<PAGE>
TELTONE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 23, 1995
TO THE SHAREHOLDERS:
THE ANNUAL MEETING OF THE SHAREHOLDERS OF TELTONE CORPORATION WILL BE HELD AT
THE CORPORATE HEADQUARTERS, 22121 - 20TH AVENUE SE, BOTHELL, WASHINGTON, ON
OCTOBER 23, 1995, AT 2:30 P.M. FOR THE FOLLOWING PURPOSES:
1. To elect directors;
2. To approve an amendment to the Corporation's 1992 Stock Option Plan
increasing the number of shares reserved for issuance from 500,000
shares to 800,000 shares of common stock upon the exercise of stock
options granted thereunder;
3. To ratify the selection of Price Waterhouse LLP as auditors for the
current fiscal year; and
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on September 1, 1995, are
entitled to notice of and to vote at this meeting.
BY THE ORDER OF THE BOARD OF DIRECTORS
Peter C. Spratt, Secretary
EACH SHAREHOLDER IS URGED TO SIGN AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
Bothell, Washington
September 15, 1995
<PAGE>
TELTONE CORPORATION
CORPORATE HEADQUARTERS
22121 - 20TH AVE. S.E.
BOTHELL, WASHINGTON 98021
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 23, 1995
This proxy statement, which was first mailed to shareholders with the enclosed
form of proxy on September 15, 1995, is furnished in connection with the
solicitation of proxies by the Board of Directors of Teltone Corporation (the
"Company") to be voted at the Annual Meeting of Shareholders of the Company.
The meeting will be held at the Corporate Headquarters, 22121 20th Avenue SE,
Bothell, Washington, on October 23, 1995 at 2:30 p.m., for the purposes set
forth in the accompanying Notice of Annual Meeting of Shareholders.
Shareholders who execute proxies retain the right to revoke them at any time
before they are voted by delivering a signed written statement to the Secretary
of the Company at or prior to the Annual Meeting of Shareholders or by executing
another proxy dated as of a later date. The cost of solicitation of proxies is
to be borne by the Company.
Shareholders of record at the close of business on September 1, 1995, will be
entitled to vote at the meeting. On September 1, 1995, there were 5,487,096
shares of common stock and 1,075,641 shares of preferred stock outstanding, each
of which is entitled to one vote.
1. ELECTION OF DIRECTORS
Seven directors are to be elected at the Annual Meeting of Shareholders, to hold
office until the next Annual Meeting of Shareholders and until their successors
are elected and qualified. It is intended that the accompanying proxy will be
voted in favor of the following persons to serve as directors unless the
shareholder indicates to the contrary on the proxy. Management expects that
each of the nominees will be available for election, but if any of them is not a
candidate at the time of the election, it is intended that proxies will be voted
for the election of another nominee to be designated by the Board of Directors
of the Company to fill any vacancy.
1
<PAGE>
The following table lists the nominees for election as directors of the Company,
information regarding their ownership of the Company's common stock, and
information regarding the ownership of the Company's common stock by the
officers and directors as a group.
NOMINEES' BENEFICIAL OWNERSHIP
OF TELTONE STOCK
<TABLE>
<CAPTION>
Voting
Common Stock Preferred Stock (1)
------------------ -------------------
Amount and Nature Amount and Nature
of Beneficial of Beneficial
Ownership Percent Ownership Percent
as of of as of of
Nominees 09/01/95(2) Class 09/01/95(2) Class
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles L. Anderson 934,211 (3)(4) 17.0% 125,704 (3)(4) 11.6%
Hubert L. Kertz 11,600 (5) .2% 489 .1%
Richard W. Soshea 547,342 (6) 9.9% 7,303 .6%
Charles P. Waite 56,355 (7) 1.0% 292,309 (7) 27.1%
Don Wilson 26,173 .4% 0 0%
Paul M. Wythes 350,443 (8)(9) 6.3% 209,860 (10)(11) 19.5%
Milton Zeutschel 26,830 .4% 0 0%
All Officers and Directors
as a group (12 persons) 2,215,664 (12) 40.3% 635,665 59.1%
- - ------------------------------------------------------------------------------------------------
<FN>
(1) Each share of the Company's no par value voting preferred stock is entitled
to one vote on each matter submitted to shareholders.
(2) Except to the extent that each director's shares are subject to community
property laws or as otherwise indicated, beneficial ownership represents
sole voting and investment power with respect to the Company's no par value
common stock or no par value voting preferred stock.
2
<PAGE>
(3) Includes 69,517 shares of common stock and 9,770 shares of preferred stock
owned by the Teltone Corporation Profit Sharing Trust, over which
Mr. Anderson shares voting and investment power.
(4) Includes 66,400 shares of common stock and 50,000 shares of preferred
stock owned by the Anderson Family Foundation, a charitable foundation,
controlled by Mr. Anderson and members of his family.
(5) Includes stock options of which 10,000 shares are exercisable within sixty
days of the record date.
(6) Includes stock options of which 320,000 shares are exercisable within sixty
days of the record date.
(7) Includes 35,002 shares of common stock and 292,309 shares of preferred stock
owned of record by Greylock Ventures Partnership, of which Mr. Waite is a
partner and over which Mr. Waite shares voting and investment power.
(8) 255,305 of these shares are owned of record by Sutter Hill Ventures, of
which Mr. Wythes is a general partner. As such, Mr. Wythes shares voting
and investment power over these shares.
(9) 75,983 of these shares are owned of record by TOW Partners, of which
Mr. Wythes is the sole general partner. As such, Mr. Wythes has sole
voting power over these shares.
(10) 152,893 of these shares are owned of record by Sutter Hill Ventures, of
which Mr. Wythes is a general partner. As such, Mr. Wythes shares voting
and investment power over these shares.
(11) 45,495 of these shares are owned of record by TOW Partners, of which
Mr. Wythes is sole general partner. As such, Mr. Wythes has sole voting
power over these shares.
(12) Includes stock options of which 528,750 shares are exercisable within
sixty days of the record date.
</TABLE>
3
<PAGE>
OTHER INFORMATION CONCERNING DIRECTORS
Mr. Anderson, 65, has been a Director of the Company since 1968 and Chairman
since 1981. He was Chief Executive Officer of the Company from June 1984
through December 1987 and from 1968 through 1981. He also was President of
Teltone from 1970 through 1981, and Acting President from June 1984 to April
1985.
Mr. Kertz, 85, was the President of American Bell International, Inc., a
subsidiary of AT&T from 1975 through 1979; before that, he served as a Vice
President of AT&T for 11 years. He has been a Director of the Company since
1979. He also serves as a Director of Coastcom.
Dr. Soshea, 63, assumed the position of Director, President & Chief Executive
Officer for the Company in August 1991. Prior to joining Teltone, Dr. Soshea
was Vice President of the Semiconductor Group at M/A-COM, Inc., Lowell,
Massachusetts since 1988. His background also includes general management
positions with Hewlett Packard and with Harris Corp. , where he founded Harris
Microwave Semiconductor, Inc.
Mr. Waite, 65, has served on the Board of Directors of the Company since 1976.
He has been a General Partner of Greylock Partnerships since 1966.
Mr. Wilson, 67, joined the Teltone Board of Directors in April 1990. Mr. Wilson
worked for US West Communications for more than 35 years, the last 14 years of
which he was Vice President, prior to his retirement in 1990. He is a past
Chairman of the Board of Trustees for Goodwill Industries, serves on the
National Advisory Board for the Salvation Army and is a Director of US Bank of
Washington.
Mr. Wythes, 62, has been a Director since 1976. In 1964 he was a Founding
Partner of Sutter Hill Ventures, a venture capital limited partnership,
headquartered in Palo Alto, California, where he continues to serve as a General
Partner. He also serves as a Director of Interventional Technologies, Inc., San
Diego, CA, and on 18 equity mutual funds, managed by T. Rowe Price Associates,
of Baltimore, MD.
Mr. Zeutschel, 62, joined the Teltone Board in January 1990. He co-founded Data
I/O Corporation, a manufacturer of memory programmers and CAE software, in 1970
and has served Data I/O in several positions including that of President from
1990 to 1991. In 1980, Mr. Zeutschel founded Zetron Corporation, a manufacturer
of radio communications control equipment, where he served as President through
1990. He presently is Chairman of Zetron.
4
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has standing Audit and Compensation Committees.
There is no standing nominating committee. The members of each Committee and the
functions performed thereby are outlined below:
Audit Committee - Messrs. Anderson, Kertz, and Wilson. This Committee
reviews the planned scope of independent auditor's services, reviews
financial statements and the auditor's opinion letter, recommends the
independent auditor for the following fiscal year, reviews the
auditor's recommendations relating to accounting, internal control,
and other matters, and reviews internal accounting procedures with
corporate financial staff.
Compensation Committee - Messrs. Kertz, Zeutschel, and Waite. This
Committee reviews current remuneration of the directors and officers
of the Company and makes recommendations to the Board of Directors
regarding appropriate periodic adjustments of those amounts. The
Committee also makes recommendations to the Board regarding the
granting of stock options to officers and employees.
Both the Compensation Committee and the Audit Committee met once. The entire
Board of Directors met six times during the last fiscal year. All Directors
attended more than 75% of the aggregate number of Board meetings and meetings of
Committees on which they served.
COMPENSATION OF BOARD MEMBERS
Members of the Company's Board of Directors, other than employee-directors, are
entitled to receive $1,200 per quarter, plus $500 for each Board meeting
attended, and $250 for each committee meeting held on a day when a Board of
Directors meeting was not also held. These payments have been made to all
directors except Mr. Anderson until October 29, 1992, when they were suspended.
These payments were reinstated effective April 17, 1995. Mr. Anderson received
$7,200 in compensation during the fiscal year ending June 30, 1995, for
consulting services as needed.
5
<PAGE>
2. PRINCIPAL SHAREHOLDERS
The following table sets forth information as of September 1, 1995, with
respect to all shareholders who are known to the Company to be beneficial owners
of more than 5% of either outstanding voting preferred or common stock.
<TABLE>
<CAPTION>
Voting
Common Stock Preferred Stock (1)
----------------- -------------------
Amount and Nature Amount and Nature
of Beneficial of Beneficial
Ownership Percent Ownership Percent
as of of as of of
Shareholder 09/01/95(2) Class 09/01/95(2) Class
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles L. Anderson 934,211(3)(4) 17.0% 125,704(3)(4) 11.6%
660 N. Smith Road
Stanwood, WA 98292
Steve Sarich Jr. 571,673 10.4% 98,407 9.1%
505 Madison Street
Suite 230
Seattle, WA 98104
Richard W. Soshea 547,342(5) 9.9% 7,303 .6%
15130 - 141st Avenue SE
Snohomish, WA 98290
Greylock Ventures Limited 35,002 .6% 292,309 27.1%
One Federal Street
26th Floor
Boston, MA 02110
Sutter Hill Ventures 255,305 4.6% 152,893 14.2%
755 Page Mill Rd.
Suite A-200
Palo Alto, CA 94304
- - --------------------------------------------------------------------------------------------------------------
<FN>
(1) Each share of the Company's no par value voting preferred stock is entitled to one vote on each matter submitted to
shareholders.
(2) Except to the extent the shares owned by an individual listed above are subject to community property laws or as otherwise
indicated, beneficial ownership represents sole voting and investment power with respect to the Company's no par value common
stock or no par value voting preferred stock, as the case may be.
6
<PAGE>
(3) Includes 69,517 shares of common stock and 9,770 shares of preferred stock owned by the Teltone Corporation Profit Sharing
Trust, over which Mr. Anderson shares voting and investment power.
(4) Includes 66,400 shares of common stock and 50,000 shares of preferred stock owned by the Anderson Family Foundation, a
charitable foundation, which is controlled by Mr. Anderson and members of his family.
(5) Includes stock options of which 360,000 shares are exercisable within sixty days of the record date.
</TABLE>
3. EXECUTIVE OFFICER COMPENSATION
CASH COMPENSATION
Cash compensation paid by the Company to its executive officers who earn in
excess of $100,000:
<TABLE>
<CAPTION>
CASH COMPENSATION TABLE
- - --------------------------------------------------------------------------------
ANNUAL COMPENSATION
--------------------------------------------------
Name and Principal
Position Year Salary Bonus Other
Compensation
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard W. Soshea
President & CEO 1995 $149,135
Richard W. Soshea
President & CEO 1994 $131,826
Richard W. Soshea
President & CEO 1993 $144,375
Kermit Ross
VP Sales & Mktg 1995 $114,465
</TABLE>
7
<PAGE>
COMPENSATION PURSUANT TO PLANS
Described below are the compensation plans that have been established by the
Company that provide for the payment of cash or noncash compensation to the
individuals and group covered by the Cash Compensation table. The amounts paid
to the listed individuals and group are also disclosed.
A. SALARY DEFERRAL
All employees are eligible to participate on the first day of the month
after their date of hire. An employee is able to defer up to 15% of his or
her pre-tax annual salary up to a maximum of $9,240 under the salary
deferral provisions of the Plan. At the discretion of the Board of
Directors, the first $300 of the employee's deferral shall be matched by
the Company dollar for dollar. The Company shall match $.50 for each $1.00
an employee defers between $300 and 6% of the employee's compensation. Any
deferral in excess of 6% of the employee's compensation shall not be
matched. The employee's deferrals and the Company's contributions are
invested, at the employee's direction, in one or more investment funds.
Employees are 100% vested in their salary deferrals, the Company's
contributions, and all earnings thereon. At any time after an employee has
reached age 59 1/2, an employee may withdraw all or a portion of the funds.
In addition, the employee may borrow from the Plan and may receive a
distribution of benefits in the event of financial hardship. Upon
termination of employment, death or disability, the employee or beneficiary
will receive a lump sum payment of benefits. Executive officer
compensation, as related in the Cash Compensation table includes any salary
deferral under the Plan.
During the period ending June 30, 1995, the Company's contributions to the
executive officers named in the Cash Compensation table and all employees
as a group were:
Richard W. Soshea $4,046
Kermit Ross $3,206
All Employees as a Group
Excluding Executive Officers $43,391
(62)
B. STOCK OPTION PLANS
Currently, there is one option plan, the 1992 Stock Option Plan (the
"1992 Option Plan"), which expires February 18, 2002. The Option Plan
authorizes the Board to grant either incentive stock options, as that term
is defined in the Internal Revenue Code of 1986, as amended, or non-
qualified options.
8
<PAGE>
Under the terms of the Option Plan, all present and future key employees
who, at the time the options are granted, are regular full-time employees
of the Company, are eligible to participate. The number of shares that
may be granted under the Option Plan if approved as amended is 800,000, of
which 225,750 shares remain available for grant as of September 1, 1995.
The option price and award are determined by the Compensation Committee of
the Board of Directors. Subject to the provisions of the Option Plan, the
Board of Directors determines the terms and provisions of the option
agreements and the number of shares of common stock subject to each
option.
During fiscal year 1995 the following options to purchase common stock
were granted at fair market value to all employees as a group:
Name of Individual or
Number of Persons in Average Per Share
A Group Number of Shares Exercise Price
--------------------- ----------------- -----------------
All Employees as a Group
Excluding Executive Officers 75,500 $.41
(10)
6,750 options were exercised during the period beginning July 1, 1991 and
ending June 30, 1995.
C. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the directors and executive
officers of the Company and persons who own more than ten percent of the
Company's common stock are required to report their initial ownership of
the Company's common stock and any subsequent changes in that ownership to
the Securities and Exchange Commission (the "SEC"). Specific due dates for
these reports have been established and the Company is required to disclose
in this proxy statement any late filings during fiscal years 1992 and 1993.
The form for one officer was not received by the SEC prior to the filing
deadline. Other than this exception, to the Company's knowledge, based
solely on its review of the copies of such reports required to be furnished
to the Company and on written representations that no other reports were
required, all of the reports were timely filed.
9
<PAGE>
4. PROPOSAL FOR APPROVAL OF AMENDMENT TO 1992 STOCK OPTION PLAN
At the meeting the shareholders will be requested to approve an amendment to the
1992 Stock Option Plan (the "1992 Option Plan"). The amendment is to increase
the Company's common stock subject to the 1992 Stock Option Plan from 500,000
shares to 800,000 shares. The Board believes stock options are essential to
attracting and retaining key employees and encouraging them to devote their full
efforts toward the success of the Company. The Board adopted the 1992 Option
Plan at its meeting held on February 18, 1992, and recommends approval of this
amendment.
DESCRIPTION OF THE OPTION PLAN
The following description is qualified in its entirety by reference to the 1992
Option Plan itself, which can be obtained from the Company.
The 1992 Option Plan, if the amendment is approved by the shareholders, will
reserve 800,000 shares of the Company's common stock for issuance pursuant to
stock options to be granted thereunder. Incentive stock options and/or non-
qualified stock options may be granted to eligible employees of the Company
during the ten-year term of the 1992 Option Plan.
Option grants to non-officer employees may be made by the entire Board or by a
committee of two or more Board members. Option grants to officers shall be made
by the entire Board if all Board members are "disinterested persons" as that
term is defined in Rule 16b-3 of the Securities and Exchange Commission, or by a
committee of two or more directors, all of whom must be "disinterested
persons." The Board has delegated to the Compensation Committee the function of
granting options to officers, including the determination of which officers will
receive options and the size of such options.
Because the officers and employees who may participate and the amount of their
options are determined by the Board or the Committee at their discretion, it
is not possible to state the names or positions of, or the number of options
that may be granted to, the Company's officers and employees.
The Committee will establish the time or times at which options may be exercised
and whether all of the options may be exercisable at one time or in increments
over time. The option price shall be set by the Committee at the time of
granting of an option. For incentive stock options, the option price may not be
less than the fair market value of the Company's stock on the date of grant.
For non-qualified stock options, the option price may be less than, equal to, or
greater than the fair market value of the Company's stock on the date of grant.
The Company can reset the price of any stock option after the original grant and
before exercise. In the event of stock dividends, splits, and similar capital
changes, the 1992 Option Plan provides for appropriate adjustments in the number
of shares available for options and the number and option prices of shares
subject to outstanding options.
The terms of each option shall be no more than six years from the date of grant.
Generally, options expire thirty days following termination of employment (but
in no event later than the date of
10
<PAGE>
expiration of the term of the option as set forth in the option agreement),
except in the case of permanent disability or death and except for discharge for
misconduct, willfully or wantonly harmful to the Company. In the case of
termination due to death or permanent disability, the option terminates ninety
days (or such shorter period as is specified in the option agreement) from the
date the employee ceases work as a result of death or disability (but in no
event later than the date of expiration of the term of such option as set forth
in the option agreement). The Board has the authority to extend the foregoing
expiration dates of any outstanding option in circumstances it deems
appropriate, provided that no such extension can go beyond the original term of
such option (e.g., six years from grant date). Each option vests over a four
year period, with 25% vesting on each of the first four anniversaries of the
Grant Date.
The purchase price of option shares may be paid in cash. Option holders may
also exercise their options by surrendering shares of the Company's common stock
owned by the Optionee. Shares used to pay the exercise price shall be valued at
their fair market value on the exercise date. For non-qualified options, the
option holder must also pay the Company, at the time of purchase, the amount of
federal, state, and local withholding taxes required to be withheld by the
Company. Option holders may pay these federal, state, and local withholding
taxes by turning in shares of the Company's common stock, valued at fair market
value.
In the event of a proposed sale of all or substantially all of the assets of the
Company, or a merger of the Company with or into another corporation,
outstanding options shall be assumed or equivalent options shall be substituted
by such successor corporation. If the successor corporation refuses to assume
options or substitute equivalent options, the Board shall provide all option
holders with the right to immediately exercise all of their options, whether
vested or unvested.
In the event of a proposed dissolution or liquidation of the Company,
outstanding options will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In such a situation,
the Board is authorized to give option holders the right to immediately exercise
all of their options, whether vested or unvested.
The Board has the right to substitute or assume options in connection with
mergers, reorganizations, separations, or other transactions to which Section
424(a) of the Internal Revenue Code of 1986, as amended, (the "Code") applies,
provided such substitutions and assumptions are permitted by Section 424 of the
Code and the regulations promulgated thereunder. The number of shares reserved
for the 1992 Option Plan may be increased by the corresponding number of options
assumed and, in the case of a substitution, by the net increase in the number of
shares subject to options before and after the substitution.
The 1992 Option Plan may be modified, amended, or terminated by the Board of
Directors except with respect to options granted prior to such action.
Notwithstanding the foregoing, shareholder approval is required for any
amendment which increases the number of shares subject to the 1992 Option Plan
(other than in connection with automatic adjustments due to changes in
capitalization or the assumption of options in connection with mergers or
acquisitions) or which otherwise requires shareholder approval pursuant to Rule
16b-3 of the Securities and Exchange Commission.
11
<PAGE>
The issuance of stock upon exercise of options already granted is subject to
securing shareholder approval of 1992 Option Plan and the registration with the
Securities and Exchange Commission of the shares reserved thereunder.
The options are nonassignable except by will or by the laws of descent and
distribution.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE OPTION PLAN
The federal income tax consequences of an employee's participation in the 1992
Option Plan are complex and subject to change. The following discussion is
only a SUMMARY of the general rules applicable to an option. A taxpayer's
particular situation may be such that some variation of the general rules is
applicable.
Incentive Stock Options
If an option granted under the 1992 Option Plan is treated as an incentive stock
option, the optionee will not recognize any income upon either the grant or the
exercise of the option and the Company will not be allowed a deduction for
federal tax purposes. Upon a sale of the shares, the tax treatment to the
optionee and the Company will depend primarily upon whether the optionee has met
certain holding period requirements at the time he or she sell the shares. In
addition, as discussed below, the exercise of an incentive stock option may
subject the optionee to alternative minimum tax liability.
If an optionee exercises an incentive stock option and does not dispose of the
shares received within two years after the date of the grant of such option or
within one year after transfer of the shares to him or her, any gain realized
upon disposition will be characterized as long-term capital gain and, in such
case, the Company will not be entitled to a federal tax deduction.
If the optionee disposes of the shares, either within two years after the date
the option is granted or within one year after the transfer of the shares to him
or her, such disposition will be treated as a disqualifying disposition and an
amount equal to the lesser of (1) the fair market value of the shares on the
date of exercise minus the purchase price, or (2) the amount realized on the
disposition minus the purchase price, will be taxed as ordinary income to the
optionee in the taxable year in which the disposition occurs. The excess, if
any, of the amount realized upon disposition over the fair market value at the
time of the exercise of the option will be treated as long-term capital gain, if
the shares have been held for more than one year following the exercise of the
option. In the event of a disqualifying disposition, the Company may withhold
income taxes from the optionee's compensation with respect to the ordinary
income realized by the optionee as a result of the disqualifying disposition.
The exercise of an incentive stock option may subject an optionee to alternative
minimum tax liability because the excess of the fair market value of the shares
at the time an incentive stock option is exercised over the purchase price of
the shares is included in income for purpose of the alternative minimum tax.
Consequently, an optionee may be obligated to pay alternative minimum tax in the
year he or she exercises an incentive stock option.
12
<PAGE>
In general, there will be no federal tax consequences to the Company upon the
grant, exercise, or termination of an incentive stock option. However, in the
event an optionee sells or disposes of stock received upon the exercise of an
incentive stock option prior to satisfying the two-year and one-year holding
periods described above, the Company will be entitled to a deduction for federal
income tax purposes in an amount equal to the ordinary income, in any,
recognized by the optionee upon disposition of the shares.
Non-qualified Stock Options
Non-qualified stock options granted under the 1992 Option Plan do not qualify as
"incentive stock options" and will not qualify for any special tax benefits to
the optionee. An optionee will not recognize any taxable income at the time he
or she is granted a non-qualified option. However, upon its exercise, the
optionee will recognize ordinary income for federal tax purposes measured by the
excess of the then fair market value of the shares over the option price. The
income realized by the optionee will be subject to income tax withholding by the
Company out of the current earnings paid to the optionee. If such earnings are
insufficient to pay the tax, the optionee will be required to make a direct
payment to the Company for the tax liability.
Upon a disposition of any shares acquired pursuant to the exercise of non-
qualified stock option, the difference between the sales price and the
optionee's basis in the shares will be treated as a capital gain or loss and
will be characterized an long-term capital gain or loss, if the shares have been
held for more than one year at the date of their disposition. The optionee's
basis for determination of gain or loss upon and subsequent disposition of
shares acquired upon the exercise of a non-qualified stock option will be the
amount paid for such shares plus any ordinary income recognized as a result of
the exercise of such option.
In general, there will be no federal tax consequences to the Company upon the
grant or termination of non-qualified stock option or a sale or disposition of
the shares acquired upon the exercise of a non-qualified stock option. However,
upon the exercise of a non-qualified stock option, the Company will be entitled
to a deduction for federal income tax purposes equal to the amount of ordinary
income that an optionee is required to recognize as a result of the exercise.
Vote Required
The affirmative vote of holders of a majority of the shares of common stock
represented at the meeting is required to amend the Option Plan. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE OPTION PLAN.
5. RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors will request that the shareholders ratify its selection
of Price Waterhouse LLP, Certified Public Accountants, as independent public
auditors for the Company for the current fiscal year. If the shareholders do
not ratify the selection of Price Waterhouse LLP, another firm of certified
public accountants will be selected by the Board of Directors.
13
<PAGE>
Representatives of Price Waterhouse LLP will be present at the Annual Meeting of
Shareholders, will have an opportunity to make a statement and will be available
to respond to appropriate questions.
6. SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of the Company. Proxies may be solicited by officers, directors and
regular supervisory and executive employees of the Company, none of whom will
receive any additional compensation for their services. All of the costs of
solicitation of proxies will be paid by the Company.
7. PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the Annual Meeting of
Shareholders, October 21, 1996 must be received by the Company no later than May
15, 1996 to be included in the Company's proxy statement and form of proxy
relating to that meeting.
8. OTHER MATTERS
The Board of Directors does not intend to bring any other business before the
meeting, and so far as is known to the Board, no matters are to be brought
before the meeting except as specified in the notice of the meeting. However,
the Board of Directors intends that proxies, in the form enclosed, will be voted
in respect of any other business that may properly come before the meeting in
accordance with the judgment of the persons voting such proxies.
Dated: Bothell, Washington
September 15, 1995
A COPY OF THE COMPANY'S FORM 10-KSB REPORT FOR FISCAL YEAR 1995, CONTAINING
INFORMATION ON OPERATIONS, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE WITHOUT CHARGE UPON REQUEST. PLEASE WRITE TO:
DEBRA L. GRIFFITH
VICE PRESIDENT FINANCE & ADMINISTRATION
TELTONE CORPORATION
22121 - 20TH AVENUE SE
BOTHELL, WASHINGTON 98021-4408
14
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PLEASE MARK
/ X / YOUR CHOICES
LIKE THIS
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Proposal 1: TO ELECT DIRECTORS: Proposal 2: To approve an amendment to the
NOMINEES: C.L. Anderson, H.L. Kertz, R.W. Soshea, Corporation's 1992 Stock Option Plan
C.P. Waite, D.C. Wilson, P.M. Wythes, M.F. Zeutschel increasing the number of shares reserved
To withhold authority to vote for for issuance from 500,000 shares to
FOR all nominees listed WITHHOLD AUTHORITY any nominee(s), write name(s) below: 800,000 shares of common stock upon the
(except as marked to vote for all exercise of stock options granted
to the contrary). nominees listed ------------------------------------ thereunder.
FOR AGAINST ABSTAIN
/ / / / / / / / / /
Proposal 3: TO RATIFY THE APPOINTMENT OF Price
Waterhouse LLP as auditors forthe current fiscal
year.
FOR AGAINST ABSTAIN
/ / / / / /
Important -- Please sign and return promptly. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian should give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
SIGNATURE(S)
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DATE
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PROXY
FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
TELTONE CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles L. Anderson and Richard W. Soshea,
and each of them, with full power of substitution, as Proxies to vote the shares
which the undersigned is entitled to vote at the Annual Meeting of the
Corporation to be held at Teltone Headquarters, 22121 -- 20th Ave SE, Bothell,
WA 98021 on October 23, 1995 at 2:30 p.m. and at adjournments thereof.
THIS PROXY WHEN PROPERLY SIGNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 & 3 IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO
VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE).
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