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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ECHELON CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(1)(2) of Schedule 14A
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
ECHELON CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 11, 1999
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Echelon Corporation, a Delaware corporation (the "Company"), will
be held on Tuesday, May 11, 1999 at 10:00 a.m., local time, at the Company's
offices located at 4009 Miranda Avenue, Palo Alto, California 94304 for the
following purposes:
1. To elect two (2) directors to serve for the ensuing year or until their
successors are duly elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants for the fiscal year ending December 31, 1999.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only holders of record of the Company's Common Stock at the close of
business on March 31, 1999, the record date, are entitled to notice of and to
vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy.
M. KENNETH OSHMAN
Chairman of the Board, President and
Chief Executive Officer
Palo Alto, California
April 9, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE
ECHELON CORPORATION
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PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
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PROCEDURAL MATTERS
General
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Echelon Corporation (the "Company")
for use at the Annual Meeting of Stockholders (the "Annual Meeting") to be
held on Tuesday, May 11, 1999 at 10:00 a.m., local time, and at any
adjournments thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the Company's offices located at 4009 Miranda Avenue, Palo Alto,
California 94304. The Company's headquarters is located at 4015 Miranda
Avenue, Palo Alto, California 94304, and the telephone number at that location
is (650) 855-7400.
These proxy solicitation materials were mailed on or about April 9, 1999,
together with the Company's 1998 Annual Report to Stockholders, to all
stockholders entitled to vote at the Annual Meeting.
Record Date
Stockholders of record at the close of business on March 31, 1999 (the
"Record Date") are entitled to notice of and to vote at the meeting. As of the
Record Date, 32,715,560 shares of the Company's Common Stock were issued and
outstanding. No shares of Preferred Stock were outstanding.
Revocability of Proxies
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
Voting Procedures
Each stockholder is entitled to one vote for each share of Common Stock held
on all matters to be voted on by the stockholders. Votes cast in person or by
proxy will be tabulated by ChaseMellon Shareholder Services, L.L.C., the
Company's transfer agent.
Upon the execution and return of the enclosed form of proxy, the shares
represented thereby will be voted in accordance with the terms of the proxy,
unless the proxy is revoked. If no directions are indicated in such proxy, the
shares represented thereby will be voted (i) "FOR" the election of each of the
Company's nominees as a director and (ii) "FOR" ratification of the
appointment of Arthur Andersen LLP as independent public accountants for the
Company for the fiscal year ending December 31, 1999.
Quorum; Abstentions; Broker Non-Votes
A majority of the outstanding shares of Common Stock entitled to vote on the
Record Date, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the Annual Meeting or
any adjournments thereof. Shares that are voted "FOR" or "AGAINST" a matter
are treated as being present at the meeting for purposes of establishing a
quorum and are also treated as votes eligible to be cast by the Common Stock
present in person or represented by proxy at the meeting and "entitled to vote
on the subject matter" (the "Votes Cast") with respect to such matter.
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While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions in the counting of votes, the Company
believes that abstentions should be counted for purposes of determining both
the presence or absence of a quorum for the transaction of business and the
total number of Votes Cast with respect to a particular matter. Accordingly,
abstentions will have the same effect as a vote against proposals set forth in
this Proxy Statement. In the absence of controlling precedent to the contrary,
the Company intends to treat abstentions in this manner. In a 1988 Delaware
case, Berlin v. Emerald Partners, the Delaware Supreme Court held that, while
broker non-votes may be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, broker non-votes should
not be counted for the purposes of determining the number of Votes Cast with
respect to the particular proposal on which the broker has expressly not
voted. Broker non-votes with respect to proposals set forth in this Proxy
Statement will therefore not be considered Votes Cast and, accordingly, will
not affect the determination as to whether the requisite majority of Votes
Cast has been obtained with respect to a particular matter.
Costs of Solicitation of Proxies
The costs of soliciting proxies will be borne by the Company. The Company
may reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and employees, without additional compensation, personally
or by telephone, letter or facsimile.
Deadline for Receipt of Stockholder Proposals
Proposals of the Company's stockholders intended to be presented at the
regularly scheduled 2000 Annual Meeting of Stockholders must be received by
the Company no later than December 11, 1999, and must satisfy the conditions
established by the Securities and Exchange Commission for stockholder
proposals to be included in the Company's proxy statement for that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
General
The Company's Board of Directors (the "Board") is currently composed of
seven members. The Board is divided into three classes with each director
serving a three-year term and one class being elected at each year's annual
meeting of stockholders. Directors M. Kenneth Oshman and Larry W. Sonsini are
in the class of directors whose terms expire at the annual meeting of
stockholders to be held May 11, 1999, directors Armas Clifford Markkula, Jr.,
Bertrand Cambou and Robert R. Maxfield are in the class of directors whose
terms will expire at the 2000 annual meeting of stockholders, and directors
Richard M. Moley and Arthur Rock are in the class of directors whose terms
will expire at the 2001 annual meeting of stockholders. Both of the nominees
are incumbent directors. Unless otherwise instructed, the holders of proxies
solicited by this Proxy Statement will vote the proxies received by them for
the two nominees. In the event that any nominee is unable or declines to serve
as a director at the time of the Annual Meeting, the proxy holders will vote
for a nominee designated by the present Board to fill the vacancy. The Company
is not aware of any reason that any nominee will be unable or will decline to
serve as a director.
Vote Required
The two (2) nominees receiving the highest number of affirmative votes of
the shares entitled to be voted shall be elected as directors of the Company.
Votes withheld from any director are counted for purposes of determining the
presence or absence of a quorum but have no other legal effect under Delaware
law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH NAMED NOMINEE.
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The names of the directors of the Company, including the nominees, and
certain information about them, are set forth below.
Name Age Principal Occupation
---- --- ---------------------------------------
M. Kenneth Oshman................ 58 Chairman of the Board, President and
Chief Executive Officer of the Company
Bertrand Cambou.................. 43 Senior Vice President and General
Manager of the Network and Computing
System Group of Motorola, Inc.
Armas Clifford Markkula, Jr.(1).. 57 Vice Chairman of the Board of Directors
of the Company
Robert R. Maxfield (2)........... 57 Private investor
Richard M. Moley (2)............. 60 Director of the Company
Arthur Rock (1).................. 72 Principal of Arthur Rock & Co.
Larry W. Sonsini................. 58 Chairman of the Executive Committee of
Wilson Sonsini Goodrich & Rosati
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
M. Kenneth Oshman has been President and Chief Executive Officer of the
Company since December 1988. Mr. Oshman, with three associates, founded ROLM
Corporation ("ROLM"), a telecommunications equipment company, in 1969. He was
Chief Executive Officer, President and a director at ROLM from its founding
until its merger with IBM in 1984. Following the merger, he became a Vice
President of IBM and a member of the Corporate Management Board. He remained
in that position until he left IBM in 1986. Prior to founding ROLM, Mr. Oshman
was a member of the technical staff at Sylvania Electric Products from 1963 to
1969. In addition to his responsibilities at Echelon, Mr. Oshman serves as a
director of Sun Microsystems, Knight-Ridder, Inc. and CMC Industries, Inc. Mr.
Oshman earned B.A. and B.S.E.E. degrees from Rice University and M.S. and
Ph.D. degrees in Electrical Engineering at Stanford University.
Bertrand F. Cambou has been a director of the Company since 1998. He has
been Senior Vice President and General Manager of the Network and Consulting
System Group of Motorola, Inc. since 1997. Between 1984 and 1997 he held
various management positions within Motorola in Operations and Research and
Development. From 1980 to 1984, he participated in the founding of Matra
Harris Semiconductor. Dr. Cambou received a B.S. degree in Electrical
Engineering from Supelec University, France, a Masters degree in Physics from
Toulouse University and a Doctorate degree in Electronics from Paris
University.
Armas Clifford Markkula, Jr. is the founder of the Company and has served as
a director since 1988. He has been Vice Chairman of the Company's Board of
Directors since 1989. Mr. Markkula was Chairman of the Board of Apple
Computer, Inc. from October 1993 to February 1996 and was a director from 1977
to 1997. A founder of Apple, he held a variety of positions there, including
President/Chief Executive Officer and Vice President of Marketing. Prior to
founding Apple, Mr. Markkula was with Intel Corporation as Marketing Manager,
Fairchild Camera and Instrument Corporation as Marketing Manager in the
Semiconductor Division, and Hughes Aircraft as a member of the technical staff
in the company's research and development laboratory. Mr. Markkula received
B.S. and M.S. degrees in Electrical Engineering from the University of
Southern California.
Robert R. Maxfield has been a director of the Company since 1989. He was a
co-founder of ROLM in 1969, and served as Executive Vice President and a
director until ROLM's merger with IBM in 1984. Following the merger, he
continued to serve as Vice President of ROLM until 1988. Since 1988, he has
been a consulting professor in the Engineering-Economic Systems Development
Department at Stanford University, and was a venture partner with Kleiner,
Perkins, Caufield & Byers from 1989 to 1992. Dr. Maxfield received B.A. and
B.S.E.E. degrees from Rice University, and M.S. and Ph.D. degrees in
Electrical Engineering from Stanford University.
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Richard M. Moley has been a director of the Company since February 1997. Mr.
Moley was Senior Vice President, Wide Area Business Unit, of Cisco Systems,
Inc. from July 1996 to July 1997. He served as President and Chief Executive
Officer of StrataCom, Inc. from June 1986 to July 1996, when StrataCom was
acquired by Cisco. Mr. Moley serves on the Board of Directors of Linear
Technology, Inc., Cidco, Inc. and CMC Industries, Inc. Mr. Moley received a
B.S. degree in Electrical Engineering from Manchester University, an M.S.
degree in Electrical Engineering from Stanford University and an M.B.A. degree
from the University of Santa Clara.
Arthur Rock has been a director of the Company since December 1988. Mr. Rock
has been Principal of Arthur Rock & Co., a venture capital firm, since 1969.
He has been a director of Intel since its founding in 1968, and is presently
Chairman of the Executive Committee and lead Director of the Board of
Directors of Intel. He is also a director of AirTouch Communications, Inc. Mr.
Rock received a B.S. degree in Political Science and Finance from Syracuse
University and an M.B.A. from Harvard University.
Larry W. Sonsini has been a director of the Company since August 1993. Mr.
Sonsini serves as Chairman of the Executive Committee of the law firm of
Wilson Sonsini Goodrich & Rosati, where he has practiced since 1966. Mr.
Sonsini serves as a director of Lattice Semiconductor Corporation, Novell,
Inc. and Pixar. Mr. Sonsini received an A.B. in Political Science and
Economics and an L.L.B. degree from the University of California at Berkeley.
Board Meetings and Committees
During the fiscal year ended December 31, 1998 ("Fiscal 1998"), the Board
held nine meetings (including regularly scheduled and special meetings), and,
with the exception of Bertrand Cambou, all of the incumbent directors attended
75% or more of the meetings of the Board and committees, if any, upon which
such directors served. Certain matters were approved by the Board or a
committee of the Board by unanimous written consent.
The Board currently has two standing committees: an Audit Committee and a
Compensation Committee. The Audit Committee is composed of Messrs. Markkula
and Rock and the Compensation Committee is composed of Messrs. Maxfield and
Moley. The Company has no nominating committee or committee performing similar
functions.
Audit Committee. The Audit Committee makes such examinations as are
necessary to monitor the corporate financial reporting and the internal and
external audits of the Company, provides to the Board the results of its
examinations and recommendations derived therefrom, outlines to the Board
improvements made, or to be made, in internal accounting controls, nominates
independent auditors, and provides to the Board such additional information
and materials as it may deem necessary to make the Board aware of significant
financial matters that require Board attention. The Audit Committee held two
meetings during Fiscal 1998.
Compensation Committee. The Compensation Committee reviews the Company's
executive compensation policy, including equity compensation for senior
executives of the Company, and makes recommendations to the Board regarding
such matters. The Compensation Committee held one meeting during Fiscal 1998.
Director Compensation
The Company does not pay any compensation to directors for serving in that
capacity. Non-employee directors are eligible to participate in the 1998
Director Option Plan (the "Director Plan") which provides for the automatic
grant of an option to purchase 25,000 shares of Common Stock to each non-
employee director who first becomes a non-employee director after May 29,
1998, whether by appointment by the Board or election by the stockholders,
provided each non-employee director has not previously been in the employ of
the Company. Each non-employee director was automatically granted an option to
purchase 10,000 shares on the effective date of the Company's initial public
offering (which occurred on July 27, 1998) and shall be automatically be
granted a 10,000 share option on the date of each annual meeting of
stockholders, provided he or she is re-elected to the Board or otherwise
remains on the Board on such date and provided that on such date
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he or she shall have served on the Board for at least the preceding six
months. All options granted under the Director Plan vest in equal installments
over four years. During Fiscal 1998, Messrs. Cambou, Markkula, Maxfield,
Moley, Rock and Sonsini were each granted a 10,000 share option at a per share
exercise price of $7.00.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board has appointed Arthur Andersen LLP as independent public
accountants of the Company to audit the consolidated financial statements of
the Company for the fiscal year ending December 31, 1999, and recommends that
the stockholders vote for ratification of such appointment.
Arthur Andersen LLP has audited the Company's financial statements since
1988. A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement and is expected
to be available to respond to appropriate questions.
Vote Required
Ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants will require the affirmative vote of a majority
of the outstanding shares of Common Stock represented, in person or by proxy,
and entitled to vote on this proposal. Abstentions will have the same effect
as a vote against this proposal. Broker non-votes will not be counted as
having been represented.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF APPOINTING
ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
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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, 1999 for the following: (i) each person or entity
who is known by the Company to own beneficially more than 5% of the
outstanding shares of the Company's Common Stock; (ii) each of the Company's
directors; (iii) each of the officers named in the Summary Compensation Table;
and (iv) all current directors and executive officers of the Company as a
group.
Shares Percentage
Beneficially Beneficially
Name Owned (1) Owned
---- ------------ ------------
M. Kenneth Oshman (2)............................... 5,181,841 15.7%
Echelon Corporation
4015 Miranda Avenue
Palo Alto, CA 94304
Motorola, Inc....................................... 3,912,381 12.0%
Bertrand Cambou (3)
1303 East Algonquin Road
Schaumburg, IL 60196
Armas Clifford Markkula, Jr. (4).................... 1,577,038 4.8%
c/o ACM Investments
P.O. Box 620170
Woodside, CA 94062
Beatrice Yormark (5)................................ 1,018,000 3.1%
Oliver R. Stanfield (6)............................. 975,000 3.0%
Arthur Rock (7)..................................... 719,563 2.2%
Robert R. Maxfield (8).............................. 436,966 1.3%
Lawrence Y.H. Chan (9).............................. 235,000 *
Edwin R. Sterbenc (10).............................. 235,000 *
Richard M. Moley (11)............................... 135,589 *
Larry W. Sonsini (12)............................... 78,000 *
All current directors and executive officers as a
group (15 persons) (13)............................ 15,546,003 44.7%
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* Less than 1%.
(1) The number of shares outstanding and percent of ownership is based on
32,715,560 shares of Common Stock outstanding as of March 31, 1999. Unless
otherwise indicted below, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares of Common
Stock beneficially owned, subject to community property laws where
applicable. The shares of Common Stock issuable pursuant to options and
warrants that are currently exercisable or exercisable within 60 days of
March 31, 1999 are deemed to be outstanding and to be beneficially owned
by the person holding such options for the purpose of computing the
percentage ownership of such person, but are not deemed to be outstanding
and to be beneficially owned for the purpose of computing the percentage
ownership of any other person.
(2) Includes 4,395,700 shares of Common Stock held by M. Kenneth Oshman and
Barbara S. Oshman, Trustees of the Oshman Trust dated July 10, 1979, and
436,428 shares held by O-S Ventures, of which Mr. Oshman is general
partner, and excludes an aggregate of 36,000 shares held by trusts, not
for the benefit of Mr. Oshman, of which Mr. Oshman serves as trustee.
Includes a warrant to purchase 249,713 shares of Common Stock exercisable
within 60 days of March 31, 1999. Includes an option to purchase 100,000
shares of Common Stock exercisable within 60 days of March 31, 1999, none
of which are vested at March 31, 1999. The Company has the right, but not
the obligation, to repurchase 562,500 shares owned by Mr. Oshman if he
should discontinue his employment with the Company. This repurchase right
expires on various future dates through September 17, 2000.
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(3) All 3,912,381 shares are held by Motorola, Inc. Dr. Cambou, a director of
the Company, is Senior Vice President and General Manager of the
Networking and Computing Group of Motorola, Inc. and may be deemed to be a
beneficial owner of shares held by such corporation. Dr. Cambou disclaims
beneficial ownership of such shares.
(4) Includes 1,379,927 shares of Common Stock held by Armas Clifford Markkula,
Jr. and Linda Kathryn Markkula, Trustees of the Restated Arlin Trust Dated
December 12, 1990, and 151,928 shares held by Markkula Family Limited
Partnership (the "Markkula Partnership"). Mr. and Mrs. Markkula disclaim
beneficial ownership of all but 27,500 of the shares held by the Markkula
Partnership. Includes a warrant to purchase 40,183 shares of Common Stock
exercisable within 60 days of March 31, 1999. The Company has the right,
but not the obligation, to repurchase 5,000 shares owned by Mr. Markkula
if he should cease to serve on the Company's Board of Directors. This
repurchase right expires on various future dates through April 23, 2002.
(5) Includes 668,000 shares held by Justin C. Walker and Beatrice Yormark,
Trustees of the Walker-Yormark Family Trust Dated October 2, 1992 (the
"Walker-Yormark Trust"). Includes options to purchase 350,000 shares of
Common Stock exercisable within 60 days of March 31, 1999, of which
112,500 shares are vested at March 31, 1999. The Company has the right,
but not the obligation, to repurchase 50,000 shares owned by the Walker-
Yormark Trust if Ms. Yormark should discontinue her employment with the
Company. This repurchase right expires on May 23, 1999.
(6) Includes an aggregate of 170,600 shares held in individual retirement
accounts for the benefit of Mr. Stanfield and his wife. Includes options
to purchase 350,000 shares of Common Stock exercisable within 60 days of
March 31, 1999, of which 112,500 shares are vested at March 31, 1999. The
Company has the right, but not the obligation, to repurchase 43,750 shares
owned by Mr. Stanfield if he should discontinue his employment with the
Company. This repurchase right expires on May 23, 1999.
(7) Includes 20,000 shares held by a trust for the benefit of Mr. Rock's wife,
of which Mr. Rock serves as trustee, and as to which Mr. Rock disclaims
beneficial ownership. Includes 2,000 shares held by a trust, not for the
benefit of Mr. Rock, of which Mr. Rock has sole voting and dispositive
power, and as to which Mr. Rock disclaims beneficial ownership. Includes a
warrant to purchase 29,187 shares of Common Stock exercisable within 60
days of March 31, 1999. The Company has the right, but not the obligation,
to repurchase 5,000 shares owned by Mr. Rock if he should cease to serve
on the Company's Board of Directors. This repurchase right expires on
various future dates through April 23, 2002.
(8) Includes a warrant to purchase 15,736 shares of Common Stock exercisable
within 60 days of March 31, 1999. The Company has the right, but not the
obligation, to repurchase 5,000 shares owned by Mr. Maxfield if he should
cease to serve on the Company's Board of Directors. This repurchase right
expires on various future dates through April 23, 2002.
(9) Includes options to purchase 135,000 shares of Common Stock exercisable
within 60 days of March 31, 1999, none of which are vested at March 31,
1999. The Company has the right, but not the obligation, to repurchase
50,000 shares owned by Mr. Chan if he should discontinue his employment
with the Company. This repurchase right expires on April 15, 1999.
(10) Represents options to purchase 235,000 shares of Common Stock exercisable
within 60 days of March 31, 1999, of which 50,000 shares are vested at
March 31, 1999.
(11) Includes a warrant to purchase 10,000 shares of Common Stock exercisable
within 60 days of March 31, 1999. Includes an option to purchase 25,000
shares of Common Stock exercisable within 60 days of March 31, 1999,
6,250 of which shares are vested at March 31, 1999.
(12) Includes 56,250 shares held by investment accounts of Wilson Sonsini
Goodrich & Rosati, Professional Corporation ("WSGR"). Mr. Sonsini is
Chairman of the Executive Committee of WSGR and disclaims beneficial
ownership of such shares except as to those shares in which he has a
pecuniary interest. Includes options to purchase 15,000 shares of Common
Stock exercisable within 60 days of March 31, 1999, of which 10,000
shares are vested at March 31, 1999.
7
(13) Includes warrants to purchase an aggregate of 344,819 shares of Common
Stock exercisable within 60 days of March 31, 1999. Includes options to
purchase an aggregate of 1,730,000 shares of Common Stock exercisable
within 60 days of March 31, 1999, of which 434,375 shares are vested at
March 31, 1999. The Company has the right, but not the obligation, to
repurchase an aggregate of 815,000 shares owned by the Company's officers
and directors if such officers and directors should discontinue their
employment with the Company or cease to serve on the Company's Board of
Directors. This repurchase right expires on various future dates through
April 23, 2002.
OTHER INFORMATION
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity securities ("10% of
Class Stockholders") to file with the Securities and Exchange Commission (the
"SEC") reports of ownership on Form 3 and reports of changes in ownership on
Form 4 or Form 5. Such executive officers, directors and 10% of Class
Stockholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons that no
Forms 5 were required for such persons, the Company believes that, through the
Record Date, its executive officers, directors and 10% of Class Stockholders
complied with all applicable Section 16(a) filing requirements.
Certain Transactions
In June and July 1995, the Company sold shares of Common Stock to the
following officers of the Company at a per share purchase price of $1.10, the
then fair market value of the Company's Common Stock as determined by the
Company's Board of Directors: Kenneth E. Lavezzo--75,000 shares; M. Kenneth
Oshman--250,000 shares; Oliver R. Stanfield--175,000 shares; Beatrice
Yormark--200,000 shares. These shares are subject to a repurchase option by
the Company, which repurchase option lapses at the rate of one-fourth of the
shares on May 23, 1996 and each one year anniversary thereafter, subject to
the continued employment with the Company of each such officer.
In November 1996, the Company sold 1,000,000 shares of Common Stock to M.
Kenneth Oshman at a per share purchase price of $1.40, the then fair market
value of the Company's Common Stock as determined by the Company's Board of
Directors. These shares are subject to a repurchase option by the Company,
which repurchase option lapses at the rate of one-fourth of the shares on
September 17, 1997 and each one year anniversary thereafter, subject to Mr.
Oshman's continued employment with the Company.
In March 1998, Peter Mehring was granted an option to purchase 200,000
shares of Common Stock pursuant to the Company's 1997 Stock Plan at a per
share exercise price of $2.00. The option vests at the rate of one-fourth of
the shares on March 9, 1999 and each one-year anniversary thereafter, subject
to Mr. Mehring's continued employment with the Company. Mr. Mehring's stock
option agreement provides that at any time in 1998, following the date of
grant of the option, Mr. Mehring may exercise the option for 50,000 shares
which vest on March 9, 1999; at any time in 1999 Mr. Mehring may exercise the
option for 50,000 shares which vest on March 9, 2000; at any time in 2000 Mr.
Mehring may exercise the option for 50,000 shares which vest on March 9, 2001;
and at any time in 2001 Mr. Mehring may exercise the option for 50,000 shares
which vest on March 9, 2002. In April 1998, Mr. Mehring exercised 50,000
unvested option shares and executed a promissory note in the principal amount
of $100,000 payable to the Company. The note is a full recourse note and is
secured by the shares, bears interest at the annual rate of 5.7% and is due in
April 2003.
8
In October 1998, the Company loaned $100,000 to Peter Mehring for the
remodel of Mr. Mehring's principal residence. The note is a full recourse
unsecured note and bears interest at the annual rate of 5.06% and is due on
the earlier of (i) October 2, 2000 or (ii) thirty days following termination
of Mr. Mehring's employment with the Company.
The Company has entered into licensing agreements with Motorola, which is a
principal stockholder of the Company and Motorola has had a representative on
the Company's Board of Directors from time to time since 1991. Pursuant to
this agreement, Motorola has the right to manufacture and distribute Neuron
Chips using technology licensed from the Company and the Company is required
to provide support and unspecified updates to the licensed technology. During
the years ended December 31, 1997 and December 31, 1998, the Company
recognized $360,000 and $282,000, respectively, in revenues from Motorola. The
Motorola agreement expires in January 2001 unless renewed. Motorola has
announced that it will discontinue distribution of Neuron Chips after January
31, 2001. Further, pursuant to the terms of the stock purchase agreement under
which Motorola initially acquired its shares, Motorola has agreed to vote (i)
all of its shares in favor of the slate of director nominees recommended by
the Board of Directors, and (ii) a number of shares equal to at least that
percentage of shares voted by all other stockholders for or against any given
matter, as recommended by the Board of Directors (except certain matters
relating to certain changes to the Company's charter, liquidations, a sale of
the Company or a merger of the Company with another entity), as recommended by
a majority of the Board of Directors.
From time to time beginning April 1998, Mr. Oshman uses private air travel
services for business trips for himself and for any employees accompanying
him. These private air travel services are provided by certain entities
controlled by Mr. Oshman or Mr. Markkula. The net cash outlay to the Company
with respect to such private air travel services is no greater than comparable
first class commercial air travel services. Such net outlays to date have not
been material.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning total
compensation received by the Chief Executive Officer and each of the four
other most highly compensated executive officers (collectively, the "Named
Officers") for services rendered to the Company in all capacities during
Fiscal 1998 and the fiscal year ended December 31, 1997.
Long-Term
Compensation
Annual Compensation Awards
--------------------------- ------------
Other Annual Securities All Other
Name and Principal Fiscal Salary Compensation Bonus Underlying Compensation
Position Year ($) ($)(1) ($) Options (#) ($)(2)
------------------ ------ ------- ------------ ------ ------------ ------------
M. Kenneth Oshman....... 1998 248,000 -- 10,947 100,000 1,623
Chairman of the Board, 1997 270,000 -- -- -- 1,636
President
and Chief Executive
Officer
Lawrence Y.H. Chan...... 1998 210,000 44,686 20,000(3) 35,000 897
Vice President, Asia 1997 148,750 58,273 -- 200,000 683
Pacific &
Japan
Edwin R. Sterbenc....... 1998 210,000 22,307 20,000(3) 35,000 1,623
Vice President, 1997 157,500 75,000 -- 200,000 864
Americas
Oliver R. Stanfield..... 1998 240,000 -- 10,594 50,000 1,425
Vice President of 1997 260,000 -- -- 150,000 1,438
Finance & Chief
Financial Officer
Beatrice Yormark........ 1998 240,000 -- 10,594 50,000 1,571
Vice President of 1997 260,000 -- -- 150,000 1,584
Marketing &
Sales
9
- --------
(1) Consists of sales commissions.
(2) Consists of premiums paid by the Company for life insurance coverage.
(3) Such bonus was granted outside of the Company's quarterly cash bonus plan
set by the Compensation Committee of the Board at the beginning of Fiscal
1998.
Option Grants in Fiscal 1998
The following table sets forth certain information regarding the stock
options granted during Fiscal 1998 to each of the Named Officers. No stock
appreciation rights were granted to the Named Officers during Fiscal 1998.
Individual Grants(1)
-----------------------------------------------
Potential
Realizable Value
at Assumed Annual
% of Total Rates of Stock
Number of Options Price
Securities Granted to Appreciation for
Underlying Employees Option Term (4)
Options in Fiscal Exercise Price Expiration -----------------
Name Granted Year (2) Per Share (3) Date 5% 10%
---- ---------- ---------- -------------- ---------- -------- --------
M. Kenneth Oshman....... 100,000 8.0% $7.00 06/23/03 $193,397 $427,357
Lawrence Y.H. Chan...... 35,000 2.8% 7.00 06/23/03 67,689 149,575
Edwin R. Sterbenc....... 35,000 2.8% 7.00 06/23/03 67,689 149,575
Oliver R. Stanfield..... 50,000 4.0% 7.00 06/23/03 96,699 213,679
Beatrice Yormark........ 50,000 4.0% 7.00 06/23/03 96,699 213,679
- --------
(1) Each option is immediately exercisable and vests according to a vesting
schedule, subject to the employee's continued employment with the Company.
(2) Based on a total of 1,253,600 options granted to all employees in Fiscal
1998 (not including 392,850 shares granted to employees in June 1998 and
repriced in December 1998).
(3) The exercise price per share of options granted represented the fair
market value as determined by the Board of Directors on June 23, 1998, the
date the options were granted.
(4) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation based upon the deemed fair market value are mandated by the
rules of the SEC and do not represent the Company's estimate or projection
of the future common stock price. Actual gains, if any, on stock option
exercises are dependent on the future financial performance of the
Company, overall market conditions and the option holders' continued
employment through the vesting period. There can be no assurance that the
amounts reflected in this table will be achieved.
10
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values
The following table sets forth, as to the Named Officers, certain
information concerning stock options exercised during Fiscal 1998 and the
number of shares covered by exercisable stock options as of December 31, 1998.
Also reported are values for "in-the-money" options that represent the
positive spread between the respective exercise prices of outstanding options
and the fair market value of the Company's Common Stock as of December 31,
1998. No stock appreciation rights to the Named Officers were outstanding
during Fiscal 1998.
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options at the-Money Options at
Acquired Fiscal Year End Fiscal Year End (1)(2)
on Value -------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
M. Kenneth Oshman....... -- $-- 100,000(4) -- $ -- --
Lawrence Y.H. Chan...... 100,000 0(3) 135,000(5) -- 197,500 --
Edwin R. Sterbenc....... -- -- 235,000(6) -- 395,000 --
Oliver R. Stanfield..... -- -- 350,000(7) -- 592,500 --
Beatrice Yormark........ -- -- 350,000(7) -- 592,500 --
- --------
(1) The value of underlying securities is based on the $3.375 per share
closing price of the Company's Common on December 31, 1998 minus the
aggregate exercise price.
(2) All options granted under the 1998 Stock Option Plan and options granted
to officers of the Company under the 1997 Stock Plan may be exercised
immediately upon grant and prior to full vesting, subject to the
optionee's entering into a restricted stock purchase agreement with the
Company with respect to unvested shares.
(3) Calculated by determining the difference between the fair market value of
the securities underlying the option at the February 17, 1998 date of
exercise ($1.40 per share as determined by the Board of Directors) and the
exercise price of the option.
(4) Includes no vested shares and 100,000 unvested shares as of December 31,
1998.
(5) Includes no vested shares and 135,000 unvested shares as of December 31,
1998.
(6) Includes 50,000 vested shares and 185,000 unvested shares as of December
31, 1998.
(7) Includes 112,500 vested shares and 237,500 unvested shares as of December
31, 1998.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee was formed in May 1996 to review and
approve the compensation and benefits for the Company's key executive
officers, administer the Company's stock option plans and make recommendations
to the board of directors regarding such matters. The committee is currently
composed of Messrs. Maxfield and Moley. No interlocking relationship exists
between any member of the Company's Board of Directors or Compensation
Committee and any member of the board of directors or compensation committee
of any other company, nor has any such interlocking relationship existed in
the past.
Report of the Compensation Committee of the Board of Directors
The Compensation Committee (the "Committee") of the Board of Directors sets
the compensation of the Chief Executive Officer, reviews the design and
effectiveness of compensation programs for other key executives, and approves
stock option grants for Company employees. The committee is composed entirely
of outside directors who have never served as officers of the Company.
The goals of the compensation committee are to align compensation with the
Company's performance and objectives and to attract, retain and reward
executive officers and employees whose contributions are critical to the long-
term success of the Company.
The primary components of the Company's executive compensation package are
salary, bonuses and stock options. The Company sets its compensation package
to be competitive with the marketplace.
11
Salary
The level of base salary for executive officers is set based upon their
scope of responsibility, level of experience and individual performance. The
salary range for each position is reviewed against the Radford Survey (a third
party compensation survey) data for high-tech companies with similar sales
volumes located in the same geographic area. Additionally, the Committee takes
into account general business and economic conditions and current Company
circumstances.
Bonuses
The Company's 1998 executive bonus plan provided the opportunity for
quarterly cash bonuses based on meeting Company quarterly revenue objectives.
These objectives were set at the beginning of the fiscal year.
Stock options
The Committee believes that the granting of stock options is an important
method of rewarding and motivating Company employees by aligning employees'
interests with the Company's stockholders. The Committee also recognizes that
a stock incentive program is a necessary element in a competitive compensation
package. The program utilizes a vesting schedule to encourage employees of the
Company to continue in the employ of the Company and to encourage employees to
maintain a long-term perspective. In determining the size of stock option
grants, the Committee focuses primarily on the employees' current and expected
future value to the Company. The Committee also considers the number of
unvested options held by the employee.
Compensation of the Chief Executive Officer
M. Kenneth Oshman has been Chairman of the Board, President and CEO of the
Company since 1988. The Committee used the same compensation policy described
above for all executive officers to determine Mr. Oshman's Fiscal 1998
compensation. In setting both the cash-based and the equity-based elements of
Mr. Oshman's compensation, the Committee considered competitive forces, the
Company's performance and Mr. Oshman's leadership in achieving the Company's
long-term goals. During the Fiscal 1998, Mr. Oshman received a base salary of
$248,000 and a bonus of $10,947.
In June 1998, the Committee, in consultation with the Board of Directors,
granted Mr. Oshman an option to purchase 100,000 shares of Company stock at an
exercise price of $7.00, the then current fair market value set by the Board
of Directors. Twenty five percent of the option vests on June 18, 1999. The
option vests at a rate of 1/48 per month thereafter until fully vested on June
18, 2002.
On December 14, 1998, Mr. Oshman requested that his total compensation for
the fiscal year ending December 31, 1999 be set at $1.00.
Compensation Committee
Robert R. Maxfield
Richard M. Moley
12
Company Stock Price Performance Graph
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the total return on the S&P 500 Index and the S&P
Technology 500 (comprised of those companies in the technology sector of the
S&P 500 Index). The graph assumes that $100 was invested on July 27, 1998 (the
effective date of the Company's initial public offering) in the Company's
Common Stock and in the S&P 500 Index and the S&P Technology 500, including
reinvestment of dividends. Historic stock price performance is not necessarily
indicative of future stock price performance.
INDEXED RETURNS
Years Ending
PERFORMANCE GRAPH APPEARS HERE
Company/Index 27 Jul 98 Jul 98 Aug 98 Sep 98 Oct 98 Nov 98 Dec 98
- ------------- --------- ------ ------ ------ ------ ------ -------
ECHELON CORP 100 94.64 71.43 28.57 37.50 52.69 55.36
S&P 500 INDEX 100 97.68 83.56 88.91 96.14 101.97 107.85
TECHNOLOGY-500 100 98.18 82.34 93.08 99.17 109.62 124.87
13
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are therefore urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
Palo Alto, California
April 9, 1999
14
PROXY
ECHELON CORPORATION
1999 Annual Meeting of Stockholders
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Echelon Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 9, 1999 and hereby appoints
M. Kenneth Oshman and Oliver R. Stanfield, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1999 Annual Meeting
of Stockholders of Echelon Corporation to be held on Tuesday, May 11, 1999, at
10:00 a.m. local time, at the Company's offices located at 4009 Miranda Avenue,
Palo Alto, California 94304 and at any adjournment(s) thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth on the reverse side, and,
in their discretion, upon such other matter or matters which may properly come
before the meeting and any adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED "FOR" THE ELECTION OF THE SPECIFIED NOMINEES AS
DIRECTORS, "FOR" EACH PROPOSAL LISTED, AND AS SAID PROXY DEEMS ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
CONTINUED AND TO BE SIGNED ON THE OTHER SIDE
________________________________________________________________________________
FOLD AND DETACH HERE
check box [_X_]
as indicated
for withheld exception for against abstain
ELECTION OF DIRECTORS: 2: PROPOSAL TO RATIFY THE APPOINTMENT OF
Nominees: M. Kenneth Oshman, [_] [_] [_] ARTHUR ANDERSEN LLP AS INDEPENDENT [_] [_] [_]
Larry W. Sonsini PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1999:
- ---------------------------------------
For both nominees except as noted above
In their discretion, upon such other matter or matters which may
properly come before the meeting and any adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED "FOR" THE ELECTION OF THE SPECIFIED NOMINEES
AS DIRECTORS, "FOR" EACH PROPOSAL LISTED, AND AS SAID PROXY DEEMS
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Signature(s)_______________________________________________________________________________________ Dated_______________________
This Proxy should be marked, dated, signed by the stockholder(s) exactly as his or her name appears hereon, and returned promptly in
the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or as
community property, both should sign.
____________________________________________________________________________________________________________________________________
FOLD AND DETACH HERE