Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
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240.14a-12
Sorrento Networks Corporation
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[Sorrento Networks Logo]
January 22, 2002
NOTICE OF
ANNUAL
MEETING AND
PROXY STATEMENT
THURSDAY
FEBRUARY 21, 2002
AT 10:00 A.M.
SAN DIEGO
MARRIOTT DEL MAR
11966
EL CAMINO REAL
SAN DIEGO
CALIFORNIA
DEAR FELLOW SHAREHOLDERS:
We cordially invite you to attend the Meeting of the Shareholders of Sorrento
Networks Corporation (the 'Company') to be held at 10:00 a.m. on Thursday,
February 21, 2002, at the San Diego Marriott Del Mar, 11966 El Camino Real, San
Diego, California.
The purposes of this meeting are the election of directors and ratification of
the appointment of the independent accountants. We will also review the status
of the Company's business at the meeting. These matters are more fully described
in the accompanying Notice of Annual Meeting and Proxy Statement, which we
encourage you to read carefully.
The Board of Directors recommends that Shareholders vote in favor of each
proposal. Last year, over 94% of the outstanding shares were represented at the
Annual Meeting. We encourage all Shareholders to participate by voting their
shares by Proxy whether or not they plan to attend the meeting as soon as
possible. This year you may vote over the Internet, by telephone, or by mailing
a traditional proxy card. If you do attend the Annual Meeting, you may revoke
your proxy at that time and vote in person, if you wish, even if you have
previously returned your proxy.
If you have questions about the proposals or voting your shares, please call
Anne Wallace at the Company at (310) 581-4030.
Sincerely,
/s/ XIN CHENG, PH.D.
XIN CHENG, PH.D.
Chairman and Chief Executive Officer
[Sorrento Networks Logo]
---------------------------------------
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
---------------------------------------
To be held on February 21, 2002
Notice is hereby given that the Annual Meeting of Shareholders (the 'Annual
Meeting') of Sorrento Networks Corporation (the 'Company') will be held at the
San Diego Marriott Del Mar, 11966 El Camino Real, San Diego, California on
February 21, 2002 at 10:00 a.m., for the following purposes:
1. To elect five directors who will hold office for one-year
terms ending at the next Annual Meeting of Shareholders or
until their successors have been duly elected and
qualified.
2. To ratify the appointment of BDO Seidman, LLP as the firm
of independent auditors for the year ended January 31,
2002.
3. To consider and take action upon such other business as may
properly come before the Annual Meeting or any adjournment
thereof.
Only shareholders of record at the close of business on January 10, 2002
will be entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
It is important that your shares be represented at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please vote as soon as
possible. This year you may vote over the Internet, as well as by telephone or
by mailing a traditional proxy card. Your proxy may be revoked at any time prior
to the vote at the annual meeting by following the procedures set forth in the
accompanying Proxy Statement.
By Order of the Board of Directors
/s/ XIN CHENG, PH.D.
XIN CHENG, PH.D.
Chairman of the Board
San Diego, California
January 22, 2002
SORRENTO NETWORKS CORPORATION
9990 MESA RIM ROAD
SAN DIEGO, CALIFORNIA 92121
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD FEBRUARY 21, 2002
GENERAL INFORMATION
This Proxy Statement is being furnished to shareholders of Sorrento Networks
Corporation, a New Jersey corporation, in connection with the solicitation of
proxies by our Board of Directors for use at our Annual Meeting of Shareholders
(the 'Annual Meeting') to be held at the San Diego Marriott Del Mar, 11966 El
Camino Real, San Diego, California, on February 21, 2002 at 10:00 a.m., and any
adjournments or postponements thereof, pursuant to the Notice of Meeting. The
approximate date on which this Proxy Statement is first being sent to
shareholders is January 22, 2002.
WHO CAN VOTE
Only holders of record of our common stock, par value $0.30 per share, at
the close of business on January 10, 2002, are entitled to vote at the Annual
Meeting. As of January 10, 2002, we had outstanding and entitled to vote
14,209,550 shares of common stock. The 8,888 shares of common stock in our
treasury on that date will not be voted.
HOW YOU CAN VOTE BY PROXY
If you are a registered stockholder (you hold your stock in your own name),
you may vote by one of the following methods:
PROXY CARD, by completing and mailing the enclosed proxy card;
TELEPHONE VOTING, by dialing 1-800-PROXIES and following the enclosed
instructions for telephone voting;
VIA THE INTERNET, by going to the web address HTTP://WWW.AMSTOCK.COM
and following the enclosed instructions for Internet voting.
If you are a registered voter, you can simplify your voting and save the
company expense by voting via the Internet or calling the toll-free number
listed on the proxy card. A control number, located on the proxy card, is
designated to verify a stockholder's identity and allow the stockholder to vote
the shares and confirm that the voting instructions have been recorded properly.
If you vote via the Internet or by telephone, please do not return a signed
proxy card.
If you return your signed proxy card or use the telephone or Internet voting
before the Annual Meeting, we will vote your shares as you direct. You have
three choices on each matter to be voted upon. For the election of directors,
you may vote for (1) all of the nominees, (2) none of the nominees, or (3) all
of the nominees except those you designate. See 'Proposal 1 -- Election of
Directors.' For each of the other items, you may vote 'FOR', 'AGAINST,' or
'ABSTAIN' from voting.
If you do not specify on your proxy card or through internet or telephone
prompts how you want to vote your shares, we will vote them 'for' the election
of director nominees and 'for' ratification of the independent auditors.
If your shares are held in 'street name' (through a broker or other
nominee), you must provide instructions on voting to your nominee holder. If you
wish to vote in person at the meeting, you must obtain from the record holder a
legal proxy issued in your name. You will need to contact your broker or other
nominee to determine whether you will be able to vote electronically via the
Internet or by telephone.
HOW YOU MAY REVOKE OR CHANGE YOUR VOTE
You can revoke your proxy at any time before it is voted at the Annual
Meeting by:
(1) Sending written notice of revocation to the Secretary; or
(2) Submitting another proper proxy with a more recent date than that of
the proxy first given by (i) following the Internet voting
instructions, or (ii) following the telephone voting instructions,
or (iii) by signing and returning a proxy card to the Company; or
(3) Attending the Annual Meeting and voting in person.
Another person at the meeting may also represent you if you execute a proper
proxy designating that person.
Any notice of revocation that is delivered at the Annual Meeting should be
hand delivered to the Inspector of Election at or before the taking of the vote.
A shareholder may be requested to present such documents as shall be reasonably
requested for the purpose of establishing such shareholder's identity.
QUORUM, VOTING REQUIREMENTS AND EFFECT OF ABSTENTIONS AND NON-VOTES
At the Annual Meeting, an Inspector of Election will determine the presence
of a quorum and tabulate the results of the voting by the shareholders. The
holders of one-third of the outstanding shares of common stock that are entitled
to vote at the Meeting must be present in person or by proxy in order to have
the quorum that is necessary for the transaction of business at the Annual
Meeting. The Inspectors will treat properly executed proxies marked 'abstain' or
required to be treated as 'non-votes' as present for purposes of determining
whether there is a quorum at the Annual Meeting. Broker 'non-votes' occur when a
broker or nominee holding shares for a beneficial owner returns a proxy but does
not have the authority to vote on a particular proposal.
The five nominees for director who receive the highest number of affirmative
votes will be elected to serve as directors until the next annual meeting of the
shareholders of the Company or until their successors are duly elected and
qualified. All other matters will require the approval of a majority of the
votes cast by the holders of common stock in person or by proxy at the Annual
Meeting. Abstentions and non-votes will have the same effect as a vote against
any proposal other than the election of directors.
COSTS OF SOLICITATION
We will bear the cost of preparing, printing, and mailing material in
connection with this solicitation of proxies. In addition to mailing material,
certain of our employees may make solicitations personally, by telephone, and by
fax. We are required to reimburse brokerage firms, banks, and others for their
reasonable out-of-pocket expenses, including clerical expenses, related to
forwarding proxy material to beneficial owners of stock or otherwise in
connection with this solicitation of proxies.
ANNUAL REPORT
The Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 2001, containing audited financial statements for such year, and the
Quarterly Report on Form 10-Q for October 31, 2001 are enclosed with this Proxy
Statement. This Proxy Statement and the enclosed Proxy are being sent to our
shareholders on or about January 22, 2002.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THIS MEETING, YOU ARE
REQUESTED TO PLEASE SIGN, DATE AND MAIL THE PROXY PROMPTLY.
2
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, five directors will be elected to serve for one year
terms expiring on the date of the Annual Meeting of Shareholders the following
year. Each director elected will continue in office until a successor has been
elected or until resignation or removal in the manner provided by our By-Laws.
The names of the nominees for the Board of Directors are listed below. Shares
represented by a properly executed proxy in the accompanying form will be voted
for such nominees. However, discretionary authority is reserved to vote such
shares in the best judgment of the persons named in the event that any person or
persons other than the nominees listed below are to be voted on at the meeting
due to the unavailability of any nominee so listed.
NOMINEES FOR ONE YEAR TERMS
Xin Cheng, Ph.D., 45, has been Chairman and Chief Executive Officer of the
Company since September 2000. He has been the President and a director of the
Company since September 1995, and was Secretary from June 1993 to February 1997.
Dr. Cheng has served as the Chief Executive Officer and Chairman of our Sorrento
subsidiary since January 2000. In 1995, Dr. Cheng founded the optical networking
division of the Company. From 1988 to 1990, Dr. Cheng served as Senior Staff
Scientist and from 1990 to 1993 as a Director of Advanced Technology for Amoco
Technology Company, a photonics technology development company and a subsidiary
of Amoco Oil Corporation. While at Amoco, Dr. Cheng led their development of the
WDM-based fiber optic high-resolution computer graphics link, a high-dynamic
range microwave fiber optic system, a fiber optic HDTV transmission system,
multiple fiber optic serial digital video transmission systems as well as other
technologies. Dr. Cheng holds a Ph.D. and M.S. in Electrical Engineering from
the University of California, Irvine, and a B.S. degree in Physics from Nanjing
University, China.
Phillip W. Arneson, 65, has been President and Chief Operating Officer since
October 2001 and has served as one of our directors since October 2000. From
1996 to 2001, Mr. Arneson held the position of Executive Vice President for
privately held Frandsen Corporation, a diversified financial and manufacturing
company where he was responsible for growing the enterprise through
acquisitions, internal growth, and strategic partnerships. Additionally, he
served as President of two of its operating companies. Mr. Arneson has served
several public and private technology companies in executive management, holding
positions as Chief Executive Officer, President and Group Vice President as well
as having extensive experience as a director of such companies. From 1982 to
1986, he served as Executive Vice President of Allied Signal's Electronic Sector
and as Chief Executive Officer of its subsidiary, Amphenol Corp. In 1986, Mr.
Arneson's technology group garnered the prestigious IR-100 award for the
development of an integrated fiber optics phase modulator. Mr. Arneson holds a
B.S. in Electrical Engineering from the University of Minnesota's Institute of
Technology.
Donne F. Fisher, 63, has served as one of our directors since November 2001
and is chairman of our Audit Committee. Mr. Fisher is currently President of
Fisher Capital Partners, Ltd., a private venture capital and investment company
he founded in 1991. From 1982 to 1996, Mr. Fisher held various executive officer
positions with Tele-Communications, Inc. ('TCI') and its subsidiaries including
Executive Vice President and Treasurer. He was a TCI director from 1980 until
1999 when TCI merged into AT&T Corporation. Since his retirement in 1996, Mr.
Fisher has been a consultant to TCI, now AT&T Broadband. Mr. Fisher also serves
as a director of Liberty Media Corporation, a former subsidiary of AT&T, and
General Communications, Inc., a diversified telecommunications provider.
Robert L. Hibbard, 49, has served as one of our directors since November
2001. Mr. Hibbard is an attorney and management consultant in private practice
in which he handles a wide variety of commercial matters including technology
licensing and the structuring of merger and acquisitions transactions. From 1997
to 1999, Mr. Hibbard was Chief Executive Officer of Kim Technologies
International, Inc., a privately held developer of electromechanical 'super'
capacitors for wireless applications. From 1994 to 1997, Mr. Hibbard was Vice
President and General Counsel at Allied Signal
3
Engines, and from 1987 to 1994, Assistant General Counsel at Allied Signal
Aerospace. Mr. Hibbard is a director of Amphenol Corporation, a developer and
manufacturer of connectors and interconnect systems.
Gary M. Parsons, 51, has served on our Board of Directors since October
2000. Since 1996, Mr. Parsons has held the position of Chairman of the Board for
Motient Corporation, a wireless data firm, and XM Satellite Radio Holdings,
Inc., and in October 2001 was named Chairman and Chief Executive Officer of
Mobile Satellite Ventures, LLP. On January 10, 2002, Motient filed a voluntary
bankruptcy petition in connection with a prearranged restructuring of its senior
notes. From 1990 to 1996, Mr. Parsons held a number of executive positions at
MCI Communications, Inc., including Executive Vice President, Chief Executive
Officer of MCImetro, Inc., and President of MCI's Southern Division. From 1984
to 1990, Mr. Parsons held the responsibilities of Executive Vice President at
Telecom*USA, a fiber-optic and long distance venture subsequently acquired by
MCI. Mr. Parsons holds a B.S. in Electrical and Computer Engineering from
Clemson University and a MBA from the University of South Carolina.
INFORMATION CONCERNING THE BOARD
The Board of Directors met ten times in fiscal 2001. No director attended
fewer than 75% of the meetings of the Board of Directors. In addition, the Board
acted by unanimous consent twelve times during fiscal 2001. The Board also
consults from time to time by telephone and in person.
The Board of Directors has an Audit Committee, which met five times during
fiscal 2001, and a Compensation Committee, which met five times during fiscal
2001. No committee member attended fewer than 75% of the meetings.
The Compensation Committee is responsible for reviewing the compensation and
benefits of the Company's executive officers, making recommendations to the
Board of Directors concerning compensation and benefits for such executive
officers, reviewing overall company-wide compensation plans and administering
the Company's stock option plans. Drs. Cheng and Li and Hibbard currently serve
on the Compensation Committee.
The Audit Committee is responsible for providing independent, objective
oversight of our accounting functions and internal controls. The Audit Committee
reviews our financial statements, meets with our independent accountants to
review our internal controls and financial management practices and examines all
agreements or other transactions between us and our directors and officers
(other than those compensation functions assigned to the Compensation Committee)
to determine whether such agreements or transactions are fair to our
shareholders. The Audit Committee is comprised of independent directors, and
acts under a written charter first adopted and approved by the Board of
Directors in June 2000, a copy of which is attached to this Proxy Statement as
Exhibit A. Each member of the Audit Committee is independent as defined by the
Nasdaq Stock Market listing Standards. Mr. Fisher currently chairs the Audit
Committee and Messrs. Hibbard and Parsons currently serve on the Audit
Committee. The report by the Audit Committee for the year ended January 31,
2001, as submitted by the then members of the Audit Committee, follows.
4
AUDIT COMMITTEE REPORT
The following report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the company specifically incorporates this
Report by reference therein.
The Audit Committee met and consulted with the Company's independent
accountants in person and by telephone regarding the following:
the plan for, and the independent accountants' report on, each audit of the
Company's financial statements.
the Company's financial disclosure documents, including all financial
statements and reports filed with the SEC and sent to shareholders.
reviewing the Company's accounting practices, principles, controls or
methodologies.
significant developments in accounting and SEC rules
the adequacy of the Company's internal controls and accounting personnel
The Audit Committee is responsible for overseeing and monitoring the quality
of the Company's accounting and auditing practices as well as recommending to
the Board that the Company's financial statements be included in the annual
report. Management is responsible for planning and conducting audits and
ensuring that the Company's financial statements are prepared in accordance with
generally accepted accounting principals.
In this context, the Audit Committee has met and held discussions with
management and BDO Seidman, LLP, the Company's independent accountants for
fiscal 2001. Management has represented to the Committee that the Company's
financial statements were prepared in accordance with generally accepted
accounting principles, and the Committee has reviewed and discussed the
consolidated financial statements and other such matters deemed relevant and
appropriate with management and the independent accountants. In addition, the
Committee has met with the independent accountants and discussed the scope and
results of the audit for fiscal 2001 and the matters required to be discussed by
Statement on Auditing Standards No. 61, 'Communication with Audit Committees'.
Further, the Audit Committee has received the written disclosures and a
letter from BDO Seidman, as required by Independence Standards Board No. 1
'Independence Discussions with Audit Committees,' and has discussed with BDO
Seidman their independence from management. The Committee has also reviewed the
fees received by the independent accountants for services related to fiscal 2001
and determined that no material amounts were paid for non-audit related services
and such amounts were compatible with the maintenance of BDO Seidman's
independence in the conduct of its auditing function.
Based on the reviews and discussions described above, the Audit Committee
recommended to the Board, and the Board has approved that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended January 31, 2001, for filing with the Securities and Exchange Commission.
The Committee also has recommended, subject to stockholder ratification, the
selection of BDO Seidman, LLP as the Company's independent accountants for the
fiscal year ending January 31, 2002.
The Committee has also confirmed there have been no new circumstances or
developments since their respective appointments to the Audit Committee that
would impair any member's ability to act independently.
The Audit Committee
Phillip W. Arneson, Chairman
Susan Mandl
Gary M. Parsons
5
AUDIT AND NON-AUDIT FEES
The following table presents fees for professional audit services rendered
by BDO Seidman, LLP for the audit of the Company's annual financial statements
for fiscal 2001, and fees billed for other services rendered by BDO Seidman, LLP
during fiscal 2001:
Audit fees(a)............................................... $210,000
Other fees(b)............................................... 181,000
Tax matters................................................. 20,000
Information systems consulting.............................. 1,000
--------
Total................................................... $412,000
--------
--------
(a) Includes fees incurred for quarterly reviews conducted under Statement of
Auditing Standards No. 71 and review of all public filings that incorporate
by reference or accompany the Company's audited financial statements.
(b) Other fees consist principally of audits and reviews of standalone
financial reports of the Company's subsidiaries, reviews of draft public
offering documents of a subsidiary which were not filed and a single
purpose audit of a subsidiary's revenue from a product line required for
compliance with a purchase agreement.
All non-audit services were reviewed with the Audit Committee, which
concluded that the provision of such services by BDO Seidman, LLP was compatible
with the maintenance of that firm's independence in the conduct of its auditing
function.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company or its subsidiaries
receives $1,000 for each Board of Directors or committee meetings attended.
Directors who serve as the chairman of a committee receive an additional $500
for each committee meeting attended. All directors are reimbursed for expenses
incurred in attending Board of Directors and committee meetings. At present,
directors do not receive any other cash compensation for services as a director.
Directors who are employees of the Company or its subsidiaries receive no
additional compensation or options for serving on the Board of Directors or any
committee.
The 2000 Stock Incentive Plan provides for an automatic grant on the date an
individual joins the Board of Directors of an option to purchase 35,000 shares
of common stock which vests at the end of one year and an automatic grant on the
date of each Annual Meeting at which a director is re-elected to serve for
another term of an option to acquire 25,000 shares of common stock which vests
at the end of one year provided, however, that such individual has served as a
non-employee Board member for at least six months. These automatic grants will
have an exercise price per share equal to the fair market value per share on the
date of grant. These grants are immediately exercisable; however, the Company
may repurchase any unvested shares, at the exercise price paid, at the
director's cessation of board service.
6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 10, 2002,
regarding the ownership of the Common Stock by (i) each Director and nominee for
Director of the Company; (ii) each of the present executive officers named in
the Executive Officer section following; (iii) each of the directors not
standing for election at this Annual Meeting of Shareholders; (iv) each of the
executive officers named in the Summary Compensation Table, following; (v) each
person known to the Company to beneficially own 5% or more of Common Stock; and
(vi) all Directors and executive officers of the Company as a group. Except as
indicated, all persons named as beneficial owners of Common Stock have sole
voting and investment power with respect to the shares indicated as beneficially
owned by them. All persons named have an address at c/o Sorrento Networks
Corporation, 9990 Mesa Rim Road, San Diego, California 92121, unless otherwise
indicated.
COMMON STOCK
--------------------------
NUMBER OF PERCENTAGE OF
NAME OF BENEFICIAL OWNER(A) SHARES OUTSTANDING(O)
--------------------------- ------ --------------
Xin Cheng, Ph.D.(B)......................................... 525,735 3.6%
Phillip W. Arneson(C)....................................... 11,667 *
Donne F. Fisher(D).......................................... 35,000 *
Robert L. Hibbard(E)........................................ 35,000 *
Tingye Li, Ph.D.(F)......................................... 11,667 *
Charles X. Mao, Ph.D.(G).................................... 35,000 *
Gary M. Parsons(H).......................................... 11,667 *
Joe R. Armstrong(I)......................................... 55,125 *
John A. Mason(J)............................................ 102,709 *
Christopher E. Sue(K)....................................... 178,398 1.2
Richard L. Jacobson(L)...................................... 152,166 1.1
Sunil Rajadhyksha(M)........................................ 18,958 *
Qila, LLC(N) ............................................... 1,364,549 8.9
15332 Antioch Street
Pacific Palisades, CA 90272
All Directors, Nominees and Executive Officers as a Group... 1,154,134 7.7
---------
* Less than 1%
(A) All information with respect to beneficial ownership of the shares is based
upon filings made by the respective beneficial owners with the Securities
and Exchange Commission or information provided by such beneficial owners
to the Company.
(B) Includes exercisable options held by Dr. Cheng to acquire 426,515 shares of
common stock and exercisable options to acquire 51,486 shares of common
stock held as custodian or trustee for minor children, as to which
beneficial ownership is disclaimed. Dr. Cheng holds options to acquire
12,632 of our NETsilicon shares at $7.00 per share. On March 7, 2000,
Dr. Cheng was granted options to acquire 5,000,000 shares of our Sorrento
subsidiary's common stock at $5.45 as the Chairman, CEO and founder of our
Sorrento subsidiary. Pursuant to an outstanding conversion offer,
Dr. Cheng may elect to convert the Sorrento subsidiary options into options
to acquire our common stock at a ratio of 3.9 for 1. Pursuant to the
December 1999 stock purchase agreement with FIBR Holdings, LLC the shares
of common stock purchased by it including any shares transferred to its
members are required to be voted for the nominees recommended by the Board
of Directors; in the event
(footnotes continued on next page)
7
(footnotes continued from previous page)
FIBR Holdings, LLC or its affiliates do not vote for the five nominees
proposed, the Board of Directors may do so. As of the record date there are
47,704 shares of our common stock held by FIBR Holdings, LLC and its
transferee members.
(C) Includes exercisable options held by Mr. Arneson to acquire 11,667 shares
of common stock.
(D) Includes options to acquire 35,000 shares of common stock held by Mr.
Fisher that are exercisable within 60 days. Any shares received upon
exercise of these options prior to the November 20, 2002 vesting date are
subject to repurchase by the Company. On March 7, 2000, Mr. Fisher was
granted options to acquire 100,000 shares of our Sorrento subsidiary's
common stock at $5.45 under its option plan for his services as an advisor
to it. Pursuant to an outstanding conversion offer, Mr. Fisher may elect to
convert the Sorrento subsidiary options into options to acquire our common
stock at a ratio of 3.9 for 1. Mr. Fisher is President of Fisher Capital
Partners which holds 183,486 shares of our Sorrento subsidiary's Series A
Convertible Preferred Stock. Mr. Fisher is a director of Liberty Media
Corporation which owns an 11% economic interest representing a 37% voting
interest in UnitedGlobalCom, Inc. ('UGC'). Belmarken Holding, B.V., an
indirect subsidiary of UGC, h olds 3,027,523 shares of our Sorrento
subsidiary's Series A Convertible Preferred Stock. Liberty Media also holds
convertible debt of United Pan-Europe Communications, N.V., a subsidiary of
UGC, which it has agreed to exchange for additional shares in UGC.
(E) Includes options to acquire 35,000 shares of common stock held by Mr.
Hibbard that are exercisable within 60 days. Any shares received upon
exercise of these options prior to the November 13, 2002 vesting date are
subject to repurchase by the Company.
(F) Includes exercisable options held by Dr. Li to acquire 11,667 shares of
common stock. On March 7, 2000, Dr. Li was granted an option to acquire
100,000 shares of our Sorrento subsidiary's common stock at $5.45 per share
under its option plan which provided for automatic grants to directors.
Pursuant to an outstanding conversion offer, Dr. Li may elect to convert
the Sorrento subsidiary options into options to acquire our common stock at
a ratio of 3.9 for 1.
(G) Includes options to acquire 35,000 shares of common stock held by Dr. Mao
that are exercisable within 60 days. Any shares received upon exercise of
these options prior to the October 25, 2002 vesting date are subject to
repurchase by the Company.
(H) Includes exercisable options held by Mr. Parsons to acquire 11,667 shares
of common stock.
(I) Includes options to acquire 55,125 shares of common stock held by Mr.
Armstrong that become exercisable within 60 days.
(J) Includes exercisable options held by Mr. Mason to acquire 100,001 shares of
common stock and 2,708 options that become exercisable within 60 days. On
October 1, 2000, Mr. Mason was granted an option to acquire 400,000 shares
of our Sorrento subsidiary's common stock at $5.45 per share as President
of Sorrento's European operations. Pursuant to an outstanding conversion
offer, Mr. Mason may elect to convert the Sorrento subsidiary options into
options to acquire our common stock at a ratio of 3.9 for 1. Mr. Mason
holds options to acquire 3,158 of our NETsilicon shares at $7.00 per share.
(K) Includes exercisable options held by Mr. Sue to acquire 171,999 shares of
common stock and 5,416 options that become exercisable within 60 days. Mr.
Sue holds options to acquire 4,421 of our NETsilicon shares at $7.00 per
share and 35,000 of our Entrada shares at $3.19 per share.
(L) Includes exercisable options held by Mr. Jacobson to acquire 150,000 shares
of common stock and 2,166 options that become exercisable within 60 days.
(M) Includes options to acquire 18,958 shares of common stock held by Mr.
Rajadhyksha that become exercisable within 60 days. On March 7, 2000, Mr.
Rajadhyksha was granted an option to acquire 400,000 shares of our Sorrento
subsidiary's common stock at $5.45 per share under its option plan
(footnotes continued on next page)
8
(footnotes continued from previous page)
for his services as a consultant. Pursuant to an outstanding conversion
offer, Mr. Rajadhyksha may elect to convert the Sorrento subsidiary options
into options to acquire our common stock at a ratio of 3.9 for 1.
(N) Represents holdings reported by Qila, LLC and RII Partners, Inc. on
January 14, 2002 on Form 13-D, 'General Statement of Beneficial Ownership'.
Includes exercisable options to acquire 757,387 shares of common stock held
by R II Partners, Inc., exercisable options to acquire 350,001 shares of
common stock held by RT Investments, Inc., 25,334 shares held by the Par
and Sharon Chadha Family Trust, and 6,527 shares held by the RRC Pension
Trust. Mr. and Mrs. Chadha disclaim ownership in all these shares.
(O) For each beneficial owner, the 'Percentage of Outstanding' equals each
owner's actual holdings of shares plus shares represented by unexercised
options and warrants held, divided by total shares outstanding of the
Company at January 10, 2002, of 14,209,550 plus the unexercised options and
warrants detailed above of the referenced holder only. In other words,
individual percentages of the listed holders will not add to the group
total because the calculations are made separately for each holder.
EXECUTIVE OFFICERS AND DIRECTORS
As of the date of this Proxy Statement, our executive officers and directors
are:
NAME AGE POSITION
---- --- --------
Xin Cheng, Ph.D.* ........................... 45 Chief Executive Officer, President, and
Chairman of the Board
Phillip W. Arneson*.......................... 65 President, Chief Operating Officer and
Director
Donne F. Fisher*............................. 63 Director
Robert L. Hibbard*........................... 49 Director
Tingye Li, Ph.D. ............................ 70 Director
Charles X. Mao, Ph.D. ....................... 43 Director
Gary M. Parsons*............................. 50 Director
Joe R. Armstrong............................. 53 Chief Financial Officer
John A. Mason................................ 43 Sr. Vice President, Business
Development, Sorrento subsidiary and
President, Sorrento Europe
Christopher E. Sue........................... 38 Vice President, Finance
Richard L. Jacobson.......................... 59 Sr. Vice President, Legal and Secretary
Sunil Rajadhyksha............................ 48 President, Meret Communications, Inc.
---------
* See biographies in Proposal 1 -- Election of Directors
Tingye Li, Ph.D. has served as one of our directors since October 2000 and
as a director of our Sorrento subsidiary since February 2000. Dr. Li is not
standing for re-election at the annual meeting but will remain as a member of
our Advisory Board. Dr. Li has been a consultant in the field of lightwave
communications since December 1998. From 1957 to 1998, Dr. Li served in a number
of senior research positions at AT&T Bell Labs, ultimately serving as head of
the Lightwave Networks Research Department of AT&T Labs -- Research. Dr. Li also
serves as a director of LightCross, Inc., a supplier of passive components for
wavelength-division-multiplexed lightwave transmission systems and networks, and
Micron Optics, Inc., a supplier of components and subsystems for optical
networks. He is a fellow of the Optical Society of America and the Institute of
Electrical and Electronic Engineers, and a member of the National Academy of
Engineering. In 1995, he served as the President of the Optical Society of
America. Dr. Li holds a Ph.D. from Northwestern University.
9
Charles X. Mao, Ph.D. has served as one of our directors since October 2001.
Dr. Mao is not standing for re-election at the annual meeting but will remain as
a member of our Advisory Board. Dr. Mao is Senior Vice President, Sales and
Marketing of Avanex Corporation, a leading supplier of optical networking
components where he has worked in various capacities since 1999. From 1995 to
1999, Dr. Mao served as a Senior Engineer -- Transmission Equipment Engineering
for MCI WorldCom Corporation where he was responsible for writing technical
specifications for an optical amplifier system, DWDM transmitters and DWDM
regenerators. Before joining MCI, Dr. Mao was a senior member of the technical
staff of Accuwave Corporation. He has also serviced as a research consultant
with AT&T Bell Laboratories and headed a research group at Wuhan Research
Institute of Posts and Communications. Dr. Mao holds a Ph.D. and a M.S. in
Electrical Engineering from Polytechnic University and a B.S. in Electrical
Engineering from the Nanjing Institute of Posts and Telecommunications in China.
Joe R. Armstrong has served as our Chief Financial Officer since
January 2001. He brings over 25 years of corporate finance, investor relations,
treasury, legal and management experience to us, having spent 15 years with
State Of The Art, a leading provider of accounting software. As chief financial
officer, vice president, finance and secretary of State Of The Art, he managed
two rounds of venture capital financing, the company's initial public offering
and several significant acquisitions and mergers. Prior to joining us, Mr.
Armstrong most recently served as CFO for The Bohlin Company. Previously, he was
director of marketing finance and financial planning for MAI Basic Four
Corporation and a certified public accountant for Vicenti, Lloyd and Stutzman, a
regional public accounting firm. Mr. Armstrong holds both bachelors and masters
degrees in business from Utah State University.
John A. Mason has served as our Senior Vice President, Business Development
of our Sorrento subsidiary and President of Sorrento Europe since September 2000
where he is responsible for our European sales and marketing activities, as well
as the structuring and negotiation of contracts between us and our key customers
and oversight of the roll-out of our solution into those customers' optical
networks. Mr. Mason joined us in 1996 and became our Director of Business and
Strategic Planning in 1997 where he has been responsible for our strategic
planning efforts, as well as its corporate partnering, merger and acquisition
activity. Prior to joining us, Mr. Mason worked in the television and allied
industries, including positions with subsidiaries of Telecommunications
Incorporated and Fox, Inc., in the Mergers and Acquisitions Department of Smith
Barney and in the strategic consulting/technology practice at Booz, Allen and
Hamilton, Inc. Mr. Mason holds an M.B.A. from the Harvard University Graduate
School of Business Administration and an A.B. in Economics from Stanford
University.
Christopher E. Sue has been our Vice President, Finance since September
1997. From January 1996 to September 1997, he served as our Chief Financial
Officer. Mr. Sue served as our Secretary from February 1997 to September 1997
and from November 1998 to March 2000. In December 1995 Mr. Sue became Chief
Financial Officer of our subsidiary, Meret Communications, Inc. From 1993 to
1995, he was Accounting Manager at Haskel International, Inc., and from 1990 to
1993 he was Assistant Controller at Sun Computers, Inc. From 1986 to 1990, Mr.
Sue was employed by KPMG Peat Marwick in both its audit and management
consulting practices. Mr. Sue is a certified public accountant and holds a B.S.
in Accounting and Information Systems from Biola University.
Richard L. Jacobson has been our Senior Vice President, Legal and Secretary
since July 2000. Mr. Jacobson was a partner with the law firm of Fulbright &
Jaworski, LLP from 1990 to 2000 where his practice consisted primarily of
securities litigation and SEC enforcement matters. Prior to joining Fulbright in
1988 he was in private practice in Palo Alto, California, from 1986 to 1988, and
in Washington, D.C., from 1980 to 1986. From 1977 to 1979, Mr. Jacobson worked
for the SEC, where he was a member of the Trial Unit in the Enforcement Division
and served as Special Counsel to the Chairman. He served as a law clerk for
Ninth Circuit Judge Walter Ely from 1970 to 1971 and then clerked for Associate
United States Supreme Court Justice William O. Douglas from 1971 to 1972. Mr.
Jacobson holds a J.D. from the University of Southern California and a S.B. from
the University of Chicago.
10
Sunil Rajadhyksha has served as President and Chief Operating Officer of our
Meret Optical business unit since January 2002. From October 2000 to January
2002, he served as Meret's Technology Director. From 1997 to September 2000, Mr.
Rajadhyksha provided engineering and software design services to us as a
consultant including embedded and network management software projects both
directly and through a private company, Codec Corporation, which he founded in
1997. He is currently a director of Codec. Mr. Rajadhyksha was the founder and
managing director of Software Exports Pvt. Ltd., a foreign private software
development company from 1996 to 2000. He is a of director Codec Communications
Pvt. Ltd., a foreign private software development company, which he founded in
1991 and also of Embedded Resource Pvt. Ltd., a foreign private software
development company specializing in embedded software, which he founded in 1998.
Mr. Rajadhyksha has over twenty years of technical and management experience in
networking software, hardware and telecommunications. Mr. Rajadhyksha holds a
B.S. from University of Pune in telecommunications and electronics.
OTHER KEY MANAGEMENT
As of the date of this Proxy Statement, the management team of our Sorrento
Subsidiary includes:
NAME AGE POSITION
---- --- --------
Darin Clause.......................... 33 Vice President, Strategic Sales
Subrata Datta......................... 39 Vice President, Engineering
Demetri Elias, Ph.D. ................. 57 Vice President, Marketing
Susan Hamlin.......................... 39 Vice President, Sales (North America)
Jin-Yi Pan, Ph.D. .................... 42 Vice President, Systems Architecture
Mark Thurman.......................... 52 Vice President, Operations
Li-Ran Wu............................. 49 Vice President, Management Software
Jeff Phillips......................... 31 Vice President, Corporate Development
Darin Clause has served as our Vice President, Strategic Sales since
September 2000 and joined us in December 1999 as Director, Sales Development.
Prior to joining us, Mr. Clause was employed with Pirelli as a Senior Product
Manager from 1996 to 1999, where he was responsible for implementation of indoor
cabling and connectivity business lines for the CATV, CLEC, Utility and IXC
markets and multiple channels. From 1994 to 1996, Mr. Clause was a Project and
Sales Engineer for Sumitomo Electric Lightwave, where he was responsible for
fiber optic passive component sales. Mr. Clause holds a B.S. in Mechanical
Engineering from Clemson University.
Subrata Datta has served as Sorrento's Vice President, Engineering since
November 2000 and joined Sorrento upon our acquisition of Distributed Systems
International, Inc. in 1996. From 1996 to 1999 he was responsible for all
engineering development for the LAN adapter and hub/switch products. Prior to
joining Sorrento, Mr. Datta helped develop the ANSI FDDI and FDDI-II standards
and design network components and system-level products for DSI. Prior to DSI,
Mr. Datta had extensive design experience while working at AT&T Bell
Laboratories on the 3B20 Duplex computer system, based on highly fault tolerant
architectures, high-reliability and stringent up-time requirements. Before
working for AT&T Bell Laboratories, Mr. Datta worked for IBM's Yorktown Research
Center where he focused on FDDI development for their RS6000 workstation
systems. Mr. Datta holds a M.S. and B.S. in Electrical Engineering from the
Cooper Union School of Engineering.
Demetri Elias, Ph.D. has served as Sorrento's Vice President, Marketing
since October 2000 and joined Sorrento in April 2000 as Director, Product Line
Management. Prior to joining Sorrento, Dr. Elias was with Nortel Networks, a
leading optical equipment developer, for over 22 years holding positions in
research and development, consulting, product management and marketing. In his
most recent Nortel Networks assignments he served as Director, Product Line
Management and Director, Strategic Marketing on optical networking products.
Dr. Elias holds a Ph.D. in Electrical Engineering from McGill University,
Montreal, Canada.
Susan Hamlin has served as Sorrento's Vice President, Sales (North America)
since September 2000 and joined Sorrento in November 1999 as Regional Vice
President of Sales. Ms. Hamlin is also responsible for Sorrento's customer
service group. During her tenure at Pirelli Cables and Systems, Ms.
11
Hamlin was Director of Sales from 1998 to 1999 and responsible for overseeing
sales to CATV, CLEC, Utility and IXC markets. From 1997 to 1998, Ms. Hamlin was
National Sales Manager -- Distribution at Pirelli where she established and
implemented Pirelli's sales efforts into the distribution and OEM markets. From
1985 to 1996, Ms. Hamlin held a succession of sales and marketing management
positions with AT&T/Lucent Technologies where she was responsible for strategic
planning, market development and sales to the Regional Bell Operating Companies.
Ms. Hamlin holds a B.S. in Management Information Systems from Bradley
University in Peoria, Illinois and completed executive management programs at
Harvard University and the Wharton School of Business.
Jin-Yi Pan, Ph.D., has served as the Vice President, System Architecture, of
Sorrento since February 2000. From 1996 to 1999, Dr. Pan was a senior research
engineer at Nokia Research Center, the corporate research arm of Nokia
Corporation responsible for developing networking system architectures,
equipment and software. From 1993 to 1996, Dr. Pan served as a researcher at
Bell Communications Research, or Bellcore, the research center created to
service the regional bell operating companies in the areas of software,
networking standards and architecture. At Bellcore, he participated in the
development of network system architecture and protection scheme for MONET, the
government funded national optical networking consortium. Dr. Pan holds a Ph.D.
in Electrical Engineering from the City University of New York and a B.S. in
Optics from Zhejiang University, China.
Marc Thurman has served as our Vice President, Operations since April 2001.
Mr. Thurman oversees our manufacturing and operations, supply chain management,
and quality assurance functions. He brings to us nearly 25 years of
manufacturing operations, supply chain management and quality assurance
experience on leading edge technologies and products for the computer and
telecommunication markets. Mr. Thurman's previous experience includes service
since 1971, in various functions at Packard Bell NEC, ComCrypt Systems, IDEA
Courier, Inc., Sidereal Corporation, Intel Corporation, RTE Corporation, and
Western Electric. In his most recent position, Mr. Thurman had manufacturing
responsibilities including internal production, contract manufacturing (EMS) and
third party manufacturing (TPM), supporting revenues of $2 billion. Mr. Thurman
holds a B.S. in Electrical Engineering from Oregon State University as well as
an M.B.A. degree from University of Portland.
Li-Ran Wu has served as our Vice President, Management Software since
November 2000 and joined Sorrento in October 1999. Before joining Sorrento, Mr.
Wu was a senior consultant and Lead Systems Engineer at Hitachi Telecom where he
developed second-generation SONET equipment to complement WDM and OXC products
within the OTN. He also developed the WDM information model that was published
in 1998. Prior to working at Hitachi, Mr. Wu was with Nortel Networks, Racal
Datacom and Taiwan Telecom. While at Nortel he developed a SONET UPSR-based
communication messaging protocol. Mr. Wu holds an M.S. in Electrical Engineering
from North Carolina State University and a B.S. in Computer Science from Chiao
Tung University. He has also completed work on his doctoral thesis at the
Georgia Institute of Technology.
Jeff Phillips has served as our Vice President, Corporate Development since
January 2001. From 1995 to 2000, Mr. Phillips was a Vice President at US Bancorp
where he focused on financing for telecom related technology concerns and
advisory assignments. Prior to joining US Bancorp, Mr. Phillips was a financial
analyst/strategist with Hillebrand GmbH, a European investment group. Mr.
Phillips began his career as a floor trader at the London International
Financial and Futures and Options Exchange (LIFFE) where he focused on Deutsche
Mark denominated financial derivatives. Mr. Phillips holds a B.A. in Economics
from the University of California at Berkeley.
12
CERTAIN TRANSACTIONS
On March 3, 2000, our Sorrento subsidiary completed a sale of 8,596,333
shares of its Series A Convertible Preferred Stock to a group of investors
receiving net proceeds of approximately $46.6 million. Anderson Weinroth Capital
Corp. ('AW') received a placement fee of $1,950,000 paid through the issuance of
an additional 357,799 shares of the Series A stock.
The purchasers of more than $60,000 of these securities, include, among
others, the following present and former officers and directors and entities
affiliated with them:
NUMBER OF TOTAL
PURCHASER SHARES CONSIDERATION
--------- ------ -------------
Anderson Weinroth & Co., LP................................. 275,230 $ 1,500,000
Sorrento Holdings, LLC...................................... 1,192,661 6,500,000
Anderson Weinroth Capital Corporation....................... 357,799 1,950,000
Belmarken Holding B.V. ..................................... 3,027,523 16,500,000
Fisher Capital Partners..................................... 183,486 1,000,000
Virgo Cap, Inc.............................................. 91,744 500,000
Renn Zaphiropolous.......................................... 45,872 250,000
The purchase of shares by Anderson Weinroth & Co. LP and Sorrento Holdings,
LLC was pursuant to a previously contracted right of participation. Rohit
Phansalkar, who was a director at the time and later became our Chairman and
Chief Executive Officer, was a partner or a member of these purchasers. In
addition, Mr. Phansalkar was a partner of AW and one of our directors when AW
received the 357,799 shares in payment of the placement fee.
Belmarken Holding B.V. ('Belmarken') is an indirect subsidiary of United
GlobalCom, Inc. ('UGC'). Donne F. Fisher is a director of Media Liberty
Corporation which owns an 11% economic interest representing a 37% voting
interest in UGC and holds convertible debt of a subsidiary of United Pan-Europe
Communications, N.V. ('UPC'), a subsidiary of UGC, which it has agreed to
exchange for additional shares in UPC. Mr. Fisher is the President and
beneficial owner of Fisher Capital Partners. Mr. Fisher was not one of our
directors nor a director of Liberty Media when this stock placement occurred.
Oren G. Shaffer, a then director of our Sorrento subsidiary, is a
stockholder of Virgo Cap, Inc. Renn Zaphiropoulos was one our directors as well
as a director of our Sorrento subsidiary when this stock placement occurred.
Two of our customers are subsidiaries of UPC which is the parent of
Belmarken, a holder of our Sorrento subsidiary's Series A shares, and indirect
subsidiaries of UGC. During fiscal 2001 we made sales of $3,364,000, including
deferred revenue, to these customers and these customers had outstanding
receivables of $3,281,000 at January 31, 2001. During the nine months ended
October 31, 2001 we made sales of $1,884,000 to these customers. These customers
had gross outstanding receivables of $1,848,000 as of October 31, 2001. As noted
above, Mr. Fisher is a director of a shareholder of UGC and debt holder in one
of its indirect subsidiaries. Mr. Fisher was not one of our directors when we
made these sales and extended credit to these customers, however, indirect
subsidiaries of UGC continue to be among our customers.
During fiscal 2001 we purchased $5,858,000 of components from Avanex
Corporation of which $2,470,000 was outstanding at January 31, 2001. During the
nine months ended October 31, 2001 we purchased $3,289,000 of components from
Avanex of which $292,040 was outstanding at October 31, 2001. Charles Mao, who
joined our Board in October 2001, is Senior Vice President, Sales and Marketing
of Avanex. Dr. Mao was not one of our directors when we established this
relationship and we expect to continue to make significant purchases in the
future from Avanex.
During fiscal 2000 FIBR Holdings, LLC purchased 679,483 unregistered shares
of our common stock for $7,500,000. In connection with this placement Humbert B.
Powell III, then a director, received a finder's fee of $300,000 from us.
Andersen Weinroth Capital Corp. ('AW') received a placement fee of $300,000 in
connection with this placement and Rohit Phansalkar, who subsequently became one
of our directors, and later became our Chairman and Chief Executive Officer, was
a partner of AW at that time. FIBR Holdings, LLC had the right to nominate one
member of the Board of Directors to serve
13
until the annual shareholders' meeting in 2001 and had the right to participate
in any stock offering by our Sorrento subsidiary, to the extent of $7,500,000
subject to certain limitations. Mr. Phansalkar was nominated by AW and joined
our Board of Directors on January 6, 2000.
During July, 2000 we agreed to loan $300,000 for three years at the
applicable federal rate provided for in Internal Revenue Code Section 1274 to
Mr. Jacobson in connection with accepting employment as our Senior Vice
President, Legal. This is a full recourse loan and Mr. Jacobson has pledged his
options to acquire our common stock and any options he may receive from any of
our subsidiaries as collateral. During the year ended January 31, 2001 we
advanced the $300,000 for which the interest rate is 6.6%. Accrued and unpaid
interest on this loan at December 31, 2001 was $14,800.
During June 2000, we entered into various agreements with Par Chadha, our
former CEO and Chairman, which, among other matters, provides for payments of
$250,000 per year for three years of consulting services and loans by us for the
exercise of previously granted options to acquire 1,178,500 options at prices
varying from $7.03 to $49.25 per share. As the members of our Board of Directors
at the time of his resignation ceased to represent more than 50% of the Board in
October 2000, all payments for consulting services were accelerated and no
future consulting services are required. During October 2000, Mr. Chadha
exercised 71,112 options, applying the $500,000 accelerated payment to the
exercise. In addition, he exercised 507,388 options for which we are
contractually obligated to loan the $5,034,000 due on the exercise. During
September 2001, Mr. Chadha notified us that he does not have any obligations
under the agreements. We have notified him that we do not agree with his
interpretation of his repayment obligations under the terms of his agreements.
During December 2001, we entered into an agreement whereby the 507,388
option exercise was rescinded. Mr. Chadha returned the 507,388 shares to us for
cancellation and we cancelled the receivable due from him and restored the
original option agreements. This rescission agreement did not resolve any
underlying dispute as to the option loan repayment obligations.
During fiscal 2001, we entered into employment agreements with Dr. Cheng,
Mr. Mason, Mr. Sue, Mr. Jacobson, Mr. Leonard N. Hecht, our former Executive
Vice President, and Mr. Phansalkar, our former CEO, which provide for loans to
the employees to exercise stock options to acquire our common stock and the
stock of our subsidiaries including any required tax withholdings due upon
exercise. The loans are for a period not to exceed two years at the applicable
federal rate, are full recourse and require the pledge of shares issued upon
exercise. As of the date of this proxy no such loans are outstanding.
During fiscal 2000 we paid $40,000 to Mr. Zaphiropoulos, a then director,
for management consulting services.
During fiscal 1998, we made 8% demand loans totaling $165,000 to Chrysalis
Capital Group which were repaid with interest in April 1999. The loans were
collateralized by 20,408 shares of our common stock. During fiscal 2000 and
1999, we paid $190,070 and $25,000, respectively, in fees to Chrysalis Capital
Group for services rendered in connection with various amended loan and security
agreements. Mr. Hecht, a director when such transactions occurred, owns directly
and indirectly 100% of the outstanding capital stock of Chrysalis Capital Group.
14
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following tables set forth the annual compensation for both individuals
who served as the Company's Chief Executive Officer ('CEO') for the fiscal year
ended January 31, 2001, and for the four most highly compensated executive
officers of the Company, other than the CEO, who were serving as executive
officers at the end of our fiscal year and whose salary and bonus exceeded
$100,000.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- -----------------------------------
OTHER RESTRICTED SECURITIES LONG-TERM ALL
ANNUAL STOCK UNDERLYING INCENTIVE OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS PLAN COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) PLAYOUTS ($)(A)
--------------------------- ---- --- --- --- --- --- -------- ------
Xin Cheng, Chairman, .......... 2001 239,217 -- -- -- 175,000 -- --
Chief Executive Officer 2000 180,000 8,365 -- -- 100,000 -- --
1999 125,031 51,066 -- -- 196,183 -- --
James M. Dixon, Director, ..... 2001 54,464 100,000 -- -- 740,000 -- --
President, COO
Leonard N. Hecht, ............. 2001 104,808 -- -- -- 435,000 -- --
Executive VP
Christopher E. Sue, VP ........ 2001 155,880 -- -- -- 110,000 -- --
Finance 2000 134,904 27,947 -- -- 15,000 -- --
1999 103,077 -- -- -- 66,665 -- --
John A. Mason, Sr. VP ......... 2001 151,878 -- -- -- 42,500 -- --
Business Development
President, Sorrento Europe
Richard L. Jacobson, Sr. VP ... 2001 140,850 -- -- -- 154,000 -- 42,746
Legal and Secretary
Par Chadha, ................... 2001 80,128 -- -- -- 600,000 -- 750,000
former CEO 2000 230,000 -- -- -- 70,000 -- --
1999 147,500 -- -- -- 349,164 -- --
Rohit Phansalkar, ............. 2001 177,020 -- -- -- 450,000 -- 91,177
former CEO
---------
(A) Other compensation for Messrs. Jacobson and Phansalkar represents
relocation related expenses reimbursed by us. Mr. Chadha's other
compensation represents payments pursuant a consulting agreement entered
into in connection with his resignation as Chairman and CEO. Of this
amount, $500,000 was applied to an option exercise.
LONG-TERM INCENTIVE PLANS
The Company has no long-term incentive plans other than our various stock
option plans.
OPTION GRANTS -- YEAR ENDED JANUARY 31, 2001
The following table summarizes all grants of stock options made during the
year ended January 31, 2001 to each of the Named Executive Officers.
INDIVIDUAL GRANTS
--------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF MARKET ASSUMED RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE ON PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE DATE OPTION TERM (A)
OPTIONS EMPLOYEES IN PRICE GRANTED EXPIRATION -----------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) ($/SHARE) DATE 0% ($) 5% ($) 10% ($)
---- ---------- ------------- --------- --------- ---------- --------- ---------- ----------
Xin Cheng................. 175,000 4.51 49.25 49.25 5-01-2010 -- 5,420,286 13,736,068
James M. Dixon............ 700,000 18.05 26.64 26.64 10-19-2010 -- 11,727,627 29,720,109
40,000 1.03 22.00 18.75 1-17-2011 -- 341,671 1,065,307
Leonard N. Hecht.......... 75,000 1.93 35.50 35.50 5-22-2010 -- 1,674,432 4,243,339
350,000 9.03 59.88 59.88 8-22-2010 -- 13,179,273 33,398,865
10,000 0.26 18.75 18.75 1-17-2011 -- 117,918 298,827
Christopher E. Sue........ 50,000 1.29 21.80 21.80 4-17-2010 -- 1,548,653 3,924,591
50,000 1.29 25.00 25.00 1-17-2011 -- 786,118 1,992,178
10,000 0.26 18.75 18.75 1-17-2011 -- 117,918 298,827
John A. Mason............. 37,500 0.97 21.80 21.80 4-17-2010 -- 514,121 1,302,884
5,000 0.13 18.75 18.75 1-17-211 -- 58,959 149,413
Richard L. Jacobson....... 150,000 3.87 69.13 69.13 7-12-2010 -- 6,520,851 16,525,117
4,000 0.10 18.75 18.75 1-17-2011 -- 47,167 119,531
Par Chadha................ 600,000 15.47 49.25 49.25 4-26-2010 -- 18,583,836 47,095,090
Rohit Phansalkar.......... 450,000 11.60 35.50 35.50 6-9-2010 -- 10,046,592 25,460,036
(footnote on next page)
15
(footnote from previous page)
(A) In accordance with Securities and Exchange Commission rules, these columns
show gains that might exist for the respective options, assuming that the
market price of the Company's common stock appreciates from the date of the
grant over the term of the option at rates of 5% and 10%, respectively.
AGGREGATED OPTION EXERCISES DURING THE YEAR ENDED JANUARY 31, 2001 AND
JANUARY 31, 2001 OPTION VALUES
The following table sets forth information concerning each exercise of stock
options during the year ended January 31, 2001 by each of the Named Executive
Officers and the January 31, 2001, value of unexercised options.
NUMBER OF
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($) (A)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --- --- ----------- ------------- ----------- -------------
Xin Cheng................... -- -- 478,001 -- 5,368,307 --
James M. Dixon.............. -- -- 70,000 670,000 -- 170,000
Leonard N. Hecht............ -- -- 548,336 10,000 1,615,299 75,000
Christopher E. Sue.......... -- -- 171,999 60,000 1,439,034 137,500
John A. Mason............... -- -- 100,001 5,000 1,222,120 37,500
Richard L. Jacobson......... -- -- 150,000 4,000 -- 30,000
Par Chadha (B).............. 578,500 756,909 600,000 -- -- --
Rohit Phansalkar............ -- -- 485,000 -- -- --
---------
(A) Options are 'in-the-money' if, on January 31, 2001, the market price of the
Common Stock ($26.25) exceeded the exercise price of such options. The
value of such options is calculated by determining the difference between
the aggregate market price of the Common Stock covered by such options on
January 31, 2001, and the aggregate exercise price of such options.
(B) During December 2001, we entered into an agreement whereby the exercise of
507,388 options by Mr. Chadha was rescinded and the original option
agreements were reinstated which reduces the value realized to $273,337.
EMPLOYMENT AGREEMENTS
In September 2001, we entered into an employment agreement effective October
2001 with Mr. Arneson which provides for a salary of $210,000 per year, a
signing bonus of $30,000 paid in six monthly installments, a temporary living
allowance of $2,000 per month for two years and 125,000 options to acquire our
common stock vesting over two years. This agreement may be terminated for cause.
However, should Mr. Arneson be terminated without cause during the first year of
employment he will receive a lump-sum severance payment of six month's salary
and vesting of all his options. The lump-sum severance payment increases to one
year's salary after the first anniversary of his employment with us. In the
event of a change of control, merger or sale of the Company, Mr. Arneson is
entitled to receive an immediate payment equal to one year's salary and vesting
of all his options.
In September 2000, we assumed our Sorrento subsidiary's obligations under
its two year employment agreement with Dr. Cheng. The agreement, ending March
2002, provides for a salary of $250,000 per year, vesting of all his options to
acquire our common stock granted prior to February 1, 2000, and a bonus equal to
two year's base salary payable at the end of the contract. This agreement may be
terminated for cause. However, should Dr. Cheng be terminated without cause he
will receive a continuation of his salary and benefits for two years and he is
required to provide consulting services to us during that period.
16
We entered into a two year employment contract with Mr. Mason ending May
2002 which provides for a salary of $200,000 per year and vesting of all his
options to acquire our common stock granted prior to February 1, 2000. This
contract may be terminated for cause. However, should Mr. Mason be terminated
without cause or resign in certain circumstances prior to the end of the
contract term he will receive a continuation of his salary and benefits for two
years, vesting of all his options to acquire our common stock, and he is
required to provide consulting services to us during the two years following his
termination.
We have entered into a two year employment contract with Mr. Sue ending May
2002 which provides for a salary of $168,500 per year and the vesting of all his
options to acquire our common stock granted prior to February 1, 2000. This
contract may be terminated for cause. However, should Mr. Sue be terminated
without cause or resign in certain circumstances prior to the end of the
contract term he will receive a continuation of his salary and benefits for two
years, vesting of all his options to acquire our common stock and he is required
to provide consulting services to us during that period.
We entered into a two year employment contract with Mr. Jacobson ending in
July 2002 which provides for a salary of $250,000 per year. This contract may be
terminated for cause. However, should Mr. Jacobson be terminated without cause
or resign in certain circumstances prior to the end of the contract term he will
receive a continuation of his salary and benefits for two years, vesting of all
his options to acquire our common stock, and he is required to provide
consulting services to us during two years following his termination.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the 'Exchange Act')
requires the Company's directors and executive officers and person who own more
than ten percent of a registered class of the Company's equity securities to
file reports of beneficial ownership and changes in beneficial ownership with
the Securities and Exchange Commission (the 'Commission'). The rules promulgated
by the Commission under Section 16(a) of the Exchange Act require those persons
to furnish the Company with copies of all reports filed with the Commission
pursuant to Section 16(a).
Based solely upon a review of Forms 3, Forms 4 and Forms 5 and amendments
thereto furnished to us pursuant to Rule 16(a)(3)(e) during the year ended
January 31, 2001, and written representations of certain of our directors and
officers that no Forms 4 were required to be filed, we believe that all
directors, executive officers and beneficial owners of more than 10% of the
Common Stock have filed with the Commission on a timely basis all reports
required to be filed under Section 16(a) of the Exchange Act, except for late
reporting of initial option grants by Messrs. Armstrong, Arneson, Dixon,
Jacobson, Parsons and Dr. Li at the time each joined our Board of Directors or
became one of our officers and annual reports for Messrs. Jacobson, Hecht and
Mason, Ms. Mandl and Dr. Li.
COMPENSATION COMMITTEE REPORT
The following report shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
The Compensation Committee is presently comprised of Drs. Cheng and Li and
Mr. Hibbard. The Compensation Committee reviews, recommends and approves changes
to our compensation and benefits policies and programs, makes recommendations to
the Board for options granted under our plans and is responsible for reviewing
and approving the compensation for executive officers and certain senior
management of the Company. A majority of the Committee are neither employees nor
former employees of the Company nor are they eligible to participate in any of
the Company's executive compensation programs. Dr. Cheng does not participate in
meetings of the Committee concerning his compensation package.
We have developed and are developing compensation programs designed to
reflect our performance and to be competitive in the marketplace. In designing
compensation programs, we
17
attempt to reflect both value created for shareholders while supporting our
strategic goals. The goals of our short-term and long-term compensation programs
are to:
Attract, retain and motivate a high caliber executive leadership team
and employee group.
Competitive base salaries in keeping with a philosophy of career
continuity.
Align executive compensation with shareholder interests
Support our short-term and long-term strategic goal and objectives.
Promote our value and reward individuals for outstanding contributions
to our success.
The nature of our business requires a technologically innovative personnel
team to make a long-term commitment to our Company's growth. Accordingly, we
grant incentive awards primarily in the form of stock options with view towards
long-term corporate performance. These awards may not fluctuate as much as
year-to-year financial results. Under our programs, a substantial portion of
senior executives' potential compensation depends on increases in shareholder
value.
We pay for performance on the basis on individual's level of responsibility.
For this purpose, performance means both individual and corporate performance.
Individual performance includes the ability to put our business plans into
effect and to react to unanticipated events. We base compensation decisions for
all employees, including the executive officers names in the Summary
Compensation Table above.
Our executive compensation is based upon three components, base salary,
short term incentive awards and long-term incentives, which are intended to meet
our compensation program goals.
BASE SALARY
In keeping with the long-term and highly technical nature of our business,
we take a long-term approach to management development. This career-oriented
philosophy requires a competitive base salary. We base our salary structure on
competitive positioning (comparing our salary structure with salaries paid by
comparable companies), our own business performance, and general economic
factors, and increases in the individual's responsibilities, whether through
promotions or otherwise. Specific weights are not given to these factors, but
competitive positioning is the most important factor. Within the comparable
salary ranges, we determine individual senior management salaries based on
individual performance, level of responsibility, and experience.
SHORT-TERM INCENTIVE AWARDS
Our short-term incentive awards are designed to reflect the individual
officer's contribution to our profitability and revenues as well as any special
achievements by the respective officers. Short-term awards help stress that
decisions and contributions in any one year affect future years. Each year, the
Committee establishes ranges for awards based upon our business performance,
progress towards long-term goals, and competitive position. Some of the measures
of performance considered include sales, profit margins, operating expenses, net
income, working capital and operational excellence.
The award an executive receives depends upon the executive's individual
performance and level of responsibility. Each year, we assess relative
performance based on factors including initiative, business judgment, technical
expertise, and management skills. None of our executive officers received an
incentive bonus during fiscal 2001.
LONG-TERM INCENTIVE AWARDS
Long-term incentive awards are intended to develop and retain strong
management through share ownership and incentive awards that recognize future
performance. At present, stock options are the only long term incentive granted
to executive officers and all our employees. The Committee believes that a
significant portion of senior management's compensation should depend on value
created for the shareholders. Options are an excellent way to accomplish this
because they tie management's interests directly to the shareholders' interests.
18
The number of options granted to senior management is based on individual
performance and level of responsibility. For the purpose, the Committee measures
performance the same way as described above for short-term awards. Option grants
must be sufficient in size to provide a strong incentive for executives to work
for long-term business interests and become significant owners of the Company.
PERFORMANCE GRAPH
The following graph compares the cumulative five-year shareholder return
(including reinvestment of dividends) on an indexed basis with the Center for
Research in Security Prices ('CRSP') Index for Computer & Data Processing
Services Index and Nasdaq U.S. Index. These indices are included for comparative
purposes only and do not necessarily reflect management's opinion that such
indices are an appropriate measure of the relative performance of the stock
involved, and are not intended to forecast or be indicative of possible future
performance of our Common Stock.
INDEX VALUES
Nasdaq Computer &
Sorrento Networks Data Processing
Corporation NASDAQ US Index Services Index
----------- --------------- --------------
1/31/96 18.939 347.445 744.256
1/31/97 33.753 455.506 1012.751
1/31/98 16.502 537.440 1227.092
1/31/99 16.125 841.076 2461.128
1/31/00 49.563 1314.524 3951.310
1/31/01 27.000 920.551 2382.633
Pct. Chg. 42.563% 164.949% 220.136%
GROWTH OF $100
Nasdaq Computer &
Sorrento Networks Data Processing
Corporation NASDAQ US Index Services Index
----------- --------------- --------------
1/31/96 100.000 100.000 100.000
1/31/97 178.220 131.102 136.076
1/31/98 87.132 154.683 164.875
1/31/99 85.142 242.075 330.683
1/31/00 261.698 378.340 530.907
1/31/01 142.563 264.949 320.136
Pct. Chg. 42.563% 164.949% 220.136%
This graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except
to the extent that the Company specifically incorporate this graph by reference,
and shall not otherwise be deemed filed under such Acts.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE TO ELECT THE
AFOREMENTIONED NOMINEES TO SERVE ON THE BOARD OF DIRECTORS.
19
PROPOSAL 2
RATIFICATION OF THE
SELECTION OF INDEPENDENT AUDITORS
The selection of independent auditors to examine our financial statements
for the fiscal year ending January 31, 2002, which will be sent or made
available to shareholders and filed with the Securities and Exchange Commission,
is to be submitted to the meeting for ratification. BDO Seidman, LLP has been
selected by the Board of Directors upon recommendation by the Audit Committee to
examine such financial statements. Although ratification by the shareholders is
not required by law, the Board of Directors believes that shareholders should be
given this opportunity to express their views on the subject. While not binding
on the Board of Directors, the failure of the shareholders to ratify the
appointment of BDO Seidman, LLP as the Company's independent auditors would be
considered by the Board in determining whether to continue the engagement of BDO
Seidman, LLP. A member of BDO Seidman, LLP will be present at the Annual Meeting
and will be available to respond to appropriate questions and will have the
opportunity to make a statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF BDO SEIDMAN, LLP AS OUR INDEPENDENT AUDITORS.
OTHER BUSINESS
It is not anticipated that any other matters will be brought before the
Annual Meeting for action. If any such other matters shall properly come before
the Annual Meeting, however, it is intended that the persons authorized under
the proxies may, in the absence of instructions to the contrary, vote or act
thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, shareholders of the Company
may present proper proposals for inclusion in the Company's proxy statement and
for consideration at the next annual meeting by submitting their proposals to
the Company in a timely manner. Any shareholder of the Company who wishes to
present a proposal for the inclusion in the proxy statement for action at our
next Annual Meeting of Shareholders must comply with the Company's By-Laws and
the rules and regulations of the Commission then in effect. To be considered for
inclusion in next year's proxy statement, such a proposal must be mailed to the
Company at its principal executive offices at 9990 Mesa Rim Road, San Diego,
California 92121, Attention: Corporate Secretary, and must be received by the
Company before September 30, 2002.
IMPORTANT
TO ASSURE YOUR REPRESENTATION AND A QUORUM FOR THE TRANSACTION OF BUSINESS
AT THE ANNUAL MEETING, THE COMPANY URGES YOU TO PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD PROMPTLY.
20
EXHIBIT A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF SORRENTO NETWORKS CORPORATION
I. AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
Monitor the independence and performance of the Company's independent
auditors and internal auditing department.
Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of
Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at the Company's expense, special legal, accounting,
or other consultants or experts it deems necessary in the performance of its
duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
Audit Committee members shall meet the requirements of the Nasdaq Stock
Market. The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent non-employee
directors, free from any relationship that would interfere with the exercise of
his or her independent judgment. Each member of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements, and at least one member of the Committee shall
have accounting or related financial management expertise.
Audit Committee members shall be appointed by the Board. If an audit
committee Chair is not designated or present, the members of the Committee may
designate a Chair by majority vote of the Committee membership.
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. The Audit Committee Chair shall prepare and/or approve an
agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the director of the
internal auditing department, the independent auditors, and as a committee to
discuss any matters that the Committee or each of these groups believe should be
discussed. In addition, the Committee, or at least its Chair, should communicate
with management and the independent auditors quarterly to review the Company's
financial statements and significant findings based upon the auditors limited
review procedures.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
REVIEW PROCEDURES
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have
the document published at least every three years in accordance with
SEC regulations.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices, and judgments.
A-1
3. In consultation with the management, the independent auditors, and
the internal auditors, consider the integrity of the Company's
financial reporting processes and controls. Discuss significant
financial risk exposures and the steps management has taken to
monitor, control, and report such exposures. Review significant
findings prepared by the independent auditors and the internal
auditing department together with management's responses.
4. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of
earnings and/or the Company's quarterly financial statements prior to
filing or distribution. Discuss any significant changes to the
Company's accounting principles and any items required to be
communicated by the independent auditors in accordance with SAS 61.
The Chair of the Committee may represent the entire Audit Committee
for purposes of this review.
INDEPENDENT AUDITORS
1. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall
review the independence and performance of the auditors and annually
recommend to the Board of Directors the appointment of the
independent auditors or approve any discharge of auditors when
circumstances warrant.
2. Approve the fees and other significant compensation to be paid to the
independent auditors.
3. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditor's independence.
4. Review the independent auditors audit plan -- discuss scope,
staffing, locations, reliance upon management, and internal audit and
general audit approach.
5. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required
to be communicated to audit committees in accordance with AICPA
SAS 61.
6. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
INTERNAL AUDIT DEPARTMENT AND LEGAL COMPLIANCE
1. Review the budget, plan, changes in plan, activities, organizational
structure, and qualifications of the internal audit department, as
needed.
2. Review the appointment, performance, and replacement of the senior
internal audit executive.
3. Review significant reports prepared by the internal audit department
together with management's response and follow-up to these reports.
4. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies.
OTHER AUDIT COMMITTEE RESPONSIBILITIES
1. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included in
the Company's annual proxy statement.
2. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board
deems necessary or appropriate.
3. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
A-2
OTHER OPTIONAL CHARTER DISCLOSURES
1. Establish, review, and update periodically a Code of Ethical Conduct
and ensure that management has established a system to enforce this
Code.
2. Periodically perform self-assessment of audit committee performance.
3. Review financial and accounting personnel succession planning within
the Company.
4. Annually review policies and procedures as well as audit results
associated with directors' and officers' expense accounts and
prerequisites. Annually review a summary of directors and officers
related party transactions and potential conflicts of interest.
A-3
[Sorrento Networks Logo]
[Recycle Logo]
APPENDIX 1 - BROKER PROXY CARD
SORRENTO NETWORKS CORPORATION
9990 MESA RIM ROAD, SAN DIEGO, CA 92121
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Christopher E. Sue as Proxy, with the power to
appoint a substitute and hereby authorizes him to represent and to vote, as
designated on the reverse side of this card, all the shares of common stock of
Sorrento Networks Corporation (the "Company") held of record by the undersigned
as of January 10, 2002, at the annual meeting of shareholders to be held on
February 21, 2002 or any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
Please date, sign and mail your proxy card back as soon as possible!
Annual Meeting of Shareholders
SORRENTO NETWORKS CORPORATION
February 21, 2002
Please Detach and Mail in the Envelope Provided
A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
FOR all nominees WITHHOLD NOMINEES
listed at right (except as AUTHORITY Xin Cheng, Ph.D.
as marked to the contrary to vote for all nominees Phillip W. Arneson
at right listed at right Donne F. Fisher
2. To elect the Board of Directors of Robert L. Hibbard
five (5) persons to serve until the next [ ] [ ] Gary M. Parsons
Annual Meeting of Shareholders or
until a successor is duly elected and qualified
FOR AGAINST ABSTAIN
2. Proposal to ratify the selection of BDO Seidman, LLP
as the Company's independent auditors for fiscal year 2002 [ ] [ ] [ ]
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof as to which discretionary authority may be granted.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. THIS PROXY ALSO CONFERS DISCRETIONARY AUTHORITY
WITH RESPECT TO ANY BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF AS TO WHICH DISCRETIONARY AUTHORITY MAY BE
GRANTED.
PLEASE MARK, SIGN, AND DATE AND PROMPTLY RETURN THE PROXY CARD.
Signature: Date: , 2002
-------------------- -------------------------- --------
Signature if held jointly
Note: Please sign exactly as name appears. When shares are held by joint
tenants, both should sign. When signing as an attorney, as an executor,
as administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in partnership
name by an authorized may be granted.
APPENDIX 2 - INTERNET/PHONE PROXY CARD
Annual Meeting of Shareholders
SORRENTO NETWORKS CORPORATION
February 21, 2002
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelop provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
Please access the web page at www.amstock.com and follow the on-screen
instructions. Have your control number available when you access the web page.
YOUR CONTROL NUMBER IS [ ]
Please Detach and Mail in the Envelop Provided
A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
FOR all nominees WITHHOLD NOMINEES
listed at right (except as AUTHORITY Xin Cheng, Ph.D.
as marked to the contrary to vote for all nominees Phillip W. Arneson
at right listed at right Donne F. Fisher
1. To elect the Board of Directors of Robert L. Hibbard
five (5) persons to serve until the next [ ] [ ] Gary M. Parsons
Annual Meeting of Shareholders or
until a successor is duly elected and qualified
FOR AGAINST ABSTAIN
2. Proposal to ratify the selection of BDO Seidman, LLP
as the Company's independent auditors for fiscal year 2002 [ ] [ ] [ ]
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof as to which discretionary authority may be granted.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. THIS PROXY ALSO CONFERS DISCRETIONARY AUTHORITY
WITH RESPECT TO ANY BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF AS TO WHICH
DISCRETIONARY AUTHORITY MAY BE GRANTED.
PLEASE MARK, SIGN, AND DATE AND PROMPTLY RETURN THE PROXY CARD.
Signature: Date: , 2002
-------------------- ------------------------- --------
Signature if held jointly
Note: Please sign exactly as name appears. When shares are held by joint
tenants, both should sign. When signing as an attorney, as an executor,
as administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in partnership
name by an authorized may be granted.