UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23970
NETWORK PERIPHERALS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0216135
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1371 McCarthy Boulevard
Milpitas, California 95035
(Address, including zip code of principal executive offices)
(408) 321-7300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Common Stock
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 18, 1998 was $94,251,917 based upon the closing price of
the Registrant's Common Stock on the Nasdaq National Market System on that date.
The number of shares of the Registrant's Common Stock outstanding as of March
18, 1998 was 12,260,412.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report for the fiscal year
ended December 31, 1997 on Form 10-K as set forth in the pages attached hereto:
1
Part III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the name and age of each director of the
Company, the principal occupation of each during the past five years, and the
period during which each has served as a director of the Company:
Principal Occupation Director
Name During the Past Five Years Age Since
---- -------------------------- --- -----
Joseph Marengi Mr. Marengi has served on the Board of Directors 44 1997
since July 1997. Since August 1997, he has been the
Senior Vice President and General Manager of the
Relationship Group at Dell Computers. Previously, at
Novell, Inc. (Novell), Mr. Marengi held the position
of President and Chief Operating Officer from August
1996 to June 1997. While at Novell, he was the
Executive Vice President of Worldwide Sales from
April 1994, a corporate officer since August 1993,
and Senior Vice President from October 1992.
William Rosenberger Mr. Rosenberger has served as the President, Chief 48 1998
Executive Officer and a director of the Company
since June 1998. From June 1996 to June 1998 Mr.
Rosenberger was President and Chief Executive
Officer of NetAccess, Inc., an Internet sevices
company. From October 1995 to December 1995 Mr.
Rosenberger was Vice President of sales and business
development for NetVision, a networking company.
From March 1993 to June 1995, Mr. Rosenberger was
General Manager of ACSYS, Inc., an Internet
consulting and development company. Prior to March
1993 Mr. Rosenberger was President and Chief
Executive Officer of Netronix, Inc., a networking
hardware designer and manufacturer.
Michael S. Gardner Mr. Gardner has served as a director of the Company 53 1998
since May 1998. From February 1998 to the present
Mr. Gardner has served as Senior Vice President of
Worldwide Field Operations 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. Gardner 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 networking
company.
Steven Bell Mr. Bell has served as a director of the Company 44 1998
since July 1998. From May 1998 to the present Mr.
Bell has served as President and Chief Executive
Officer of the Silicon Valley Networking Lab, Inc.,
of networking industry products testing company.
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 networking
software company.
Glenn Penisten Mr. Penisten has served as the Chairman of the Board 66 1996
of Directors since June 1996. Since September 1985,
he has been a partner of Alpha Partners, a venture
capital firm. He has served as Chief Executive
Officer for several leading technology companies
including; 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.
Charles Hart Mr. Hart has served on the Board of Directors since 60 1996
November 1996. From February 1998, he has been 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.
There are no family relationships among any directors or officers of
the Company.
Board Meetings and Committees
The Board of Directors of the Company held a total of 9 meetings and
took action by written consent two times during the fiscal year ended December
31, 1997. No director participated in fewer than 75% of all such meetings and
actions of the Board of Directors and the committees, if any, upon which such
director served.
The Board of Directors has an Audit Committee and a Compensation
Committee. It does not have a Nominating Committee or a committee performing the
functions of a Nominating Committee. The functions of a Nominating Committee are
performed by the Board of Directors as a whole.
The Audit Committee of the Board of Directors, consisting of directors
Mr. Levy and Mr. Penisten, met 4 times during fiscal 1997. 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 Joseph Marengi and William Tai, held two meetings and took action by
written consent two times during fiscal 1997. Director Ann Bowers, who resigned
from the Board of Directors in May 1997, also served as a member of the
Compensation Committee for a portion of 1997. The terms of office of Mr. Marengi
and Mr. Tai will expire at the 1998 Annual Meeting. The new members of the
Compensation Committee are anticipated to be Mr. Hart and Mr. Marengi. 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. The Compensation Committee also approved two stock
option repricings effective July 25, 1997 and October 31, 1997. See "Report of
Compensation Committee on Executive Compensation."
Compensation of Directors
Directors who are not employees of the Company (an "Outside Director")
are entitled to receive a director fee of $4,000 per fiscal quarter so long as
they remain directors of the Company. Directors do not receive any additional or
special remuneration for their service on any of the committees established by
the Board of Directors.
Non-employee directors are eligible to participate in the Company's
1994 Outside Directors Stock Option Plan. The Outside Directors Plan, as
amended, provides for the automatic granting of nonstatutory stock options to
Outside Directors of the Company. Each continuing Outside Director will
automatically be granted an option to purchase 5,000 shares of Common Stock on
the date of each annual meeting of stockholders. Each new Outside Director will
automatically be granted an option to purchase 15,000 shares of Common Stock on
their date of election.
During 1997, the Company granted nonstatutory options to director Ms.
Alker for 66,667 shares (inclusive of the effects of the repricing - See "Report
of the Compensation Committee on Executive Compensation - Chief Executive
Officer Compensation"), pursuant to the 1993 Stock Option Plan. In addition, Mr.
Hart, Mr. Levy and Mr. Tai were each granted nonstatutory stock options for
5,000 shares and Mr. Marengi was granted 15,000 shares under the 1994 Outside
Directors Stock Option Plan, as amended
OTHER INFORMATION
Share Ownership by Principal Stockholders and Management
The following table sets forth the beneficial ownership of Common Stock
of the Company as of March 31, 1998 by: (a) each director; (b) each of the
officers named in the Summary Compensation Table ("Named Officers"); (c) all
directors and executive officers as a group; and (d) each person known to the
Company who beneficially owns 5% or more of the outstanding shares of its Common
Stock. The number and percentage of shares beneficially owned is determined
under rules of the Securities and Exchange Commission ("SEC"), and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has sole or shared voting power or investment power and also any
shares which the individual has the right to acquire within 60 days of March 31,
1998 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 12,260,412 shares of the
Company's Common Stock were issued and outstanding as of March 31, 1998.
------------------------------------
Shares Beneficially Owned
- ------------------------------------------------------------------------ ------------------ -----------------
Name Number Percent
- ------------------------------------------------------------------------ ------------------ -----------------
Seneca Ventures (1)............................................. 1,030,000 8.2%
- ------------------------------------------------------------------------ ------------------ -----------------
Pauline Lo Alker (2)........................................ 755,498 6.0%
- ------------------------------------------------------------------------ ------------------ -----------------
Glenn Penisten (3)........................................ 135,813 1.1%
- ------------------------------------------------------------------------ ------------------ -----------------
Fred Kiremidjian (3)........................................... 37,500 *
- ------------------------------------------------------------------------ ------------------ -----------------
Kenneth Levy (4)............................................... 28,302 *
- ------------------------------------------------------------------------ ------------------ -----------------
Oliver Szu (3)................................................... 20,919 *
- ------------------------------------------------------------------------ ------------------ -----------------
Robert Hersh (3)................................................ 13,541 *
- ------------------------------------------------------------------------ ------------------ -----------------
William Tai (3)............................................. 10,186 *
- ------------------------------------------------------------------------ ------------------ -----------------
Charles Hart (3)............................................. 7,604 *
- ------------------------------------------------------------------------ ------------------ -----------------
James Sullivan (3).................................................... 7,292 *
- ------------------------------------------------------------------------ ------------------ -----------------
Joseph Marengi .................................................. 0 *
- ------------------------------------------------------------------------ ------------------ -----------------
Donald Morrison (5).......................................... 0 *
- ------------------------------------------------------------------------ ------------------ -----------------
Derek Obata (5)............................................. 0 *
- ------------------------------------------------------------------------ ------------------ -----------------
All directors and current executive officers as a group (6) 1,016,655 8.1%
- ------------------------------------------------------------------------ ------------------ -----------------
<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 114,498
shares issuable upon the exercise of outstanding stock options which were
exercisable at the Record Date or within 60 days thereafter.
(3) Includes the following number of shares issuable upon the exercise of
outstanding stock options which were exercisable at the Record Date or
within 60 days thereafter held by the following persons: Mr. Penisten,
115,555 shares; Mr. Kiremidjian, 37,500 shares; Mr. Hersh, 13,541 shares;
Mr. Szu, 18,747 shares; Mr. Tai, 10,186 shares; Mr. Hart, 7,604 shares; and
Mr. Sullivan, 7,292 shares.
(4) Includes 24,366 shares held by Mr. Levy as the trustee of a family trust;
and 3,936 shares issuable upon the exercise of outstanding stock options
which were exercisable at the Record Date or within 60 days thereafter.
(5) Mr. Morrison and Mr. Obata are included in the Summary Compensation Table
but are former executive officers of the Company. They do not hold any
outstanding stock options exercisable at the Record Date or within 60 days
thereafter.
(6) Includes 328,859 shares issuable upon exercise of outstanding stock options
which were exercisable at the Record Date or within 60 days thereafter.
</FN>
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Cash and Certain Other Compensation
The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer, the three other most
highly compensated executive officers of the Company (collectively the "Named
Officers") whose salary and bonus for the year ended December 31, 1997 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,
1997.
SUMMARY COMPENSATION TABLE
----------------------------------- ----- ---------------------------
LongTerm Compensation
Annual Compensation Awards
- ------------------------------------- ------- -------------- ----- -------------- ----- ----------------------------
Name and Securities Underlying
Principal Position Year Salary Bonus(1) Options/SARs(#)(1)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
Pauline Lo Alker 1997 $175,000 $149,048 286,667 (4)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
President and CEO 1996 $175,000 $ 49,500 280,000 (5)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
1995 $161,250 $ 42,601 80,000 (5)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
Fred Kiremidjian 1997 $183,656 $ 45,150 300,000 (6)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
VP of NuWave Group 1996 $ 80,881 - 200,000 (6)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
Oliver Szu 1997 $160,000 $199,235 (3) 150,000 (7)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
VP of NuCleus Group 1996 $ 83,978 - 50,000 (7)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
Robert Hersh 1997 $111,781 - 150,000 (8)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
VP of Operations and CFO
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
Derek Obata 1997 $174,175 (2) $ 15,000 10,000 (11)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
(former VP of Sales) 1996 $166,190 (2) - 100,000 (9)(11)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
1995 $ 20,327 $ 109 35,000 (9)(11)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
Donald Morrison 1997 $136,153 (2) $ 68,760 37,500 (11)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
(former VP of Marketing) 1996 $152,501 (2) $ 28,500 100,000 (10)(11)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
1995 $ 93,750 $ 5,101 50,000 (10)(11)
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
- -------------------------------------- ------- -------------- ----- -------------- ----- ------------- -------------
<FN>
(1) From time to time, the Compensation Committee reviews the performance of
the executive officers and may award cash bonuses and/or stock options to
officers. Bonuses paid in 1997 were earned in 1996. Fiscal year 1996
bonuses include a portion of bonus amounts earned in 1995. No bonus for
1997 will be awarded, other than the bonus paid to Oliver Szu pusuant to
the acquisition of NuCom Systems, Inc. in 1996.
(2) Includes commission payments to the following persons: Mr. Morrison,
$50,436 and $17,501 for 1997 and 1996, respectively; Mr. Obata, $50,330 and
$28,690 for 1997 and 1996 respectively.
(3) Includes bonus payment of $140,000 in accordance with the agreement
relating to the acquisition of NuCom Systems Inc. in 1996.
(4) Option to purchase an aggregate of 66,667 shares was issued 10/31/97,
replacing option to purchase 100,000 shares granted 3/6/97. Option to
purchase an aggregate of 120,000 shares issued 10/31/97 replaces option to
purchase 180,000 shares granted 9/18/96 (see Note (5) below). Refer to
"Report of the Compensation Committee on Executive Compensation--Chief
Executive Officer Compensation."
(5) Option to purchase an aggregate of 180,000 shares was issued 9/18/96,
replacing option to purchase 100,000 shares granted 4/9/96 and option to
purchase 80,000 shares granted in 1995. Refer to "Report of the
Compensation Committee on Executive Compensation--Chief Executive Officer
Compensation."
(6) Option to purchase 250,000 shares was issued 10/31/97, replacing option to
purchase 50,000 shares granted 3/6/97 and 200,000 shares granted 6/3/96.
Refer to "Report of the Compensation Committee on Executive
Compensation--Repricing of Options."
(7) Option to purchase 100,000 shares was issued 10/31/97, replacing option to
purchase 50,000 shares granted 3/21/96 and option to purchase 50,000 shares
granted 3/6/97. Refer to "Report of the Compensation Committee on Executive
Compensation--Repricing of Options."
(8) Option to purchase 50,000 shares was issued 10/31/97, replacing option to
purchase 50,000 shares granted 4/21/97. Refer to "Report of the
Compensation Committee on Executive Compensation--Repricing of Options."
(9) Option to purchase an aggregate of 35,000 shares was issued 1/19/96,
replacing an option to purchase 35,000 shares granted in 1995.
(10) Option to purchase an aggregate of 50,000 shares was issued 1/19/96,
replacing an option to purchase 50,000 shares granted in 1995.
(11) These options expired without being exercised three months after
termination of the officers' employment by the Company prior to December
31, 1997.
</FN>
Option Grants in Last Fiscal Year
The following table sets forth details regarding stock options granted
to the Named Officers in 1997. The Company granted no stock appreciation rights
in 1997. 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.
-------------------------------------------------------
Individual Grants
- --------------------- -------------- --------------- ----------- ------------ ------------------------------
Number of Percent of Potential Realizable Value
Securities Total Options Exercise at Assumed Annual Rates of
Underlying Granted to or Base Stock Price Appreciation for
Options Employees in Price Expiration Option Term (5)
- --------------------- -------------- --------------- ----------- ------------ --------------- --------------
Name Granted * Fiscal Year ($/Sh) Date 5% ($) (10% ($)
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
Pauline Lo Alker 66,667 (1) 1.4% $ 4.94 3/06/07 $ 190,153 $ 472,955
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
120,000 (1) 2.5% $ 4.94 9/18/06 $ 321,393 $ 788,985
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
100,000 (1) 2.1% $ 14.00 10/31/97 - -
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
Fred Kiremidjian 200,000 (2) 4.2% $ 4.94 6/3/06 $ 514,026 $1,251,534
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
50,000 (2) 1.0% $ 4.94 3/6/07 $ 142,614 $ 354,715
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
50,000 (2) 1.0% $ 14.00 10/31/97 - -
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
Oliver Szu 50,000 (3) 1.0% $ 4.94 3/6/07 $ 146,742 $ 367,267
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
50,000 (3) 1.0% $ 4.94 3/21/06 $ 124,812 $ 302,171
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
50,000 (3) 1.0% $ 14.00 10/31/97 - -
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
Robert Hersh 50,000 (4) 1.0% $ 4.94 4/21/07 $ 145,017 $ 361,984
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
50,000 1.0% $ 5.69 11/14/07 $ 178,842 $ 453,221
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
50,000 (4) 1.0% $ 9.13 10/31/97 - -
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
Derek Obata 10,000 0.2% $ 14.00 12/25/97 - -
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
Donald Morrison 37,500 0.8% $ 14.00 9/13/97 - -
- --------------------- -------------- ---- ---------- ----------- ------------ --------------- --------------
<FN>
* Executive Officers who were employees of the Company at October 31, 1997 were
offered the right to reprice their options to the market price at that date.
Refer to "Report of the Compensation Committee on Executive Compensation -
Repricing of Options."
(1) Option to purchase 66,667 shares granted on 10/31/97 replaced option to
purchase 100,000 shares granted on 3/6/97. Option to purchase 120,000
shares granted on 10/31/97 replaced option to purchase 180,000 shares
granted on 9/18/96.
(2) Option to purchase 200,000 shares granted on 10/31/97 replaced option to
purchase 200,000 shares granted on 6/3/96. Option to purchase 50,000 shares
granted on 10/31/97 replaced option to purchase 50,000 shares granted on
3/6/97.
(3) Option to purchase 50,000 shares granted on 10/31/97 replaced option to
purchase 50,000 shares granted on 3/6/97. Option to purchase 50,000 shares
granted on 10/31/97 replaced option to purchase 50,000 shares granted on
3/21/96.
(4) Option to purchase 50,000 shares granted on 10/31/97 replaced options to
purchase 50,000 shares granted on 4/21/97.
(5) 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>
Aggregated Option Exercises and Fiscal Year End Option Values
The following table sets forth certain information concerning options
exercised by the Named Officers during 1997, 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.
----------- ----------- ----------------------------------- ------------------------------
Shares Value Number of Securities Underlying
Acquired Realized Unexercised Options at FY end Value of In-the-Money
On On (#)(1) Options at FY End (2)
- --------------------- ----------- ----------- ----------------- ----------------- ------------- ----------------
Name Exercise Exercise Exercisable(1) Unexercisable Exercisable Unexercisable
- --------------------- ----------- ----------- ----------------- ----------------- ------------- ----------------
Pauline Lo Alker - - 80,054 178,613 $ 481,019 $ 447,449
- --------------------- ----------- ----------- ----------------- ----------------- ------------- ----------------
Fred Kiremidjian - - 12,499 237,501 $ 28,904 $ 549,221
- --------------------- ----------- ----------- ----------------- ----------------- ------------- ----------------
Oliver Szu - - 6,248 93,752 $ 14,449 $ 216,802
- --------------------- ----------- ----------- ----------------- ----------------- ------------- ----------------
Robert Hersh - - 8,333 91,667 $ 13,020 $ 180,730
- --------------------- ----------- ----------- ----------------- ----------------- ------------- ----------------
Derek Obata - - - - - -
- --------------------- ----------- ----------- ----------------- ----------------- ------------- ----------------
Donald Morrison - - - - - -
- --------------------- ----------- ----------- ----------------- ----------------- ------------- ----------------
<FN>
(1) A portion of these options were immediately exercisable at the date of
grant, but shares purchased upon exercise of unvested options are subject
to repurchase at the option of the Company at their original issuance price
based upon the scheduled vesting period.
(2) Market value of underlying securities, based on the closing price of the
Company's Common Stock, as reported by the Nasdaq National Market System,
on December 31, 1997 of $7.25, minus the exercise price.
</FN>
Employment Agreements and Change in Control Arrangements
Management Salary Continuation Agreements
In November 1997 the Company amended Salary Continuation Agreements
with Pauline Lo Alker and Robert Hersh and entered into a Salary Continuation
Agreement with Fred Kiremidjian. 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 six months for Mr. Kiremidjian, one year for Mr. Hersh, and two
years for Ms. Alker. 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 1997, no members of the Compensation Committee were officers or
employees of the Company or any of its subsidiaries.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is comprised of non-employee directors. The Committee is responsible for setting
and administering policies governing compensation of executive officers. The
Committee reviews the performance and compensation levels for executive
officers, sets salary and bonus levels and makes option grants under the
Company's Option Plans other than the 1994 Outside Directors Stock Option Plan.
Compensation Policies
The goals of the Company's executive officer compensation policies are
to attract, retain and reward executive officers who contribute to the Company's
success, to align executive officer compensation with the Company's performance
and to motivate executive officers to achieve the Company's business objectives.
The Company uses salary, bonuses and stock options to achieve these goals. The
Committee reviews various available data, including compensation surveys, to
enable the Committee to compare the Company's compensation package with that of
other high technology companies of similar size and growth rates in the
Company's geographic area.
Compensation Components
Salaries are set for each executive officer with reference to a range
of salaries for comparable positions among high technology companies of similar
size, growth rate and location. Annual salary adjustments take into account
achievements of individual executive officers during the prior fiscal year as
measured against key Company-wide objectives set each year by the Board of
Directors, as well as the executive officers' performance of their individual
responsibilities. 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 (which, for 1997, were based primarily upon revenue and gross
margin) and the achievement of established goals.
During 1997, the Compensation Committee completed the process of
awarding bonuses based on 1996 performance. Depending on the perceived
achievement of individual goals, bonuses to executive officers for 1996 resulted
in payments ranging from 11% to 85% of base salaries for 1996. These bonuses
were paid in 1997 and are reflected in the Summary Compensation Table as
compensation received in 1997.
The Committee strongly believes that equity ownership by executive
officers provides incentives to build stockholder value and aligns the interests
of executive officers with the stockholders. The size of an initial option grant
to an executive officer has generally been determined with reference to
comparable equity compensation offered by similarly-sized high technology
companies for similar positions, the responsibilities and expected future
contributions of the executive officer, as well as recruitment considerations.
In determining the size of subsequent grants, the Committee has considered the
individual executive officer's performance during the previous fiscal year, the
expected contributions during the coming year, the amount of options already
held and the level of recent grants. Option grants to executive officers during
1997 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.
Repricing of Options
Employee stock options are an important element of compensation for the
Company and have been used to attract, retain and motivate its workforce. The
Committee believes that the Company's success in the future will depend in large
part on its ability to attract, retain and motivate a number of highly skilled
personnel and that the competition for such personnel is intense. The Committee
also believes it is important and cost-effective to provide equity incentives to
employees and other service providers of the Company to improve the Company's
performance and the value of the Company to its stockholders.
In July 1997, the Committee reviewed the impact of the decline in price
of the Company's Common Stock and determined that most of the employee options,
which had been previously granted at prices above the then current market price
of $7.00 per share, were significantly less likely to serve their purposes of
retaining and motivating employees. Furthermore, the Committee determined that
many existing, experienced employees would be likely to perceive an inequity in
comparison to recently hired personnel granted stock options with exercise
prices set at the current, lower fair market value of Common Stock.
The Committee determined that it was in the best interest of the
Company and its stockholders to restore incentive for employees and other
service providers to remain with the Company and to exert their maximum efforts
on behalf of the Company. The Committee did not believe it was necessary, at the
time, to reprice the stock options of corporate officers or directors of the
Company. Therefore, the Committee approved the repricing of stock options to a
fair market value represented by the closing price of the Company's Common Stock
on July 25, 1997, with the condition that vesting of all such repriced options
would recommence according to the terms of the original stock option agreement.
In October 1997, the Committee again reviewed the impact of further
declines in the market price of the Company's Common Stock to $4.94 per share.
The Company's voluntary employee turnover rate was approximately twice that of
its industry peer group and the Committee was concerned that a further loss of
key employees, including officers, could adversely impact new product
development schedules and revenue growth. Therefore, the Committee approved the
repricing of stock options to a fair market value represented by the closing
price of the Company's Common Stock on October 31, 1997, with the condition that
vesting of all such repriced options would recommence according to the terms of
the original stock option agreement.
Certain of the Company's executive officers were beneficiaries of the
repricing actions in 1997 as described in the Ten-Year Option/SAR Repricing
table below. Participants in the October 1997 repricing agreed to recommence
vesting of their outstanding options as a condition for the shares to be
repriced. Additionally, Ms. Alker agreed to cancel one-third, or 93,333 of her
repriced options.
TEN-YEAR OPTION/SAR REPRICING TABLE
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
Number of Market Length of
Securities Number of Price of Exercise Original Term
Underlying Securities Stock at Price at New Remaining at
Options After Time of Time of Exercise Date of Repricing
Name Date Repriced Repricing Repricing Repricing Price
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
Pauline Lo Alker 10/31/97 100,000 66,667 $ 4.94 $14.00 $ 4.94 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
10/31/97 180,000 120,000 $ 4.94 $15.00 $ 4.94 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
9/18/96 100,000 100,000 $ 15.00 $13.25 $15.00 10 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
9/18/96 80,000 80,000 $ 15.00 $20.00 $15.00 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
Fred Kiremidjian 10/31/97 50,000 50,000 $ 4.94 $14.00 $ 4.94 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
10/31/97 200,000 200,000 $ 4.94 $18.63 $ 4.94 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
Robert Hersh 10/31/97 50,000 50,000 $ 4.94 $ 9.13 $ 4.94 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
James Sullivan 10/31/97 50,000 50,000 $ 4.94 $ 7.13 $ 4.94 10 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
Oliver Szu 10/31/97 50,000 50,000 $ 4.94 $14.00 $ 4.94 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
10/31/97 50,000 50,000 $ 4.94 $14.00 $ 4.94 8 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
Donald Morrison (1) 1/19/96 50,000 50,000 $ 12.00 $21.88 $12.00 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
Derek Obata (1) 1/19/96 35,000 35,000 $ 12.00 $13.88 $12.00 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
John Chan (1) 1/19/96 60,000 60,000 $ 12.00 $23.00 $12.00 9 years
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------
<FN>
(1) Mr. Morrison, Mr. Obata and Mr. Chan terminated their employment with the
Company prior to December 31, 1997. Accordingly, these options expired
without being exercised.
(2)
</FN>
Chief Executive Officer Compensation
The Compensation of the Chief Executive Officer is based upon the same
criteria outlined above for the other executive officers of the Company. While
the Chief Executive Officer makes recommendations about the compensation levels,
goals and performance of the other executive officers, she does not participate
in the discussions regarding her compensation or performance.
In 1997, Ms. Alker received a base salary of $175,000 and awarded a
cash bonus of $149,000 based on her individual performance and the performance
of the Company in 1996. In March 1998, the Company and Ms. Alker agreed to
terminate her employment and her position as a director of the Company,
effective upon the hiring of a successor for those positions. In consideration
for Ms. Alker's agreeing to remain in her current positions until such time, and
in recognition for her leadership of the Company and seven years of dedicated
service to Company, the Committee awarded Ms. Alker severance of one year's base
salary. In addition, the Committee agreed to grant immediate vesting of all her
outstanding stock options at the time a successor is hired.
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.
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.
Cumulative Comparison of Total Return
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
[GRAPHIC OMITTED]
NPI
STOCK PERFORMANCE GRAPH FOR '98 PROXY
- --------------------------------------------------------------------------------------------------------------------------------
6/28/94 12/30/94 6/30/95 12/31/95 6/30/96 12/31/96 6/30/97 12/31/97
- --------------------------------------------------------------------------------------------------------------------------------
NPI $100 $445 $356 $192 $280 $290 $115 $118
- --------------------------------------------------------------------------------------------------------------------------------
Nasdaq U.S. Market $100 $108 $134 $152 $172 $187 $209 $230
- --------------------------------------------------------------------------------------------------------------------------------
Nasdaq Computer Manufacturers $100 $141 $181 $222 $257 $298 $323 $360
- --------------------------------------------------------------------------------------------------------------------------------
<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>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The information required by subsections (a)1 and (a)2 of this item are included
in the response to Item 8 of Part III of this Annual Report on Form 10-K.
(a) Exhibits
3.1(1) Amended and Restated Certificate of Incorporation.
3.2(1) By-Laws.
4.1(1) Fourth Amended and Restated Investor Rights Agreement dated July 15, 1993.
10.1(1) Form of Indemnity Agreement for directors and officers.
10.2(1) Amended and Restated 1993 Stock Option Plan and forms of agreement thereunder.
10.3(1) 1994 Employee Stock Purchase Plan.
10.4(1) 1994 Outside Directors Stock Option Plan and form of agreement thereunder.
10.9(1) Facilities Lease dated August 8, 1991 with John Arrillaga, Trustee, or his Trustee, or
his Successor Trustee UTA dated 7/20/77, as amended, and Richard T. Peery, Trustee, or his Successor
Trustee UTA dated 7/20/77, as amended.
10.12(1)(2) OEM Purchase Agreement with Network General Corporation dated March 4, 1991.
10.14(3) Amendment No. 1, dated June 1, 1994, to Facilities Lease with John Arrillaga, Trustee,
or his Successor Trustee UTA dated 7/20/77, as amended, and Richard T. Peery, Trustee, or his Successor
Trustee UTA dated 7/20/77, as amended.
10.18(4) Purchase Agreement among Network Peripherals Inc., Network Peripherals, Ltd., NuCom Systems, Inc.,
and the shareholders of NuCom, dated January 31, 1996.
10.22 (5) Line of Credit Agreement with Sumitomo Bank dated October 2, 1996.
10.23 (5) Agreement with Glenn Penisten dated May 15, 1996.
10.26 (7) Purchase Agreement among Network Peripherals Inc., NetVision Corporation, and the
shareholders of NetVision , dated April 29, 1997.
10.27 (6) 1997 Stock Option Plan.
10.28 (6) Amended 1994 Outside Directors Option Plan.
10.29 (8) Development and Purchase Agreement with Sun Microsystems, Inc., dated February 25,
1994.
10.30 (8) Corporate Supply Agreement with Sun Microsystems, Inc., dated March 31, 1997.
10.31 (9) Modification Agreement, dated August 29, 1997, to amend certain terms of the Line of Credit Agreement
with Sumitomo Bank of California.
10.32 (9) Second Modification Agreement, dated November 17, 1997, to amend certain terms of the Line of Credit
Agreement with Sumitomo Bank of California.
10.33 (9) Amended and Restated Salary Continuation Agreement with Pauline Lo Alker dated October
31, 1997.
10.34 (9) Amended and Restated Salary Continuation Agreement with Robert Hersh dated October 31,
1997.
10.35 (9) Salary Continuation Agreement with Glenn Penisten dated October 31, 1997.
10.36 (9) Salary Continuation Agreement with Fred Kiremidjian dated October 31, 1997.
10.37 (9) Salary Continuation Agreement with James Sullivan dated October 31, 1997.
10.38 (9) Consent of Independent Accountants dated March 27, 1998.
27 (9) Financial Data Schedule.
35
(b) Reports on Form 8-K
None
(1) Incorporated by reference to the corresponding Exhibit previously filed as an Exhibit to the Registrant's
Registration Statement on Form S-1 (File No. 33-78350).
(2) Confidential treatment has been granted as to part of this Exhibit.
(3) Incorporated by reference to the corresponding Exhibit previously filed as an Exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1994 (File No.
0-23970).
(4) Incorporated by reference to the Registrant's report on Form 8-K filed on March 31, 1996 (File No. 0-23970).
(5) Incorporated by reference to the corresponding exhibit in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996 (File No. 0-23970).
(6) Incorporated by reference to the corresponding exhibit in the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1997 (File No. 0-23970).
(7) Incorporated by reference to the Registrant's report on Form 8-K filed on May 14, 1997 (File No. 0-23970).
(8) The Registrant has filed portions of these agreements separately with the Commission and has requested that those
portions be afforded confidential treatment.
(9) Filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NETWORK PERIPHERALS INC.
By: \s\ROBERT HERSH
----------------------------------
Robert Hersh
Vice President of Operations and
Chief Financial Officer
(Authorized Officer)