Committee met twice
during fiscal 1999. The Compensation Committee met four times during fiscal
1999. The Nominating Committee and the Executive Committee did not meet in
fiscal 1999. The Company anticipates that the Board of Directors will hold four
regular meetings each year.
The Audit Committee recommends the Company's independent auditors and
consults with them regarding the scope, timing and results of their audit and
the Company's internal accounting controls. Further, the Audit Committee reviews
related party transactions in accordance with the rules promulgated by the
National Association of Securities Dealers, Inc. The current members of the
Audit Committee are Bernard F. Sergesketter, William R. Delk and Susan B. Major.
The Compensation Committee reviews and sets the salaries and incentive
compensation for the executive officers (except for the Chief Executive
Officer's compensation, which is set by the full Board of Directors), the
directors and other key personnel of the Company. The Compensation Committee
also generally administers the Company's stock option plans. In its capacity as
administrator of the Company's stock option plans, the Compensation Committee
generally approves grants of stock options and determines the terms thereof. The
current members of the Compensation Committee are Frank T. Cary, William R. Delk
and Susan B. Major.
The Nominating Committee reviews and recommends qualified candidates for
membership to the Board of Directors and to the several committees of the Board
of Directors. The current members of the Nominating Committee are Howard L.
Kirby, Jr. and Harry Crutcher, III.
The Executive Committee, while the Board is not in session, has the
authority to exercise all of the powers and fulfill all of the duties (with
certain limitations) of the Board of Directors that may be lawfully delegated to
it by the Board in the management of the Company's business. The current members
of the Executive Committee are Frank T. Cary, Donald R. Hollis, Harry Crutcher,
III and Howard L. Kirby, Jr., ex officio.
The Board of Directors will consider nominees for director recommended by
stockholders. However, the Company's Bylaws establish an advance notice
procedure for stockholders to make nominations of candidates for election as
directors or to bring other business before an Annual Meeting. See "Procedure
for Submitting Stockholder Proposals."
All of the Company's current directors attended at least 75% of the
meetings of the Company's Board of Directors and committees thereof on which
they served during fiscal 1999.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company (currently Howard L. Kirby, Jr.,
the Chairman of the Board of Directors) receive no additional compensation for
serving on the Board of Directors or its committees. All directors who are not
employees of the Company are compensated at the rate of $20,000 per year, plus
$1,000 per Board meeting attended and reimbursement for expenses incurred in
attending such
6
<PAGE> 9
meetings. Directors receive no additional compensation for serving on a
committee of the Board, but do receive $1,000 for each committee meeting
attended if a meeting is held on a date on which there is not also a meeting of
the Board of Directors. In addition, under the Teltrend Inc. 1997 Non-Employee
Director Stock Option Plan (the "1997 Director Option Plan"), each director who
is not an employee of the Company or its subsidiaries receives, upon his or her
initial election to the Board, a one-time grant of an option (an "Initial
Option") to purchase up to 6,000 shares of Common Stock. Additionally, each
continuing non-employee director will be granted an additional option (an
"Annual Option") to purchase up to 1,500 shares of Common Stock on each
anniversary of his or her Initial Option grant. The Initial Options and Annual
Options are granted at exercise prices equal to the fair market value of a share
of Common Stock on the date of grant.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth, in summary form, the aggregate compensation
earned by the Chief Executive Officer and each of the four additional most
highly compensated executive officers of the Company (collectively, with the
Chief Executive Officer, the "Named Executive Officers") for services rendered
in all capacities to the Company for the Company's fiscal years ended July 31,
1999, July 25, 1998 and July 26, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS(1)
ANNUAL COMPENSATION ------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION(2)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
------------------ ------ ------ ----- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Howard L. Kirby, Jr. ......... 1999 $248,269 $166,000 $10,758(3) -- $6,502
President and Chief 1998 235,000 150,000 9,816(3) 30,000(5) 5,109
Executive
Officer 1997 235,000 95,000 7,462(3) -- 5,579
Gilbert H. Hosie.............. 1999 $140,000 $ 68,600 $ 3,627(3) -- $5,769
Vice President, Sales 1998 140,000 60,000 5,437(3) 8,000(5) 3,269
1997 140,000 30,000 3,897(3) -- --
Douglas P. Hoffmeyer.......... 1999 $148,615 $ 97,860 -- -- $5,873
Sr. Vice President, Finance; 1998 138,000 70,000 -- 10,000(5) 3,896
CFO; Secretary and Treasurer 1997 138,000 35,000 -- -- 5,389
Laurence L. Sheets............ 1999 $140,000 $ 55,440 $ 3,000(4) -- $5,728
Vice President, Business 1998 140,000 40,000 -- 3,000(5) 4,003
Development and Chief 1997 140,000 30,000 $ 2,500(4) -- 5,467
Technical Officer
Jack C. Parker................ 1999 $147,692 $100,000 -- -- $3,762
Sr. Vice President, 1998 130,000 70,000 $ 9,249(6) 10,000(5) 4,350
Engineering
& Marketing 1997 116,000 40,000 36,879(6) 30,000(5) 300
</TABLE>
- -------------------------
(1) The compensation for the Company's executives does not include restricted
stock awards or payouts pursuant to any long-term incentive plans;
therefore, these columns are omitted from the Summary Compensation Table.
(2) Reflects amounts contributed by the Company to the Teltrend Retirement
Investment Plan on behalf of each respective Named Executive Officer.
(3) Reflects amounts paid by the Company for automobile expenses.
(4) Reflects amounts paid by the Company in respect of patent awards.
(5) Represents options to purchase Common Stock granted pursuant to the Teltrend
Inc. 1996 Stock Option Plan.
(6) Reflects amounts paid by the Company for moving expenses.
The Company did not grant stock options to any of the Named Executive
Officers during fiscal 1999. Therefore, the table relating to option grants has
been omitted.
8
<PAGE> 11
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table and related footnotes set forth certain information
concerning the exercise of stock options during fiscal 1999 by each of the Named
Executive Officers, as well as the number and value of securities underlying
options held by each of the Named Executive Officers at the end of fiscal 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
COMMON STOCK OPTIONS AT JULY 31, 1999 AT JULY 31, 1999(1)
ACQUIRED ON VALUE ---------------------------- -------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard L. Kirby, Jr. .... -- -- 134,500 22,500 $525,813 $53,438
Gilbert H. Hosie......... -- -- 40,723 6,000 324,545 8,906
Douglas P. Hoffmeyer..... -- -- 33,700 7,500 130,738 17,813
Laurence L. Sheets....... -- -- 35,950 2,250 142,581 5,344
Jack C. Parker........... -- -- 17,500 22,500 5,938 17,813
</TABLE>
- -------------------------
(1) Values for "in-the-money" options represent the positive spread between the
respective exercise prices of outstanding options and the value of
securities underlying such options as of July 31, 1999.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Pursuant to the Company's Executive Severance Plan (the "Severance Plan"),
the Company's executive officers are entitled to severance payments upon: (i)
involuntary termination of employment of the Company other than for cause or in
connection with a change-in-control of the Company ("Standard Termination"); and
(ii) certain terminations of employment with the Company in connection with a
change-in-control of the Company ("Change-in-Control Termination"). Under the
Severance Plan, an executive receives severance payments which are calculated on
the basis of his annual base salary in effect on the date of termination of
employment and the number of years he has been employed by the Company. The
amount is paid in periodic payments in accordance with the Company's regular
payroll schedule for executives unless the Compensation Committee elects to pay
the amount in a lump sum or a combination of periodic payments and a lump sum.
If a Standard Termination had occurred as of the end of fiscal 1999,
Messrs. Kirby, Hosie, Hoffmeyer, Sheets and Parker would have received $400,000,
$140,000, $225,000, $98,000 and $75,000, respectively, under the Severance Plan.
If a Change-in-Control Termination had occurred as of the end of fiscal 1999,
Messrs. Kirby, Hosie, Hoffmeyer, Sheets and Parker would have received $800,000,
$280,000, $450,000, $196,000 and $150,000, respectively, under the Severance
Plan.
Additionally, non-vested stock options held by employees of the Company
generally vest and become exercisable upon certain change-in-control
transactions involving the Company. The Company's policy is to enter into
confidentiality agreements with each of its key employees, including the Named
Executive Officers, pursuant to which such employees agree not to disclose any
confidential and proprietary information of the Company or of third parties to
whom the Company is obligated to keep such information confidential.
9
<PAGE> 12
The Report of the Compensation Committee on Executive Compensation and the
Performance Graph below shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement or any portion
hereof into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed
filed under such acts.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee reviews and sets the salaries and incentive
compensation for the executive officers (except for the Chief Executive
Officer's compensation) and other key personnel. For the Chief Executive Officer
and outside directors, the Compensation Committee reviews and recommends the
salaries and incentive compensation to the full Board of Directors for their
approval. The Compensation Committee also generally administers the Company's
stock option plans. In its capacity as administrator of the Company's stock
option plans, the Compensation Committee generally approves grants of stock
options and determines the terms thereof. The current members of the
Compensation Committee are Frank T. Cary, William R. Delk and Susan B. Major.
The Compensation Committee reviews the Company's compensation program to ensure
that the Company continues to adhere to its compensation philosophy. In
conducting its review of executive compensation matters, the Compensation
Committee, from time to time, utilizes the compensation data and advisory
services of independent compensation consultants.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive compensation program is based on principles
designed to align the Company's executive compensation with the Company's
objectives, management initiatives and business and financial performance. These
principles are applied by the Compensation Committee to: (i) attract, motivate
and retain executives of the highest quality; (ii) link the total annual
compensation of each executive officer to such executive's individual
performance, the performance of the strategic market unit he or she manages and
the Company's overall performance; and (iii) provide long-term incentives for
consistent high levels of performance.
OVERVIEW OF EXECUTIVE COMPENSATION PROGRAM
The Company's total compensation program for its executive officers
consists of both cash and equity-based compensation. Each executive officer's
annual compensation has generally consisted of a base salary, eligibility for
matching contributions to the Teltrend Retirement Investment Plan and
eligibility for an annual bonus under the Company's Executive Bonus Plan. The
Chief Executive Officer generally proposes the base salary for each of the
Company's executive officers. The cash bonus amount for the Company's executive
officers is determined by using the formula defined in the Company's Executive
Bonus Plan. The Compensation Committee meets with the Chief Executive Officer to
discuss his compensation and also proposes his base salary to the Board of
Directors. The amount of the Chief Executive Officer's bonus is determined by
using the formula defined in the Company's Chief Executive Officer Bonus Plan.
The Chief Executive Officer's recommendations and the Compensation Committee's
evaluation of base salary are based on a number of factors and criteria,
including the compensation paid by the Company to its executive officers during
the immediately preceding fiscal year, the rate of inflation and the
compensation paid to the executive officers of certain other companies which the
Chief Executive Officer and the Compensation Committee believe are comparable to
the Company based on their location or the nature of their business. The terms
of the Chief Executive Officer Bonus Plan and the Executive Bonus Plan clarify
the criteria used to determine the amount of the bonuses paid to the Chief
Executive Officer and the executive officers. Those criteria include achievement
of the Company's financial goals, attainment of specific quantifiable goals
particular to each executive officer, and more subjective factors which are
assessed by the Chief Executive Officer for the executive officers, and by the
Board of Directors for the Chief Executive Officer. In addition to annual
compensation, the Company provides long-term incentives to its executive
officers through its stock option plans. The Compensation Committee has
determined that the compensation levels of the Company's executive officers are
generally below compensation levels that would be affected by the limitations on
the deduction of executive salaries imposed by Section 162(m) of the Internal
Revenue Code of 1986, as amended ("Section 162(m)").
10
<PAGE> 13
FISCAL 1999 EXECUTIVE COMPENSATION
The Compensation Committee determined the base salaries of the Company's
executive officers during fiscal 1999 based upon the Chief Executive Officer's
recommendations and the criteria described above. Fiscal 1999 salaries for the
Company's executive officers were based largely on the salaries paid to such
executive officers in fiscal 1998 and the salaries of executives of similarly
situated companies. For fiscal 1999, the base salaries for the Company's
executive officers, recommended by the Chief Executive Officer and determined by
the Compensation Committee, were, in general, at the medium range when compared
to the base salaries of similarly situated companies' executives.
The Compensation Committee also determined the bonuses to be paid to the
Company's executive officers for fiscal 1999 pursuant to the Company's Executive
Bonus Plan, which defines specific objectives for the executive officers, and
the Chief Executive Officer Bonus Plan, which defines specific objectives for
the Chief Executive Officer. The goals include achievement of the Company's
financial goals, attainment of specific quantifiable goals particular to each
executive officer, and more subjective factors which are assessed by the Chief
Executive Officer for the executive officers, and by the Board of Directors for
the Chief Executive Officer. Bonuses were awarded to executives in an effort to
reward those executives who had performed well within their specific markets and
who had reacted well to the strategic challenges facing the Company. Fiscal 1999
bonuses for the Company's executive officers were generally higher than those
awarded for fiscal year 1998.
During fiscal 1999, the Compensation Committee determined that options
should be granted to various management employees. Management recommends option
grants to the Compensation Committee based on the employee's management level
and contribution to the achievement of the Company's goals. The Compensation
Committee reviews these recommendations and approves option grants in accordance
with its review. The Compensation Committee also considered the amounts and
terms of prior option awards in determining the recipients of option grants in
fiscal 1999.
FISCAL 1999 CHIEF EXECUTIVE OFFICER COMPENSATION
In fiscal 1999, the Compensation Committee, after discussing the Company's
fiscal 1998 results and strategic achievements with the Chief Executive Officer,
increased the base salary for the Chief Executive Officer to $250,000, an
increase of $15,000. The Chief Executive Officer participates in the Company's
Chief Executive Officer Bonus Plan, as described above. For fiscal 1999, the
Compensation Committee and the Board of Directors established specific
objectives for the Chief Executive Officer, including achievement of financial
goals, quantifiable goals specific to the Chief Executive Officer and more
subjective factors assessed by the Board of Directors. Based on the Compensation
Committee's review of these objectives, it recommended a $166,000 cash bonus for
the Chief Executive Officer under the Chief Executive Officer Bonus Plan. The
award was $16,000 higher than the fiscal 1998 bonus award to the Chief Executive
Officer. The Board of Directors awarded the Chief Executive Officer the
compensation recommended by the Compensation Committee.
THE COMPENSATION COMMITTEE,
WILLIAM R. DELK
FRANK T. CARY
SUSAN B. MAJOR
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
Common Stock from June 9, 1995 (the first trading day for the Company's Common
Stock on the Nasdaq National Market system) through July 31, 1999 (the end of
the Company's last fiscal year) with the cumulative total return of the Nasdaq
Composite Index, the Russell 2000 Index, a peer group of companies selected in
1998 by the Company (the "Old Peer Group") and a peer group selected in 1999 by
the Company (the "New Peer Group"). Dividend reinvestment has been assumed and,
with respect to companies in the Old Peer Group and New Peer Group, the returns
of each company have been weighted to reflect relative stock market
capitalization. Past financial performance should not be considered a reliable
indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE NASDAQ COMPOSITE INDEX, THE RUSSELL 2000 INDEX,
THE OLD PEER GROUP INDEX AND THE NEW PEER GROUP INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NASDAQ COMPOSITE OLD PEER GROUP NEW PEER GROUP
TELTREND INC. INDEX RUSSELL 2000 INDEX INDEX INDEX
------------- ---------------- ------------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
6/9/95 100 100 100 100 100
7/29/95 138 114 108 120 117
7/27/96 230 124 116 186 247
7/26/97 105 179 154 211 168
7/25/98 99 221 161 167 112
7/31/99 125 306 171 206 116
</TABLE>
<TABLE>
<CAPTION>
JUNE 9, JULY 29, JULY 27, JULY 26, JULY 25, JULY 31,
1995 1995 1996 1997 1998 1999
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Teltrend Inc. ............................. $100 $138 $230 $105 $ 99 $125
New Peer Group Index....................... 100 117 247 168 112 116
Russell 2000 Index......................... 100 108 116 154 161 171
Old Peer Group Index....................... 100 120 186 211 167 206
Nasdaq Composite Index..................... 100 114 124 179 221 306
</TABLE>
The above comparison graph assumes a $100 investment on June 9, 1995 in the
Company's Common Stock, the Nasdaq Composite Index, the Russell 2000 Index, the
Old Peer Group Index and the New Peer Group Index.
12
<PAGE> 15
The Old Peer Group is comprised of ADC Telecommunications, Inc., ADTRAN,
Inc., PairGain Technologies, Inc. and Applied Digital Access Inc. Telco Systems,
Inc. has been removed from the Old Peer Group to reflect the merger of Telco
Systems, Inc. and World Access, Inc. The Old Peer Group was selected by the
Company in good faith based upon similarities in the nature of the businesses of
the companies included in the Old Peer Group to the Company's business.
The New Peer Group is comprised of ADTRAN, Inc., PairGain Technologies,
Inc., Tollgrade Communications, Inc., Westell Technologies, Inc. and Applied
Digital Access Inc. The Company replaced Telco Systems, Inc. with Westell
Technologies, Inc. to reflect the merger of Telco Systems, Inc. and World
Access, Inc. The Company replaced ADC Telecommunications, Inc. with Tollgrade
Communications, Inc. ("Tollgrade") because the Company believes that the nature
of Tollgrade's business is more similar to the Company's and that its size is
more comparable to that of the Company. The New Peer Group was selected by the
Company in good faith based upon similarities in the nature of the businesses of
the companies included in the New Peer Group to the Company's business.
The Company selected the Russell 2000 Index because it includes companies
which the Company believes are more similar to the Company in market
capitalization than those included in the Nasdaq Composite Index.
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the independent
auditors of the Company's books and records for the fiscal year ending July 29,
2000 and has determined that it would be desirable to ask the stockholders to
ratify this appointment at the Annual Meeting.
Ernst & Young LLP served as independent auditors of the Company's books and
records for the fiscal year ended July 31, 1999 and has acted as auditors for
the Company since the Company's 1989 fiscal year. Representatives of Ernst &
Young LLP are expected to be present at the Annual Meeting with the opportunity
to make a statement if they desire to do so and are expected to be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY'S BOOKS
AND RECORDS FOR THE FISCAL YEAR ENDING JULY 29, 2000.
The affirmative vote of the majority of the votes cast at the Annual
Meeting and entitled to vote is required for ratification of the appointment of
Ernst & Young LLP as described herein. No determination has been made as to what
action the Board of Directors would take if the appointment is not ratified.
PROCEDURE FOR SUBMITTING STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), stockholders may present proper proposals for
consideration for inclusion in the Company's proxy statement relating to the
next Annual Meeting of Stockholders by submitting their proposals to the Company
in a timely manner. In order to be considered for inclusion in the proxy
statement and proxy relating to the Company's 2000 Annual Meeting of
Stockholders, stockholder proposals must be received by the Company at its
principal executive offices no later than June 24, 2000 and must otherwise
comply with the requirements of Rule 14a-8. In addition, the Company's Bylaws
establish an advance notice procedure for stockholders to bring business before
an Annual Meeting of Stockholders of the Company.
On May 21, 1998, the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Exchange Act. Generally, under
new Rule 14a-4(c), a proxy may confer discretionary authority to vote on any
matter in the event that, among other situations, the Company did not have
notice of the matter at least 45 days before the date on which the Company's
proxy materials were mailed for the prior year's Annual Meeting of Stockholders.
For the 2000 Annual Meeting of Stockholders, this date would be September 7,
2000. This is in addition to the date for submission of business at the Annual
Meeting of Stockholders under the Company's Bylaws which require, among other
things, that notice of any matter be
13
<PAGE> 16
received by the Company at its principal executive offices not less than 60 nor
more than 90 days prior to the date of the meeting, except that if less than 70
days' notice or prior public disclosure of the meeting date is given or made to
stockholders, notice of the matter must be received no later than the 10th day
following the date of notice or public disclosure of the meeting date, whichever
occurs first. A copy of the Company's Bylaws may be obtained from the Secretary
of the Company. The notice requirements and deadlines under new rule 14a-4(c)
and the Company's Bylaws are independent of the notice provision and deadline
under Rule 14a-8 for submission of matters to be considered for inclusion in the
Company's proxy statement.
PROXY SOLICITATION
Proxies will be solicited by mail. Proxies may also be solicited by
directors, officers and a small number of regular employees of the Company
personally or by mail, telephone or telegraph, but such persons will not be
specially compensated for such services. Brokerage houses, custodians, nominees
and fiduciaries will be requested to forward the soliciting material to the
beneficial owners of Common Stock held of record by such persons, and the
Company will reimburse them for their expenses in doing so. The Company has
retained the services of LaSalle National Bank N.A. to assist in the
distribution of proxy materials and anticipates paying $1,500 for these
services. The full cost of the preparation and mailing of this Proxy Statement
and accompanying materials and the related proxy solicitations will be borne by
the Company.
OTHER MATTERS
Management does not intend to present, and does not have any reason to
believe that others will present, any item of business at the Annual Meeting
other than those specifically set forth in the notice of the Annual Meeting.
However, if other matters are properly presented for a vote at the Annual
Meeting, the persons named in the enclosed proxy and acting thereunder will have
discretion to vote on those matters in accordance with their judgment to the
same extent as the person who signed the proxy would be entitled to vote.
By Order of the Board of Directors
/s/ DOUGLAS P. HOFFMEYER
Douglas P. Hoffmeyer
Sr. Vice President, Finance;
Chief Financial Officer;
Secretary and Treasurer
St. Charles, Illinois
October 22, 1999
14
<PAGE> 17
PROXY PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS DECEMBER 2, 1999
Howard L. Kirby, Jr. and Douglas P. Hoffmeyer, or any one of them, with
power of substitution in each, are hereby appointed the proxies of the
undersigned to vote all shares of the common stock, $.01 par value per share,
of Teltrend Inc. that the undersigned is entitled to vote at the Annual Meeting
of Stockholders to be held December 2, 1999 at the hour of 9:00 A.M., local
time, at the Teltrend Inc. corporate headquarters, 620 Stetson Avenue, St.
Charles, Illinois 60174, and at all adjournments or postponements thereof, upon
such business as may properly come before the meeting, including the items
listed on the reverse side and as more completely described in the enclosed
Notice of Annual Meeting of Stockholders and Proxy Statement.
(THIS PROXY IS CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
(Comments / Change of Address)
----------------------------------
----------------------------------
----------------------------------
----------------------------------
(If you have written in the above
space, please mark the corresponding
box on the reverse side)
o FOLD AND DETACH HERE o
<PAGE> 18
TELTREND INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
THE FOLLOWING MATTERS ARE PROPOSED BY THE BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C> <C>
1. Election of Directors FOR WITHHELD FOR ALL
Director Nominees ALL ALL EXCEPT
Frank T. Cary, Harry Crutcher, III, William R. Delk, [ ] [ ] [ ] ----------------------------
Donald R. Hollis, Howard L. Kirby, Jr., Susan B. Major,
Bernard F. Sergesketter. ----------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL
THE ABOVE NOMINEES. ----------------------------
2. APPROVAL OF APPOINTMENT OF FOR AGAINST ABSTAIN ----------------------------
ACCOUNTANTS: Approval of [ ] [ ] [ ] Nominee Exceptions
appointment of Ernst & Young LLP as
independent auditors for fiscal 2000.
3. UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING: In their discretion the proxies are authorized to vote on
such other matters as may properly come before the annual meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
deemed to constitute direction to vote "for" each of the above proposals.
Please mark, sign, date and return the proxy card using the enclosed envelope.
Comments/ Date , 1999
Change [ ] ---------------------------------------
of
Address ------------------------------------------------
Signature(s)
------------------------------------------------
Signature(s)
(NOTE: Please sign exactly as name appears on this
Proxy. When shares are held by joint tenants, both
should sign. When signing as attorney, executor,
administrator, trustee, guardian, corporate officer
or partner, give full title as such. If a corporation,
please sign in corporate name by president or other
authorized officer. If a partnership, please sign in
partnership name by authorized person.
</TABLE>
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
PLEASE VOTE, SIGN EXACTLY AS NAME APPEARS ABOVE, DATE, AND RETURN
THIS PROXY FORM PROMPTLY USING THE ENCLOSED POSTPAID ENVELOPE.
