<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
WESTERN DIGITAL CORPORATION
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] 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:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
[WESTERN DIGITAL LOGO]
Dear Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders
at the Company's headquarters, 8105 Irvine Center Drive, Irvine, California
92618, on Thursday, November 5, 1998, at 10:00 a.m. Your Board of Directors and
management look forward to welcoming you.
The Company is asking for your vote by proxy FOR the following
proposals:
o The election of the eight directors named in the Proxy Statement to
serve until the next Annual Meeting of Shareholders and until their
successors are elected and qualified.
o The authorization for an additional 10,000,000 shares under the
Employee Stock Option Plan, which is available to all of the
Company's employees worldwide.
o The ratification of the selection of KPMG Peat Marwick LLP as
independent accountants for the Company for the fiscal year ending
July 3, 1999.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF
THESE PROPOSALS.
Whether or not you are able to attend the meeting, it is important that
your shares be represented, no matter how many shares you own. We urge you to
promptly mark, sign, date and mail your proxy in the envelope provided.
On behalf of the Board of Directors, thank you for your continued
support.
/s/ Charles A. Haggerty
------------------------------------
Charles A. Haggerty
Chairman, President and
Chief Executive Officer
September 28, 1998
<PAGE> 3
[WESTERN DIGITAL LOGO]
8105 IRVINE CENTER DRIVE
IRVINE, CALIFORNIA 92618
--------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 5, 1998
To the Shareholders of
WESTERN DIGITAL CORPORATION
The Annual Meeting of Shareholders of Western Digital Corporation, a
Delaware corporation (the "Company"), will be held at the Company's principal
executive offices, 8105 Irvine Center Drive, Irvine, California 92618, on
Thursday, November 5, 1998, at 10:00 a.m.
for the following purposes:
1. To elect eight directors to serve until the next Annual
Meeting of Shareholders of the Company and until their successors are
elected and qualified;
2. To approve an amendment to the Company's Amended and Restated
Employee Stock Option Plan (the "Employee Stock Option Plan") to
authorize and reserve for issuance an additional 10,000,000 shares of
the Company's Common Stock which may be issued pursuant to the terms of
such plan;
3. To ratify the selection of KPMG Peat Marwick LLP as
independent accountants for the Company for the fiscal year ending July
3, 1999; and
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on September 11,
1998, are entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. YOU ARE
URGED TO SIGN, DATE AND OTHERWISE COMPLETE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON EVEN IF
YOU HAVE SIGNED AND RETURNED YOUR PROXY CARD.
By Order of the Board of Directors
/s/ Michael A. Cornelius
------------------------------------
Michael A. Cornelius
Vice President and Secretary
Irvine, California
September 28, 1998
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Proxy Statement .............................................................................1
Voting ......................................................................................1
Security Ownership by Principal Shareholders and Management .................................2
Proposal 1: Election of Directors ..........................................................3
Nominees for Election .......................................................................3
Committees and Meetings .....................................................................4
Director Compensation .......................................................................5
Executive Compensation ......................................................................6
Report of the Compensation Committee ........................................................6
Summary Compensation Table .................................................................10
Option/SAR Grants in Last Fiscal Year ......................................................11
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values ..12
Long-Term Incentive Plan - Awards in Last Fiscal Year ......................................13
Compensation Committee Interlocks and Insider Participation ................................13
Stock Performance Graph ....................................................................13
Section 16(a) Beneficial Ownership Reporting Compliance ....................................13
Certain Transactions and Other Matters......................................................14
Change of Control Arrangements .............................................................14
Proposal 2: Approval of the Amendment to the Employee Stock Option Plan ...................15
Proposal 3: Ratification of Selection of Independent Public Accountants ...................17
Shareholder Proposals for 1999 .............................................................17
Other Matters ..............................................................................17
Annual Reports .............................................................................17
Expenses of Solicitation ...................................................................18
Exhibit A - Employee Stock Option Plan ....................................................A-1
</TABLE>
<PAGE> 5
[WESTERN DIGITAL LOGO]
8105 IRVINE CENTER DRIVE
IRVINE, CALIFORNIA 92618
--------
PROXY STATEMENT
--------
ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 5, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Western Digital Corporation, a Delaware
corporation (the "Company"), for use at the Company's 1998 Annual Meeting of
Shareholders to be held on November 5, 1998, at 10:00 a.m. (the "Meeting") and
at any and all adjournments and postponements of the Meeting. The Meeting will
be held at the Company's principal executive offices at 8105 Irvine Center
Drive, Irvine, California 92618. This Proxy Statement and the accompanying form
of proxy will be mailed to shareholders on or about September 28, 1998.
VOTING
September 11, 1998, has been fixed as the record date (the "Record
Date") for the determination of shareholders entitled to notice of and to vote
at the Meeting. On the Record Date, 88,697,404 shares of the Company's Common
Stock were outstanding. Each share is entitled to one vote on any matter that
may be presented for consideration and action by the shareholders at the
Meeting. The holders of a majority of the shares of Common Stock outstanding on
the Record Date and entitled to be voted at the Meeting, present in person or by
proxy, will constitute a quorum for the transaction of business at the Meeting
and any adjournments and postponements thereof. For the purposes of Proposal 1,
abstentions and broker non-votes will be entirely excluded from the vote and
will have no effect on the election of directors. For the purposes of Proposals
2 and 3, abstentions will have the same effect as a negative vote, whereas
broker non-votes will have no effect on the outcome of the vote.
Each proxy will be voted FOR the following three proposals: (i) the
election of the eight director nominees named herein, (ii) the approval of an
amendment to the Employee Stock Option Plan to authorize and reserve for
issuance an additional 10,000,000 shares of the Company's Common Stock which may
be issued pursuant to the terms of such plan, and (iii) the ratification of the
selection of KPMG Peat Marwick LLP as the Company's independent accountants for
the fiscal year ending July 3, 1999, except that if a shareholder has submitted
a proxy with different voting instructions, the shares will be voted according
to the shareholder's direction. Any shareholder has the power to revoke his/her
proxy at any time before it is voted at the Meeting by submitting a written
notice of revocation to the Secretary of the Company or by filing a duly
executed proxy bearing a later date. A proxy will not be voted if the
shareholder who executed it is present at the Meeting and elects to vote the
shares represented thereby in person.
1
<PAGE> 6
SECURITY OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock, as of September 1, 1998
(unless otherwise indicated), by (i) each person known by the Company to own
beneficially more than five percent (5%) of the outstanding shares of the
Company's Common Stock, (ii) each director of the Company, (iii) each of the
executive officers named in the Summary Compensation Table, and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Name and Address of Beneficial Owner Ownership Class(1)
------------------------------------ ---------- ----------
<S> <C> <C>
Legg Mason(2)(3)
100 Light Street 8,437,980 9.5
Baltimore, Maryland 21203
Trimark Investment Management Inc.(3) 5,700,000 6.4
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, ON M5X 1E5
Kopp Investment Advisors(3)(4)
7701 Frances Avenue, South, Suite 500 4,988,286 5.6
Edina, Minnesota 55435
Charles A. Haggerty(5) 1,078,309 1.2
James A. Abrahamson(6) 27,375 *
Peter D. Behrendt(6) 45,125 *
I. M. Booth(6) 74,507 *
Irwin Federman(6) 69,375 *
Andre R. Horn(6) 50,870 *
Anne O. Krueger(6) 34,375 *
Thomas E. Pardun(6) 28,750 *
Kathryn A. Braun(6)(7) 193,289 *
Marc H. Nussbaum(5) 207,260 *
David W. Schafer(6) 105,676 *
Duston M. Williams(6) 93,838 *
All Directors and Executive 2,337,139 2.6
Officers as a group (17 persons)(8)
</TABLE>
- - - ---------------
* Less than 1%
(1) Applicable percentage of ownership is based on 88,697,404 shares of
Common Stock outstanding as of September 11, 1998. Beneficial ownership
is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with
respect to shares. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after September 1, 1998, are
deemed outstanding for computing the percentage ownership of the person
holding such stock options, but are not deemed outstanding for computing
the percentage of any other person.
(2) Includes Legg Mason Value Fund, Legg Mason Special Investment Trust, and
Legg Mason Capital Management.
(3) Telephonic confirmation of holdings obtained on September 18, 1998.
2
<PAGE> 7
(4) Reported holdings as of February 13, 1998. Telephonic confirmation that
holdings at September 18, 1998 did not vary more than 1% of reported
holdings. Holder confirmed sole voting power as to 530,000 shares, sole
dispositive power as to 270,000 shares and shared voting and dispositive
power as to 4,718,286 shares.
(5) Includes 766,626 and 107,130 shares of Common Stock which may be
acquired by Messrs. Haggerty and Nussbaum, respectively, within 60 days
after September 1, 1998, through the exercise of stock options and
12,467 and 30,090 shares allocated to their respective accounts under
the Company's Retirement Savings and Profit Sharing Plan as of September
1, 1998, the latest date for which information is reasonably available.
(6) Includes shares of Common Stock which may be acquired within 60 days
after September 1, 1998, through the exercise of stock options as
follows: Mr. Abrahamson (18,375), Mr. Behrendt (42,375), Mr. Booth
(26,875), Mr. Federman (12,375), Mr. Horn (19,750), Dr. Krueger
(24,375), Mr. Pardun (23,750), Ms. Braun (149,909), Mr. Schafer
(90,173), and Mr. Williams (83,676). Does not include shares
representing deferred stock units credited to accounts in the Company's
Deferred Compensation Plan as of September 1, 1998, as to which they
currently have no voting or investment power, as follows: Mr. Abrahamson
(835), Mr. Behrendt (1,120), Mr. Federman (2,546), Dr. Krueger (2,332),
and Mr. Pardun (1,956).
(7) Ms. Braun retired from her position as President and Chief Operating
Officer, Personal Storage Division on August 19, 1998.
(8) Includes 1,622,212 shares of Common Stock which may be acquired within
60 days after September 1, 1998, through the exercise of stock options
and 70,263 shares allocated to the respective accounts of such
individuals under the Company's Retirement Savings and Profit Sharing
Plan as of September 1, 1998, the latest date for which information is
reasonably available.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's directors are elected at each Annual Meeting of
Shareholders. Currently, the authorized number of directors of the Company is
eight. At the Meeting, eight directors will be elected to serve until the next
Annual Meeting of Shareholders and until their successors are elected and
qualified. The nominees receiving the greatest number of votes at the Meeting up
to the number of authorized directors will be elected. Abstentions and broker
non-votes will be entirely excluded from the vote and will have no effect on the
election of directors.
NOMINEES FOR ELECTION
The nominees for election as directors set forth below are all incumbent
directors. Each of the nominees has consented to serve as a director if elected.
Unless authority to vote for any director is withheld in a proxy, it is intended
that each proxy will be voted FOR such nominees. In the event that, before the
Meeting, any of the nominees for director should become unable to serve if
elected, shares represented by proxies will be voted for such substitute
nominees as may be recommended by the Company's existing Board of Directors,
unless other directions are given in the proxies. To the Company's knowledge,
all the nominees will be available to serve.
The following biographical information is furnished with respect to each
of the eight nominees:
CHARLES A. HAGGERTY, 57, has been a director of the Company since 1993.
He joined the Company as President in June 1992 and assumed the additional
positions of Chairman and Chief Executive Officer on June 30, 1993. Mr. Haggerty
is also a director of Pentair, Inc., Beckman Instruments, Inc., and Sync
Research, Inc.
3
<PAGE> 8
I. M. BOOTH, 66, has been a director of the Company since 1985. He
retired in 1996 after having served as Chairman, President and Chief Executive
Officer of Polaroid Corporation from June 1991 to March 1996. He is also a
director of John Hancock Mutual Life Insurance Company and State Street Bank &
Trust.
ANDRE R. HORN, 70, has been a director of the Company since 1985. He
retired in 1991 after having served as Chairman of Needham & Company, Inc., an
investment banking firm, from 1985 to March 1991. He was formerly Chairman of
the Board of Joy Manufacturing Company, a maker of heavy machinery. He serves as
a director of Varco International, Inc., and Remec.
IRWIN FEDERMAN, 63, has been a director of the Company since 1986. He
has been a partner of U.S. Venture Partners, a venture capital investment firm
for more than five years. He is also as a director of Komag, Inc., Checkpoint
Software Technology, Ltd., SanDisk Corporation, NeoMagic Corporation and MMC
Networks, Inc.
DR. ANNE O. KRUEGER, 64, has been a director of the Company since 1989.
She has been Professor of Economics, Stanford University, since July 1993. From
January 1987 until that time, she served as Arts and Sciences Professor of
Economics in the Department of Economics at Duke University. She is also a
director of Nordson Corporation.
THOMAS E. PARDUN, 55, has been a director of the Company since 1993. He
has been President of MediaOneSM International, Asia-Pacific, a subsidiary of
Media One Group, Inc., a diversified communications company, since May 1996.
From April 1993 until that time, he served as President and Chief Executive
Officer of U S WEST Multimedia Communications Group. From May 1988 until April
1993, Mr. Pardun served in key executive positions with U S WEST Communications,
Inc., as Vice President, Marketing and Planning and as Vice President and
General Manager, Business and Government Services. He is also a director of
Exabyte Corporation.
JAMES A. ABRAHAMSON, 65, has been a director of the Company since 1994.
He has been Chairman and Chief Executive Officer of International Air Safety,
L.L.C., an investment and operating company providing air traffic control
products and services, and BDM Air Safety Management Corporation since August
1995. From June 1995 to the present, he has also been a Senior Advisor at Galway
Partners, L.L.C. From October 1992 until June 1995, he served as Chairman of the
Board of Oracle Corporation, an information management software and services
company.
PETER D. BEHRENDT, 59, has been a director of the Company since 1994. He
has been Chairman of Exabyte Corporation, a manufacturer of computer tape
storage products, since January 1992 and was President and Chief Executive
Officer from July 1990 to January 1997. He is also a director of Infocus
Corporation and Wild Oats Markets, Inc.
COMMITTEES AND MEETINGS
The Board of Directors has standing Executive, Audit, Compensation, and
Nominating Committees. The membership of these committees is usually determined
at the organizational meeting of the Board held in conjunction with the Annual
Meeting of Shareholders. The membership of each committee is as follows, with
the chairman listed first:
<TABLE>
<CAPTION>
Executive Audit Compensation Nominating
Committee Committee Committee Committee
--------- --------- ------------ ----------
<S> <C> <C> <C>
Charles A. Haggerty Andre R. Horn Irwin Federman I. M. Booth
Irwin Federman Anne O. Krueger James A. Abrahamson Irwin Federman
Andre R. Horn Thomas E. Pardun Peter D. Behrendt Charles A. Haggerty
Anne O. Krueger I. M. Booth (Alternate) I. M. Booth
</TABLE>
4
<PAGE> 9
EXECUTIVE COMMITTEE. Between meetings of the Board, the Executive
Committee may exercise all of the powers of the Board (except those powers
expressly reserved by applicable law to the Board) in the management and
direction of the business and conduct of the affairs of the Company, subject to
any specific directions given by the Board.
AUDIT COMMITTEE. The Audit Committee reviews and approves the scope of
the annual audit performed by the Company's independent auditors, meets with the
Company's independent auditors to review the results of the annual audit,
recommends to the Board engagement or retention of the Company's independent
auditors, and is primarily responsible for reviewing and evaluating the
Company's accounting principles and its internal accounting controls. The Audit
Committee directs and reviews special investigations, receives periodic reports
on legal and tax matters, reviews the Company's legal compliance policies and
practices, and reports to the Board as appropriate concerning these reviews,
investigations, and reports.
COMPENSATION COMMITTEE. The Compensation Committee advises the Board
with respect to various compensation matters and administers the Company's
Employee Stock Option Plan, Employee Stock Purchase Plan, Deferred Compensation
Plan and other benefit plans.
NOMINATING COMMITTEE. The Nominating Committee reviews and makes
recommendations to the Board regarding nominees for director and committee
assignments. The Nominating Committee will consider nominees recommended by
shareholders for election at the Company's 1999 Annual Meeting of Shareholders,
so long as such proposal is received by the Secretary of the Company at the
Company's principal executive offices no later than Tuesday, June 2, 1999.
During fiscal year 1998, there were six meetings of the Board, two
meetings of the Executive Committee, four meetings of the Audit Committee, two
meetings of the Compensation Committee and one meeting of the Nominating
Committee. Each of the current directors attended 75% or more of the total
number of meetings of the Board and the meetings of the committees of the Board
on which he/she served during such period.
DIRECTOR COMPENSATION
DIRECTOR FEES. Non-employee directors receive an annual retainer of
$25,000, plus compensation of $2,500 for each session (day or consecutive days)
during which they attend a Board meeting or meeting of a committee of the Board,
$500 for each meeting held by telephone conference, and reimbursement of travel
expenses. In addition, the chairman of each committee of the Board receives an
annual retainer of $2,500. Mr. Haggerty, who is an employee of the Company, does
not receive any compensation for his services as a director or committee
chairman.
NON-EMPLOYEE DIRECTORS STOCK-FOR-FEES PLAN. Under the Company's
Non-Employee Directors Stock-for-Fees Plan (the "Stock-for-Fees Plan"), one-half
of the annual retainer fee payable to each non-employee director is paid in the
form of shares of the Company's Common Stock rather than cash. Each non-employee
director may elect to receive shares in lieu of any or all of the (i) remaining
half of the annual retainer fee otherwise payable to him or her in cash for that
calendar year, and/or (ii) meeting attendance fees otherwise payable to him or
her in cash for that calendar year. At the time of the election for a particular
calendar year, a non-employee director may also elect to defer the receipt of
any cash or stock annual retainer or meeting fees to be paid during the calendar
year. The deferral will not change the form (cash or shares) in which the fee is
to be paid at the end of the deferral period. The Company pays a 15% premium in
the form of Common Stock to each non-employee director who elects to defer
annual retainer or meeting fees to be received in Common Stock. The number of
shares of Common Stock payable is determined by dividing the amount of the cash
fee the director would have received by the fair market value of the Common
Stock on the date the cash fee would have been paid. Shares issued under the
Stock-for-Fees Plan were: (i) 1,448 plus the 8,789 deferred stock units reported
below under Deferred Compensation Plan in fiscal year 1998, (ii) 792 plus 5,274
deferred stock units in fiscal year 1997, and (iii) zero in fiscal year 1996.
The maximum aggregate number of shares of Common Stock that may be
issued under the Stock-for-Fees Plan is 400,000 shares, subject to antidilution
adjustments. The Stock-for-Fees Plan will terminate on December 31,
5
<PAGE> 10
2002, unless it is terminated by earlier action of the Board of Directors. The
Board has the power to suspend, discontinue or amend the Stock-for-Fees Plan at
any time, subject to shareholder approval, if required under any law or
regulation.
DEFERRED COMPENSATION PLAN. Under the Company's Deferred Compensation
Plan, all directors and employees selected for participation by the Compensation
Committee are permitted to defer payment of compensation by the Company.
Non-employee directors who elect to participate are permitted to defer between a
minimum of $2,000 per calendar year and a maximum of 100% of their compensation
in cash or deferred stock units payable under the Stock-for-Fees Plan. The
deferred stock units carry no voting or investment power. Interest on the
deferred cash balances accrues at a rate determined prior to the beginning of
each calendar year based upon results of the preceding year, except that
beginning in 1998, investment options other than a fixed interest rate were
available to participants. The interest rate for calendar years 1996, 1997 and
1998 was 7.4%.
Pursuant to the terms of the Deferred Compensation Plan, non-employee
directors deferred compensation in the last three fiscal years, respectively, as
follows:
<TABLE>
<CAPTION>
1998 1997
Deferred Deferred
Director Stock Units 1998 Cash Stock Units 1997 Cash 1996 Cash
-------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
James A. Abrahamson 835 $27,500 454 $ 0 $ 0
Peter D. Behrendt 1,120 7,500 1,182 6,000 32,000
Irwin Federman 2,546 0 1,274 6,000 34,000
Anne O. Krueger 2,332 0 1,182 0 0
Thomas E. Pardun 1,956 0 1,182 4,000 32,000
</TABLE>
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS. The Company has an Amended
and Restated Stock Option Plan for Non-Employee Directors (the "Director Plan")
under which options to purchase shares of the Company's Common Stock are granted
to the Company's non-employee directors. Pursuant to the Director Plan,
non-employee directors are automatically granted options to purchase up to
30,000 shares of Common Stock (subject to antidilution provisions) upon initial
election or appointment to the Board at an exercise price per share equal to the
fair market value of the Common Stock on the date of such initial election or
appointment ("Initial Options"). Thereafter, immediately following each annual
meeting of shareholders of the Company after a non-employee director joins the
Board, if he/she has served as a director since his/her election or appointment
and has been re-elected as a director at such annual meeting, such non-employee
director will automatically receive another option to purchase up to 7,500
shares of Common Stock at an exercise price per share equal to the fair market
value of Common Stock on the date of grant ("Additional Options").
Both Initial Options and Additional Options vest over a period of four
years, with 25% vesting on the first anniversary of the grant date and 6.25%
vesting at the end of each quarter thereafter. Initial Options and Additional
Options vest only if the optionee has remained a director for the entire period
from the grant date to the vesting date. The maximum aggregate number of shares
that may be issued upon exercises of options granted under the Director Plan is
1,600,000, subject to antidilution adjustments.
6
<PAGE> 11
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is responsible for
establishing, reviewing and revising the Company's executive compensation
programs and policies. The Compensation Committee is composed entirely of
directors who are not employees or former employees of the Company and who do
not have a direct business relationship with the Company other than in their
capacity as directors. The Compensation Committee also administers the Company's
Employee Stock Option Plan, 1993 Employee Stock Purchase Plan and Deferred
Compensation Plan.
This report is being included pursuant to the Securities Exchange
Commission rules designed to enhance disclosure of public companies' executive
compensation policies. This report addresses the Company's policies for fiscal
year 1998 as they affected the Chief Executive Officer and the Company's other
executive officers, including the named executive officers in this Proxy
Statement.
COMPENSATION PHILOSOPHY
The Company's executive compensation programs are based on the belief
that the interests of the executives should be closely aligned with the
Company's shareholders. To support this philosophy, a meaningful portion of each
executive's compensation is placed at-risk and linked to the accomplishment of
specific results that are expected to lead to the creation of value for the
Company's shareholders from both the short-term and long-term perspectives. The
Company's compensation policies and programs are designed to:
o Attract, develop, reward and retain highly qualified and productive
individuals;
o Motivate executives to improve the overall performance and
profitability of the Company, as well as the business sector for
which each is responsible, and reward executives only when specific
measurable results have been achieved;
o Encourage accountability by adjusting salaries and incentive awards
based on each executive's individual performance, potential and
contribution;
o Tie incentive awards to the performance of the Company's Common
Stock to further reinforce the linkage between the interests of the
shareholders and the executives; and
o Ensure compensation levels that are both externally competitive and
internally equitable.
In furtherance of these goals, the Company's executive compensation
policies, plans and programs consist of base salary, annual incentive
compensation, stock option grants, long-term retention awards, a non-qualified
deferred compensation plan, life insurance and other benefits.
The Compensation Committee considers all elements of compensation and
the compensation philosophy when determining individual components of pay. The
Compensation Committee does not follow any principles in a mechanical fashion;
rather, the members use their experience and judgment in determining the mix of
compensation for each individual. In addition to the experience and knowledge of
the Compensation Committee and the Company's Human Resources staff, the
Compensation Committee utilizes the services of independent human resources
consultants who provide competitive data from independent survey sources of peer
companies in competition for similar management talent. The survey includes data
from direct competitors of the Company and from other companies in the
high-technology industry with similar size and performance characteristics.
While there is no specific formula that is used to set pay in relation to this
market data, executive officer base salary and individual bonus target amount
are generally set at the median total cash compensation level for comparable
jobs in the marketplace. However, when the Company's business groups meet or
exceed certain predetermined financial
7
<PAGE> 12
and non-financial goals, amounts paid under the Company's performance-based
compensation program may lead to total cash compensation levels which are higher
than the median levels for comparable jobs. The Compensation Committee also
reviews the compensation levels of the executive officers for internal
consistency.
The Company intends to provide a total compensation opportunity for
executive officers that is above average, but with an above average amount of
the total compensation opportunity at risk and dependent upon continuously
improving Company performance. In all cases, the Compensation Committee
considers the total potential compensation payable to each of the executive
officers when establishing or adjusting any element of their compensation
package.
EXECUTIVE COMPENSATION COMPONENTS
The Company's executive compensation package consists primarily of the
following components:
BASE SALARY. Executive base salaries are reviewed annually, and base
salary levels are generally targeted at the median or below of competitive data.
The base salaries of individual executives can and do vary from this salary
benchmark based on such factors as the competitive environment, the executive's
experience level and scope of responsibility, current performance, future
potential and the overall contribution of the executive. The Compensation
Committee exercises its judgment based on all the factors described above in
making its decisions. No specific formula is applied to determine the weight of
each criteria, and, once established, base salary does not depend on the
Company's performance. As a result of this process, and in accordance with the
Company's compensation philosophy that total cash compensation should vary with
Company performance, a large part of each executive officers' potential total
cash compensation is dependent on the performance of the Company as measured
through its performance-based compensation program as set forth below.
ANNUAL INCENTIVE AWARDS. The Company had one short-term incentive plan
in which executive officers participated in fiscal year 1998; the Management
Incentive Program ("MIP") focuses participants (officers and employees above a
certain pay grade) on achieving key financial and strategic objectives at the
corporate and business unit levels that are expected to lead to the creation of
value for the Company's shareholders and provide participants the opportunity to
earn cash awards commensurate with performance. The MIP measures the performance
of the executive officers against specific objectives and awards incentive
bonuses from a bonus pool. The MIP is annually reviewed and approved early in
the fiscal year by the Compensation Committee and the Board of Directors.
The Compensation Committee establishes predetermined performance goals
and target awards on an annual basis, and actual performance determines the
percentage used to calculate the award at the end of the year with the size of
the award varying between 0% and 200% of the target award. Unless the Company
and each business group achieves a minimum operating profit level, no payouts
will be made for such business group. The Compensation Committee sets the annual
incentive opportunity for each executive officer in relation to his/her base
salary. For fiscal year 1998, MIP awards were weighted (60-65%) toward operating
profit on both a corporate and business unit basis. Other factors which were
given less weight included meeting certain quality measures, cost-savings
accomplishments, customer satisfaction and linearity of sales. Since the Company
did not achieve a minimum operating profit level, executive officers' actual
awards were zero for fiscal year 1998.
STOCK OPTIONS. The Compensation Committee views the grant of stock
options to be a key long-term incentive reward program. Executive officers, as
well as other employees, are eligible to receive periodic grants of incentive
stock options and non-qualified stock options pursuant to the Company's Employee
Stock Option Plan. Stock options are granted with an exercise price equal to the
fair market value of the underlying Common Stock on the date of grant and
generally vest over four years. The Employee Stock Option Plan prohibits the
repricing of options. The Compensation Committee believes that, because options
are granted with an exercise price equal to the market value of the Common Stock
on the date of grant, they are an effective incentive for officers to create
value for the Company's shareholders and are an excellent means of rewarding
executives who are in a position to contribute to the Company's long-term growth
and profitability.
8
<PAGE> 13
While all executives are eligible to receive stock options, the award of
any stock option grant, as well as the size of the grant each executive
receives, is determined by the Compensation Committee. The Compensation
Committee reviews with the Vice President of Human Resources and the Chief
Executive Officer (except in the case of his own stock option grants) and
approves individual stock option grants for each of the Company's executive
officers, including the named executive officers. The amount of each executive's
stock option grant is determined by the Compensation Committee based upon the
executive's individual performance evaluation for the prior year, the
executive's current compensation package, comparable company and competitive
company practices, and the Compensation Committee's appraisal of the executive's
anticipated long-term future contribution to the Company. The stock options
granted to the named executive officers in fiscal year 1998 are set forth in the
Summary Compensation and Option Grants tables.
LONG-TERM RETENTION AWARDS. The Compensation Committee believes that
long-term incentives should be related to improvement in long-term shareholder
value, thereby creating a mutuality of interest with the Company's shareholders.
The Company adopted a long-term retention program commencing in fiscal year 1996
through which the Company grants cash awards to key employees whose retention is
critical to the Company's future success. The purpose of the program is to
retain participants by providing a significant incremental opportunity for
capital accumulation and to focus participants on increasing the value of the
Common Stock. The existing awards were granted in an initial base amount which,
prior to July 1, 1998, fluctuated up or down according to a formula based on the
average price of the Company's Common Stock over the preceding twelve months.
The awards vest and are paid over a four-year period as follows: 10% at the end
of the second year, 25% at the end of the third year and 65% at the end of the
fourth year. As of July 1, 1998, by agreement with the participants, any portion
of the participants' existing awards which was unvested was fixed at an amount
based on the closing price of the Company's Common Stock on July 1, 1998. As
consideration for giving up the right to future possible appreciation resulting
from an increase in the value of the Company's Common Stock, and to continue the
mutuality of interest with the Company's shareholders, the participants received
additional stock option grants as a percentage of the unvested awards. The
Compensation Committee recommended the initial base amounts for the executive
officers and approved the recent agreements amending the awards with the
participants. No awards to the named executive officers were made in fiscal year
1998.
BENEFITS. Benefits offered to executive officers serve a different
purpose than do the other elements of total compensation. In general, they
provide a safety net of protection against the financial catastrophes that can
result from illness, disability or death. Benefits offered to executives are
largely those that are offered to the general employee population, with some
variation, primarily with respect to the availability of split-dollar life
insurance and expanded medical benefits for the executive officers. The
Compensation Committee believes that the compensation paid or payable pursuant
to the non-qualified deferred compensation plan, life insurance benefits and the
benefit plans available to regular employees generally is competitive with the
benefit packages offered by comparable employers. From time to time, the
Company's Human Resources Department obtains data to ensure that such benefit
plans and programs remain competitive and reports its findings to the
Compensation Committee.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Haggerty has been Chairman, President and Chief Executive Officer of
the Company for five years. He does not have an employment contract. His
compensation package has been designed to encourage both short-term and
long-term performance of the Company as well as align his interests with the
interests of the shareholders. The majority of his compensation, including stock
options, annual incentive bonuses and long-term retention awards, is at-risk.
The process of establishing the compensation for the Chief Executive Officer and
the criteria examined by the Compensation Committee parallels the process and
criteria used in establishing compensation levels for the other executive
officers. The Company's overall performance and Mr. Haggerty's individual
performance are critical factors in the Compensation Committee's determination.
Mr. Haggerty's base salary increased from $700,000 to $750,000 effective
August 1, 1997. The factors which the Compensation Committee considered in
setting the CEO's base salary were his individual performance and pay practices
of peer companies relating to executives of similar responsibility. The annual
incentive award
9
<PAGE> 14
paid to Mr. Haggerty for fiscal year 1998 was zero, and he received stock option
grants totaling 375,000 shares under the Employee Stock Option Plan. The
Compensation Committee's decisions regarding Mr. Haggerty's stock option grants
were based on its subjective assessment of his contribution to the performance
of the Company, his leadership, his ability to enhance value for the Company's
shareholders and improve the Company's competitive position and financial
performance, his effectiveness in creating and maintaining a culture of quality,
integrity and high performance at the Company, and its expectations for his
future contributions in leading the Company.
POLICY REGARDING SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code of 1986, as amended,
generally limits the corporate deduction to one million dollars for compensation
paid to a person who, on the last day of the fiscal year beginning on or after
January 1, 1994, is the chief executive officer or one of the other named
executive officers. The rule excludes qualified performance-based compensation.
It is the Compensation Committee's intention that, so long as it is consistent
with its overall compensation objectives and philosophy, executive compensation
will be deductible for federal income tax purposes. Pursuant to proposed
regulations, any taxable compensation derived from the exercise of stock options
granted under the Employee Stock Option Plan should be deductible and exempt
from the limit of Section 162(m). Bonuses under the Company's MIP and awards
under the Long-Term Retention Plan do not satisfy all the requirements of
Section 162(m), but the Compensation Committee has determined that these plans
are in the best interests of the Company and its shareholders since the plans
permit the Company to recognize an executive officer's contribution as
appropriate.
COMPENSATION COMMITTEE
Irwin Federman, Chairman
James A. Abrahamson
Peter D. Behrendt
I. M. Booth
10
<PAGE> 15
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to the Company's
Chief Executive Officer and the four other most highly paid executive officers
during fiscal year 1998 (collectively, the "Named Executive Officers"). The
table includes the dollar value of base salary, bonus earned, option awards
(shown in number of shares) and certain other compensation, whether paid or
deferred.
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
----------------------- -----------------------
Awards Payouts
------------ -------
Securities
Underlying LTIP All Other
Name and Principal Salary Bonus Options/SARs Payout Compensation
Position Year ($) ($)(1) (#)(2) ($) ($)(3)
------------------ ---- ------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Haggerty 1998 746,154 0 375,000 309,251 143,426
Chairman, President & 1997 694,486 791,000 300,000 0 60,087
Chief Executive Officer 1996 630,462 592,883 300,000 0 79,817
Kathryn A. Braun (4) 1998 425,769 0 80,000 201,931 26,181
President & Chief 1997 371,923 391,000 130,000 0 80,694
Operating Officer, 1996 322,500 242,883 8,000 0 32,414
Personal Storage Division
Marc H. Nussbaum 1998 303,462 0 48,700 169,351 20,561
Senior Vice President, 1997 283,077 266,000 36,000 0 30,079
Engineering 1996 255,693 172,883 8,000 0 27,602
Personal Storage Division
David W. Schafer 1998 273,077 0 40,000 0 31,599
Senior Vice President, 1997 248,462 245,792 34,000 N/A 161,280
Worldwide Sales 1996 225,192 135,685 21,200 N/A 37,253
Duston M. Williams 1998 286,154 0 55,000 50,485 16,470
Senior Vice President, 1997 240,000 207,125 0 0 45,861
Finance 1996 163,192 92,883 111,334 0 11,738
Chief Financial Officer
</TABLE>
- - - ---------------
(1) The amounts shown in this column include bonuses paid under the
Management Incentive Plan after profit sharing contributions to the
Company's Retirement Savings and Profit Sharing Plan, a 401(k) and
profit sharing plan. They do not include grants under the Company's
Long-Term Retention Plan, as disclosed below under the caption Long-Term
Incentive Plan Awards in Last Fiscal Year.
(2) The Company does not grant Stock Appreciation Rights.
(3) The amounts disclosed in this column for fiscal year 1998 represent:
(a) matching contributions to the Retirement Savings and Profit Sharing
Plan on behalf of Mr. Haggerty ($5,013), Ms. Braun ($5,163), Mr.
Nussbaum ($5,000), Mr. Schafer ($4,263), and Mr. Williams ($2,875);
(b) includes a one-time country club membership fee for Mr. Haggerty;
(c) imputed income for term life insurance on behalf of Mr. Haggerty
($8,232), Ms. Braun ($2,687), Mr. Nussbaum ($1,098), Mr. Schafer
($3,185), and Mr. Williams ($1,325);
(d) the estimated potential benefit of insurance cost for split-dollar
life insurance implemented during fiscal year 1998 in the following
amounts: Mr. Haggerty ($29,181), Ms. Braun ($18,331), Mr. Nussbaum
($14,463), Mr. Schafer ($24,151), and Mr. Williams ($12,270). The
Company intends to recover all premiums paid by it, generally upon
the later of 14 years after purchase of the policy or when the
insured executive reaches age 62. The estimated potential benefit is
calculated, in accordance with current Securities and Exchange
Commission directions, as if the 1998 premiums were advanced to the
Named Executive Officers without interest until the time the Company
expects to recover the premium. Pursuant to the Internal Revenue
Code of 1986, as amended, the taxable compensation to the Named
Executive Officers for the split-dollar life insurance ranged from a
high of $29,181 to a low of $12,270 during fiscal year 1998.
(4) Ms. Braun retired from her position as President and Chief Operating
Officer, Personal Storage Division on August 19, 1998.
11
<PAGE> 16
OPTION/SAR* GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options
granted to the Named Executive Officers during fiscal year 1998.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term (2)
------------------------------------------------ --------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#)(1) Year ($/sh) Date 5% ($) 10% ($)
- - - --------------------- ------------ ------------ -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Haggerty 300,000 6.8484 $34.1875 07/10/07 $6,450,100 $16,345,821
75,000 1.7121 $17.5000 03/11/08 $825,424 $2,091,787
Kathryn A. Braun (3) 40,000 0.9131 $34.1875 07/10/07 $859,716 $2,178,517
40,000 0.9131 $18.6250 02/23/08 $468,526 $1,187,338
Marc H. Nussbaum (4) 32,000 0.7306 $34.1875 07/10/07 $687,996 $1,743,508
16,700 0.3812 $18.6250 02/23/08 $195,610 $495,714
David W. Schafer 25,000 0.5707 $34.1875 07/10/07 $537,508 $1,362,152
15,000 0.3424 $18.6250 02/23/08 $175,697 $445,252
Duston M. Williams 30,000 0.6849 $34.1875 07/10/07 $645,010 $1,634,582
25,000 0.5707 $18.6250 02/23/08 $292,829 $742,086
</TABLE>
- - - ---------------
* The Company does not grant Stock Appreciation Rights.
(1) All options were granted under the Employee Stock Option Plan and vest
over a period of four years (25% on the first anniversary of the grant
date and 6.25% at the end of each three-month period thereafter),
subject to cessation of vesting in connection with termination of
employment. All options have a term of 10 years, subject to earlier
lapse in connection with termination of employment. The Employee Stock
Option Plan is administered by the Compensation Committee, which has
broad discretion and authority to construe and interpret the plan.
(2) Potential realizable value is based on an assumption that the market
price of the stock appreciates at the stated rate, compounded annually,
from the date of grant to the expiration date. These values are
calculated based on requirements promulgated by the Securities and
Exchange Commission and do not reflect the Company's estimate of future
stock price appreciation. Actual gains, if any, are dependent on the
future market price of the Company's Common Stock.
(3) Ms. Braun retired from her position as President and Chief Operating
Officer, Personal Storage Division on August 19, 1998.
(4) 2,000 out of the 32,000 (07/10/07 expiration date) shares and 1,700 out
of the 16,700 (02/23/08 expiration date) shares were issued to the
employee spouse of the named executive.
12
<PAGE> 17
AGGREGATED OPTION/SAR* EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth the number of shares acquired upon
exercise of stock options and the aggregate gains realized upon exercise in
fiscal year 1998 by the Named Executive Officers. The table also sets forth the
number of shares covered by exercisable and unexercisable options held by such
executives on June 27, 1998, and the aggregate gains that would have been
realized had these options been exercised on June 27, 1998, even though these
options were not exercised, and the unexercisable options could not have been
exercised, on June 27, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired Value At Fiscal Year End (#) At Fiscal Year End(2)($)
on Realized -------------------------- --------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- - - ------------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Haggerty 0 $0 582,877 652,497 $1,878,460 $292,266
Kathryn A. Braun(3) 0 $0 123,910 179,998 $479,497 $16,718
Marc H. Nussbaum(4) 0 $0 87,581 78,383 $366,760 $20,214
David W. Schafer 0 $0 74,211 66,997 $253,286 $21,459
Duston M. Williams 20,000 $345,196 66,632 108,542 $61,601 $8,634
</TABLE>
- - - ---------------
* The Company does not grant Stock Appreciation Rights.
(1) Market value on the date of exercise of shares covered by options
exercised, less option exercise price.
(2) These amounts represent the difference between the exercise price of
in-the-money options and the market price of the Company's Common Stock
on June 27, 1998. The closing price of the Common Stock on that day on
the New York Stock Exchange was $11.25. Options are in-the-money if the
market value of the shares covered thereby is greater than the option
exercise price.
(3) Ms. Braun retired from her position as President and Chief Operating
Officer, Personal Storage Division on August 19, 1998.
(4) 5,036 of the exercisable options, 7,510 of the unexercisable options,
$11,439 of the value of exercisable options and $1,828 of the value of
the unexercisable options are attributable to the employee spouse of the
named executive.
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
No awards were made under the Long-Term Retention Plan to the Named
Executive Officers in fiscal year 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Federman,
Abrahamson, Behrendt and Booth. No current member of the Compensation Committee
is a current or former officer or employee of the Company. Except for Mr.
Federman (discussed more fully under the caption Certain Transactions and Other
Matters), there are no Compensation Committee interlocks between the Company and
other entities involving the Company's executive officers and Board members who
serve as executive officers or board members of such other entities.
13
<PAGE> 18
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return of
the Company's Common Stock with the cumulative total return of the S&P 500 Index
and the Hambrecht & Quist Hardware Index for the five years ended June 27, 1998.
The graph assumes that $100 was invested on June 30, 1993, in the Common Stock
and each index and that all dividends were reinvested. The Company declared a
two-for-one stock split payable in the form of a stock dividend to shareholders
of record on May 20, 1997. No cash dividends have been declared on the Common
Stock. Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.
<TABLE>
<CAPTION>
Jun-93 Jun-94 Jun-95 Jun-96 Jun-97 Jun-98
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Western Digital 100 309 424 633 1,533 573
H&Q HARDWARE INDEX 100 98 172 203 311 441
S&P 500 INDEX 100 101 128 161 217 282
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the directors and
executive officers of the Company and persons who own more than ten percent
(10%) of the Company's Common Stock are required to report their initial
ownership of the Company's equity securities and any subsequent changes in that
ownership to the Securities and Exchange Commission and the New York Stock
Exchange. Specific due dates for these reports have been established, and the
Company is required to disclose in this Proxy Statement any late filings during
fiscal year 1998. To the Company's knowledge, based solely on its review of the
copies of such reports required to be furnished to the Company during fiscal
year 1998 and the responses to annual directors' and officers' questionnaires,
all of these reports were timely filed.
CERTAIN TRANSACTIONS AND OTHER MATTERS
The Company made a personal loan to Mr. Haggerty of $375,000 on June 10,
1998, which Mr. Haggerty repaid in full (including interest at 7 1/2%) on August
18, 1998.
Mr. Federman is a director of Headway Technologies, Inc. ("Headway")
which supplies the Company with advanced magneto-resistive heads. The Company
purchased approximately $65,000 of materials from Headway in fiscal years 1997
and 1998, and its purchases of Headway products are not expected to change in
fiscal year 1999. U.S. Venture Partners V, L.P., of which Mr. Federman is a
partner, owns approximately 10% of the outstanding capital stock of Headway. The
Company, through a wholly-owned subsidiary, also owns approximately 20% of the
outstanding capital stock of Headway.
14
<PAGE> 19
CHANGE OF CONTROL ARRANGEMENTS
Effective January 18, 1990, the Board of Directors of the Company
adopted an Extended Severance Plan pursuant to which eligible employees of the
Company may receive severance benefits in the event of termination of employment
under certain circumstances involving a change of control of the Company. For
this purpose, a change of control is defined generally as the acquisition by any
person of beneficial ownership of 33-1/3% or more of the voting stock of the
Company, certain mergers or other business combinations involving the Company,
sale of substantially all the assets of the Company, liquidation of the Company
or change in a majority of the incumbent members of the Board (except for
changes in Board composition approved by a majority of incumbent directors).
Subject to certain terms and conditions set forth in the Extended Severance
Plan, the extended severance benefits become payable in the event that, within
two years following a change of control, an eligible employee is terminated by
the Company without cause, or resigns following a reduction in such employee's
compensation or responsibility level.
In such event, the eligible employee is entitled to receive a lump-sum
cash payment equal to the present value of a multiple of such employee's monthly
compensation (salary plus average bonus or commissions, as applicable). The
multiple applied to such monthly compensation is equal to the number of months
in the severance period (as described below for officers and other participants)
and number of months employed prior to termination. The severance period for
officers of the Company is equal to twelve months plus one additional month for
each full two-month period of service in excess of one year up to a maximum
severance period of thirty-six months. Other participants are entitled to a
severance period ranging from two months to twenty-four months depending on
employment level and length of service. If any part of the amount payable under
the Extended Severance Plan to any employee is determined by the Company's
accountants to be nondeductible by the Company under Section 280G of the
Internal Revenue Code, the payment will be subject to reduction to the minimum
extent necessary to make the entire payment deductible; provided, however, that
amounts payable under the Extended Severance Plan to elected officers will not
be so reduced unless the amount of the reduction is less than the lesser of (i)
$100,000 or (ii) 10% of the total amount (before any reduction) payable under
the Extended Severance Plan. An employee entitled to receive such a severance
payment will also be entitled to continued coverage under the Company's benefit
programs for the period of time described above.
All domestic employees with an average of at least twenty hours per week
of service, and such key foreign employees as are designated as participants by
the Compensation Committee of the Board, are covered by the Extended Severance
Plan. The Extended Severance Plan terminates on January 17, 2000, unless it is
earlier terminated or extended by the Board, subject to certain conditions set
forth in the Extended Severance Plan.
PROPOSAL 2
APPROVAL OF THE AMENDMENT TO THE
EMPLOYEE STOCK OPTION PLAN
GENERAL
The Company seeks shareholder approval of an amendment to the Employee
Stock Option Plan to authorize the issuance of an additional ten million
(10,000,000) shares of Common Stock upon exercise of stock options granted under
the plan. The Employee Stock Option Plan was adopted in 1978 and was last
amended and restated with shareholder approval in 1996.
As of September 1, 1998, stock options covering 13,410,610 shares of
Common Stock were outstanding under the Employee Stock Option Plan and 1,451,719
shares were available for future grant (exclusive of the 10,000,000 additional
shares subject to approval at the Meeting).
The Board of Directors believes that the proposed increase in the number
of shares issuable under the Employee Stock Option Plan is necessary and
appropriate, given the Company's need to continue its policy of using
stock-based incentives to align the interests of shareholders with executive
officers and other key employees and to
15
<PAGE> 20
attract, motivate and retain experienced and highly qualified personnel as the
Company prepares to emerge from the current down cycle in an extremely
competitive business.
The essential features of the Employee Stock Option Plan, as proposed to
be amended, are summarized below. The summary is qualified by and subject to the
full text of the Employee Stock Option Plan (as proposed to be amended) attached
as Exhibit A hereto.
SUMMARY
The purpose of the Employee Stock Option Plan is to further the growth
and development of the Company and its subsidiaries by providing, through
ownership of the Company's Common Stock, incentives to officers and other key
employees who are in positions to contribute materially to the prosperity of the
Company, to increase such person's interests in the Company's welfare, to
encourage them to continue their services to the Company or its subsidiaries and
to attract individuals of outstanding ability to enter the employment of the
Company or its subsidiaries. Any employee of the Company or any of its
subsidiaries designated from time to time by the Committee (as defined below) is
eligible to receive grants of stock options under the Employee Stock Option
Plan. Non-employee directors are not eligible to participate.
The Employee Stock Option Plan is administered by the Board of Directors
or, in the discretion of the Board, a committee of at least three non-employee
directors of the Company appointed by the Company's Board (the "Committee"). The
Committee has the power to construe the Employee Stock Option Plan and the
rights of recipients of options granted thereunder. The Committee also has the
power to: (i) discontinue, suspend, or amend the Employee Stock Option Plan in
any manner (subject to certain limited exceptions including increases in the
number of shares available for issuance upon exercise of stock options granted
under the Employee Stock Option Plan and shareholder approval of other
amendments that would materially increase the benefits accruing to
participants), and (ii) modify extend or renew outstanding options granted under
the Employee Stock Option Plan. However, upon approval by the Company's
shareholders of the amendments described herein, the Committee may not reprice
any outstanding options.
The Committee selects the recipients of stock options granted under the
Employee Stock Option Plan and determines the dates, amounts, exercise prices,
vesting periods, and other relevant terms of the options, except that options do
not vest sooner than six months after the grant date. The Employee Stock Option
Plan provides that the maximum number of shares of Common Stock with respect to
which an option may be granted to any employee in any one taxable year of the
Company shall not exceed 400,000 shares, subject to antidilution adjustments
provided in the Employee Stock Option Plan.
Stock options granted under the Employee Stock Option Plan may be
incentive stock options intended to qualify under the provisions of Section 422
of the Internal Revenue Code ("Incentive Options"), or non-qualified stock
options, which do not so qualify ("Non-Qualified Options"). Outstanding
Incentive Options may be modified, with the optionee's consent, in ways that
would disqualify them as Incentive Options for federal income tax purposes.
Options may be granted under the Employee Stock Option Plan until November 10,
2004 (unless the Employee Stock Option Plan is sooner terminated by the
Company's Board of Directors).
The option exercise price for both Incentive Options and Non-Qualified
Options granted under the Employee Stock Option Plan may not be less than the
fair market value of the Company's Common Stock on the date the option is
granted (subject to the Employee Stock Option Plan's antidilution adjustment
provisions). For this purpose, fair market value is the last reported sales
price per share on the principal exchange upon which the Company's Common Stock
is traded (currently the New York Stock Exchange).
No more than 40,900,000 shares of Common Stock may be issued upon
exercise of stock options granted under the Employee Stock Option Plan
(consisting of 30,900,000 shares under the Employee Stock Option Plan as
currently in effect and 10,000,000 shares added by the amendment described
herein). If any outstanding option under the Employee Stock Option Plan for any
reason expires or is terminated, the shares of Common Stock
16
<PAGE> 21
allocable to the unexercised portion of that option shall not count against this
limit, but shall again be available for issuance upon exercise of stock options
granted under the Employee Stock Option Plan as if no previous option had been
granted with respect to such shares.
The number of shares of Common Stock available to individual optionees
under the Employee Stock Option Plan in general and the maximum number of shares
for which an employee may be granted options in any one year, as well as the
number of shares for which issued or unissued options may be exercised and the
exercise price per share of such options, will be appropriately and
proportionately adjusted to reflect stock splits, reverse stock splits,
recapitalizations, mergers, consolidations, stock dividends, and similar capital
stock transactions.
The following is a brief description of the federal income tax treatment
that will generally apply to options granted under the Employee Stock Option
Plan, based on federal income tax laws in effect on the date of this Proxy
Statement. The exact federal income tax treatment of options will depend on the
specific circumstances of the optionee. No information is provided herein with
respect to estate, inheritance, gift, state or local tax laws, although there
may be certain tax consequences upon the receipt or exercise of an option or the
disposition of any acquired shares under those laws.
Incentive Options. Generally, the optionee is not taxed, and the Company
is not entitled to a deduction, on the grant or exercise of an Incentive Option.
However, the exercise of an Incentive Option may increase the optionee's
alternative minimum tax liability, if any, upon the sale or exchange of the
shares acquired. Upon the sale or exchange of the shares acquired upon the
exercise of an Incentive Option at least two years after grant of the option and
one year after exercise of the option, any gain will be treated as long-term
capital gain. Generally, if the optionee disposes of the shares before the
expiration of either of these holding periods (a "disqualifying disposition"),
at the time of disposition the optionee will realize ordinary income equal to
the difference between the exercise price and the lower of the fair market value
of the shares on the date of the option exercise or the sale price of the
shares. The Company will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee. The optionee's additional gain or
any loss upon the disqualifying disposition will be characterized as capital
gain or loss. Such gain or loss will be treated a short-term or long-term,
depending on the optionee's holding period for the shares involved in the
disposition. Slightly different rules may apply to optionees who are officers,
directors, or 10% shareholders of the Company.
Non-Qualified Options. The grant of a Non-Qualified Option is generally
not a taxable event for the optionee. Upon exercise of the option, the optionee
will generally recognize ordinary income in an amount equal to the excess of the
then fair market value of the shares acquired upon exercise of the Non-Qualified
Option over the exercise price of such option, and the Company will be entitled
to a deduction equal to such amount. A subsequent disposition of the shares
generally will give rise to capital gain or loss equal to the difference between
the sales price and the sum of the exercise price paid for such shares plus the
ordinary income recognized with respect to such shares. Such gain or loss will
be treated as short-term or long-term depending on the optionee's holding period
for the shares involved in the disposition.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the Meeting and entitled to vote is
required for approval of the amendment to the Company's Employee Stock Option
Plan. Abstentions and broker non-votes will each be counted present for purposes
of determining the presence of a quorum. Abstentions will have the same effect
as a negative vote. Broker non-votes, on the other hand, will have no effect on
the outcome of the vote.
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<PAGE> 22
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
By selection of the Company's Board of Directors, the international
accounting firm of KPMG Peat Marwick LLP, certified public accountants, has
served the Company as its auditors since its incorporation in 1970. The Board of
Directors has again selected KPMG Peat Marwick LLP to serve as the Company's
independent accountants for the fiscal year ending July 3, 1999. The matter is
not required to be submitted for shareholder approval, but the Board of
Directors has elected to seek ratification of its selection of the independent
accountants by the affirmative vote of a majority of the shares represented and
voted at the Meeting. If the shareholders do not ratify this selection, the
Board of Directors will reconsider its selection of KPMG Peat Marwick LLP and
will either continue to retain this firm or appoint new auditors upon
recommendation of the Audit Committee.
One or more representatives of KPMG Peat Marwick LLP are expected to be
present at the Meeting and will have an opportunity to make a statement if they
so desire and will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR 1999
Shareholder proposals which are intended to be presented by such
shareholders at the Company's 1999 Annual Meeting of Shareholders must be
received by the Secretary of the Company at the Company's principal executive
offices no later than Tuesday, June 2, 1999, in order to be considered for
inclusion in the proxy statement and form of proxy relating to that meeting. In
addition, the Company's Bylaws require that, among other things, such
shareholders give written notice of any proposal or the nomination of a director
to the Secretary of the Company not less than 60 days nor more than 120 days
prior to scheduled Annual Meeting of Shareholders. Shareholder proposals or the
nominations for director that do not meet the notice requirements of the
Company's Bylaws will not be acted upon at the 1999 Annual Meeting.
OTHER MATTERS
The Board of Directors of the Company does not know of any other matters
that are to be presented for action at the Meeting. Should any other matters
come before the Meeting or any adjournments and postponements thereof, the
persons named in the enclosed proxy will have the discretionary authority to
vote all proxies received with respect to such matters in accordance with their
judgments.
ANNUAL REPORTS
The Company's 1998 Annual Report on Form 10-K has been mailed to
shareholders concurrently with this Proxy Statement, but such report is not
incorporated herein and shall not be deemed to be a part of this proxy
solicitation material.
EXPENSES OF SOLICITATION
The cost of preparing, assembling and mailing the Notice of Annual
Meeting of Shareholders, Proxy Statement and form of proxy and the cost of
soliciting proxies will be paid by the Company. Proxies may be solicited in
person or by telephone, facsimile or other means of communication by certain of
the directors, officers, and regular employees of the Company who will not
receive any additional compensation for such solicitation. The Company will
reimburse brokers or other persons holding stock in their names or the names of
their nominees for the expenses of forwarding soliciting material to their
principals. In addition, the Company has engaged D. F. King & Co., Inc., New
York, New York, to assist in soliciting proxies for a fee of approximately
$8,000 plus reimbursement of reasonable out-of-pocket expenses.
Irvine, California
September 28, 1998
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<PAGE> 23
- - - --------------------------------------------------------------------------------
SHAREHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL, AND YOUR
COOPERATION WILL BE APPRECIATED.
- - - --------------------------------------------------------------------------------
19
<PAGE> 24
EXHIBIT A
---------
WESTERN DIGITAL CORPORATION
AMENDED AND RESTATED
EMPLOYEE STOCK OPTION PLAN
- - - --------------------------------------------------------------------------------
1. Purpose. The purpose of this Western Digital Corporation Employee
Stock Option Plan (the "Plan") is to further the growth and development of
Western Digital Corporation (the "Company") and its subsidiaries by providing,
through ownership of stock of the Company, an incentive to officers and other
key employees who are in a position to contribute materially to the prosperity
of the Company, to increase such persons' interest in the Company's welfare, to
encourage them to continue their services to the Company or its subsidiaries,
and to attract individuals of outstanding ability to enter the employment of the
Company or its subsidiaries.
2. Incentive and Nonqualified Stock Options. Two types of options
(referred to herein as "options" without distinction between such two types) may
be granted under the Plan: options intended to qualify as incentive stock
options ("Incentive Stock Options") under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"); and other options not specifically
authorized or qualified for favorable income tax treatment by the Code
("Nonqualified Stock Options").
3. Administration.
3.1 Administration by Board. Subject to Section 3.2, the Plan shall be
administered by the Board of Directors of the Company (the "Board"). Subject to
the provisions of the Plan, the Board shall have authority to construe and
interpret the Plan, to promulgate, amend, and rescind rules and regulations
relating to its administration, from time to time to select from among the
eligible employees (as determined pursuant to Section 4) of the Company and its
subsidiaries those employees to whom options will be granted, to determine the
timing and manner of the grant of the options, to determine the exercise price,
the number of shares covered by and all of the terms of the options, to
determine the duration and purpose of leaves of absence which may be granted to
optionees without constituting termination of their employment for purposes of
the Plan, and to make all of the determinations necessary or advisable for
administration of the Plan. The interpretation and construction by the Board of
any provision of the Plan, or of any grant or agreement issued and executed
under the Plan, shall be final and binding upon all parties. No member of the
Board shall be liable for any action or determination undertaken or made in good
faith with respect to the Plan or any agreement executed pursuant to the Plan.
3.2 Administration by Committee. The Board may, in its sole discretion,
delegate any or all of its administrative duties to a committee appointed by the
Board (the "Committee") consisting of three Board members, each of whom, during
such time as one or more persons eligible to receive options under the Plan is
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") shall be disinterested within the meaning of Rule 16b-3 under
the Exchange Act (or any successor rule, "Rule 16b-3") and shall qualify as
"outside directors" as defined in the regulations under Code Section 162(m),
provided, however, that the Board may from time to time increase the size of the
Committee, and add additional members to, or remove members from, the Committee.
The Committee shall act pursuant to a majority vote, or the written consent of a
majority of its members, and minutes shall be kept of all of its meetings and
copies thereof shall be provided to the Board. Subject to the provisions of the
Plan and the directions of the Board, the Committee may establish and follow
such rules and regulations for the conduct of its business as it may deem
advisable. No member of the Committee shall be liable for any action or
determination undertaken or made in good faith with respect to the Plan or any
agreement executed pursuant to the Plan. The Board or the Committee, as the case
may be, is sometimes referred to herein as the "Administrator."
4. Eligibility. Any employee (including any officer who is an employee)
of the Company or any of its subsidiaries who does not own stock possessing more
than 10% of the total combined voting power of all outstanding shares of all
classes of stock of the Company or any of its parent or subsidiary corporations
shall be eligible to receive a grant or grants of such options under the Plan;
provided, however, that notwithstanding the foregoing, any employee of the
Company who owns stock possessing more than 10% of the total combined voting
power of all outstanding shares of all classes of stock of the Company or any of
its parent or subsidiary corporations shall be eligible to receive a grant
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<PAGE> 25
or grants of such options under the Plan if at the time such options are granted
the option exercise price therefor is at least 110% of the Fair Market Value (as
defined below) of the shares subject to the option and such option by its terms
is not exercisable after the expiration of five years from the date such option
is granted. An employee may receive more than one option under the Plan.
Notwithstanding the foregoing, no person who is a director of the Company shall
be eligible to receive an option under the Plan unless the granting of such
option shall be effected in such a manner as not to impair the Plan's
qualification under Rule 16b-3.
5. Shares Subject to Options. The stock available for issuance upon
exercise of stock options granted under the Plan shall be shares of the
Company's authorized but unissued, or reacquired, Common Stock. The aggregate
number of shares that may be issued after September 5, 1985, pursuant to
exercise of options granted under the Plan shall not exceed 30,900,000 shares of
Common Stock (subject to adjustment as provided herein). In the event that any
outstanding option under the Plan for any reason expires or is terminated, the
shares of Common Stock allocable to the unexercised portion of the option shall
not count against the share limit set forth herein and shall again be available
for issuance upon exercise of stock options granted under the Plan as if no
option had been granted with respect to such shares.
6. Terms and Conditions of Options.
6.1 Grants of Options. Subject to the express provisions of the Plan,
the Administrator shall from time to time in its discretion select those
individuals to whom options shall be granted, and shall determine the terms of
such options (which need not be identical) and the number of shares of Common
Stock for which each may be exercised. Notwithstanding anything to the contrary
herein, the number of shares of Common Stock with respect to which an option or
options may be granted to any optionee in any one taxable year of the Company
shall not exceed 400,000, subject to adjustment as provided herein (the "Maximum
Annual Employee Grant"). Each option shall be subject to the terms and
conditions of the Plan and such other terms and conditions established by the
Administrator as are not inconsistent with the purpose and provisions of the
Plan.
6.2 Agreements or Confirming Memos. Options granted under the Plan may
but need not be evidenced by agreements (which need not be identical) in such
form and containing such provisions consistent with the Plan as the
Administrator shall from time to time approve. Options not documented by written
agreement shall be memorialized by a written confirming memorandum stating the
material terms of the option and provided to the option recipient. Each
agreement or confirming memorandum shall specify whether the subject option is
an Incentive Stock Option or a Nonqualified Stock Option.
6.3 Optionee's Employment. Each optionee shall agree to remain in the
employ of, and to render services to, the Company or its subsidiaries for a
period of one year from the date the option is granted, but neither the Company
nor any of its subsidiaries shall be obligated to continue to employ the
optionee for any period.
6.4 Option Exercise Price. The purchase price for the shares subject to
any option shall be determined by the Administrator but shall not be less than
100% of the Fair Market Value of the shares of Common Stock of the Company on
the date the option is granted. For purposes of the Plan, the "Fair Market
Value" of any share of Common Stock of the Company at any date shall be (a) if
the Common Stock is listed on an established stock exchange or exchanges, the
last reported sale price per share on such date on the principal exchange on
which it is traded, or if no sale was made on such date on such principal
exchange, at the closing reported bid price on such date on such exchange, or
(b) if the Common Stock is not then listed on an exchange, the average of the
closing bid and asked prices per share for the Common Stock in the
over-the-counter market as quoted on the Nasdaq National Market on such date, or
(c) if the Common Stock is not then listed on an exchange or quoted on the
Nasdaq National Market, an amount determined in good faith by the Administrator.
6.5 Medium and Time of Payment. The purchase price for any shares
purchased pursuant to exercise of an option granted under the Plan shall be paid
in full upon exercise of the option in cash or such other consideration as the
Administrator may deem acceptable, including without limitation securities of
the Company (delivered by or on behalf of the person exercising the option or
retained by the Company from the stock otherwise issuable upon exercise
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<PAGE> 26
and valued at Fair Market Value as of the exercise date), provided, however,
that the Administrator may, in the exercise of its discretion, allow exercise of
an option in a broker-assisted or similar transaction in which the exercise
price is not received by the Company until promptly after exercise. Shares of
Common Stock transferred to the Company upon exercise of an option shall not
increase the number of shares available for issuance upon exercise of options
granted under the Plan. Notwithstanding the foregoing, the Company may extend
and maintain, or arrange for the extension and maintenance of, credit to any
optionee to finance the optionee's purchase of shares pursuant to exercise of
any option, on such terms as may be approved by the Administrator, subject to
applicable regulations of the Federal Reserve Board and any other laws or
regulations in effect at the time such credit is extended.
6.6 Option Period and Vesting. Subject to Section 6.14, options granted
under the Plan shall vest and may be exercised as determined by the
Administrator, except that no option may vest and become exercisable at any time
prior to six months from the date the option is granted. Exercise of options
after termination of the optionee's employment shall be subject to Sections 6.13
and 6.14. Each option granted hereunder and all rights or obligations under such
option shall expire on such date as shall be determined by the Administrator,
but not later than ten years after the date the option is granted, or five years
after the date of grant in the case of an option recipient who at the time of
grant owns more than 10% of the total combined voting power of all outstanding
shares of all classes of stock of the Company or any of its parent or subsidiary
corporations, and shall be subject to earlier termination as herein provided.
6.7 Exercise of Options. To the extent that an optionee has the right to
exercise an option, the option may be exercised from time to time by written
notice to the Company stating the number of shares being purchased and
accompanied by payment in full of the purchase price for such shares, except
that in no event shall the Company be required to issue fractional shares upon
the exercise of an option, and the Administrator may, in its discretion, require
that any exercise of an option be for at least 100 shares or, if less, the total
number of shares for which the option is then exercisable. Any certificate(s)
for outstanding securities of the Company used to pay the purchase price shall
be accompanied by stock power(s) duly endorsed in blank by the registered holder
of the certificate(s). In the event the certificate(s) tendered by the optionee
in such payment cover more shares than are required for such payment, the
certificate(s) shall also be accompanied by instructions from the optionee to
the Company's transfer agent with respect to disposition of the balance of the
securities covered thereby. Notwithstanding any other provision of this Plan,
the Administrator may impose such conditions upon the exercise of options
(including, without limitation, conditions limiting the time of exercise to
specified periods) as may be required to satisfy applicable regulatory
requirements, including without limitation Rule 16b-3, other relevant securities
laws and rules, and any applicable section of or rule under the Code. Whenever
shares of stock are to be issued upon exercise of an option granted under the
Plan or subsequently transferred, the Administrator shall have the right to
require the optionee or transferor to remit to the Company an amount sufficient
to satisfy any federal, state and local withholding tax requirements prior to
the delivery of any certificate or certificates for such shares. The
Administrator may, in the exercise of its discretion, allow satisfaction of tax
withholding requirements by accepting delivery of securities of the Company or
by withholding a portion of the stock otherwise issuable upon exercise of an
option.
6.8 Nonassignability. No option granted under the Plan shall be
assignable or transferable except (i) by will or by the laws of descent and
distribution, or (ii) subject to the final sentence of this Section 6.8, upon
dissolution of marriage pursuant to a property settlement or domestic relations
order, or (iii) as permitted on a case-by-case basis in the discretion of, and
subject to such conditions as may be imposed by, the Administrator to permit
transfers to immediate family members, family trusts or family foundations of
the grantee under circumstances that would not adversely affect the interests of
the Company. During the lifetime of an optionee, an option granted to him or her
shall be exercisable only by the optionee (or the optionee's permitted
transferee) or his or her guardian or legal representative. Notwithstanding the
foregoing, Incentive Stock Options may not be assigned or transferred in
violation of Section 422(b)(5) of the Code (or any successor provision) or the
Treasury Regulations thereunder, and nothing herein is intended to allow such
assignment or transfer."
6.9 Limit on Incentive Stock Options. Subject to Section 12.1, the
aggregate Fair Market Value (determined as of the time the option is granted) of
the stock for which Incentive Stock Options granted to any one employee under
all stock option plans of the Company and its parent and subsidiary corporations
first become exercisable during any calendar year after December 31, 1986 shall
not exceed $100,000.
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<PAGE> 27
6.10 Restriction on Issuance of Shares. The issuance of options and
shares shall be subject to compliance with all of the applicable requirements of
law with respect to the issuance and sale of securities, including, without
limitation, any required qualification under the California Corporate Securities
Law of 1968, as amended.
6.11 Investment Representation. Any optionee may be required, as a
condition of issuance of shares covered by his or her option, to represent that
the shares to be acquired pursuant to exercise of the option will be acquired
for investment and without a view to distribution thereof; and in such case, the
Company may place a legend on the certificate evidencing the shares reflecting
the fact that they were acquired for investment and cannot be sold or
transferred unless registered under the Securities Act of 1933, as amended, or
unless counsel for the Company is satisfied that the circumstances of the
proposed transfer do not require such registration, and in addition, the Company
may issue stop transfer instructions to the transfer agent of the Company's
securities restricting the transfer of such shares.
6.12 Rights as a Shareholder or Employee. An optionee or transferee of
an option shall have no rights as a shareholder of the Company with respect to
any shares covered by any option until (i) the Company has received all amounts
payable in connection with the exercise of the option, including the exercise
price and any amounts required by the Company to satisfy tax withholding
requirements, and (ii) a share certificate for such shares has been issued. No
adjustment shall be made for dividends (ordinary or extraordinary, whether cash,
securities, or other property) or distributions or other rights for which the
Record Date is prior to the date such share certificate is issued, except as
provided in Section 6.15. Nothing in the Plan or in any grant or option
agreement shall confer upon any employee any right to continue in the employ of
the Company or any of its subsidiaries or interfere in any way with any right of
the Company or any subsidiary to terminate the optionee's employment at any
time.
6.13 Termination of Employment, Disability, or Death. In general,
subject to Section 6.14, options shall be exercisable by an optionee (or his or
her permitted successor in interest) following such optionee's termination of
employment only to the extent that such options had become exercisable on or
prior to the date of such termination. In the event an optionee ceases to be an
employee of the Company and its subsidiaries for any reason (other than cause)
while still living, any option or unexercised portion thereof granted to the
optionee may, to the extent such option was exercisable by the optionee on or
prior to the date he or she ceased to be an employee (or is accelerated pursuant
to Section 6.14 to a date within three months of termination of employment), be
exercised by the optionee within three months of the date on which he or she
ceased to be an employee, but in any event not later than the date of expiration
of the option. In the event of the death or disability (as defined in Section
105(d)(4) of the Code) of the optionee while he or she is an employee of the
Company or any of its subsidiaries or within not more than three months of the
date on which he or she ceased to be an employee for any reason other than
cause, any option or unexercised portion thereof granted to the optionee may, to
the extent such option was exercisable by the optionee on or prior to the date
of death or disability (or is accelerated pursuant to Section 6.14 to a date
within the period during which such option may be exercised as set forth below),
be exercised by the optionee or, if the optionee is then deceased or
incapacitated, by the optionee's personal representatives, heirs, or legatees at
any time prior to the later of (i) one year from the date on which the optionee
ceased to be an employee or (ii) the latest date the option could have been
exercised by the optionee if not disabled or dead, but in any event, not later
than the date of expiration of the option. Notwithstanding the foregoing,
however, if an optionee's employment with the Company and its subsidiaries is
terminated for cause, as determined by the Administrator in its sole discretion,
all options held by such optionee shall expire on the date of termination of
employment and thereafter shall not be exercisable in whole or in part.
6.14 Modification, Extension, and Renewal of Options; Alteration of
Vesting and Exercise Periods. Subject to the terms and conditions and within the
specific limitations of the Plan, the Administrator may modify, extend, or renew
outstanding options granted under the Plan, accept the surrender of outstanding
options (to the extent not theretofore exercised), and authorize the granting of
new options in substitution therefor (to the extent not theretofore exercised)
except that no such modification, extension or renewal shall result in a
reduction in the exercise price of such option. Without limitation of the
foregoing and notwithstanding anything in this Plan to the contrary, the
Administrator may at any time and from time to time in its discretion (i)
designate shorter or longer periods than specified herein or in any particular
option grant or agreement following the termination of an optionee's employment
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<PAGE> 28
with the Company or any of its subsidiaries or the optionee's death or
disability during which the optionee may exercise options, provided, however,
that any shorter periods determined by the Administrator shall be effective only
if determined at the time of the grant of the affected option or if such shorter
period is agreed to in writing by the optionee, and any longer periods may not
extend beyond the original termination date of the affected option; (ii) subject
to the six-month minimum vesting period described in Section 6.6, accelerate
vesting of an option in whole or part by increasing the number of shares
purchasable at any particular time, provided that no such acceleration shall
increase the total number of shares for which the option may be exercised; and
(iii) extend the period after death or disability or termination of employment
during which vesting of all or any portion of any options that had not become
exercisable on or prior to the date thereof may occur. Notwithstanding the
foregoing, no option shall be modified in such a manner as to impair any rights
of the optionee under the option, or to cause an Incentive Stock Option to cease
to qualify as such, without the consent of the optionee.
6.15 Recapitalization or Reorganization of the Company. Except as
otherwise provided herein, appropriate and proportionate adjustments shall be
made in the number and class of shares subject to the Plan, the Maximum Annual
Employee Grant, the option rights granted under the Plan, and the exercise price
of such option rights, in the event of a stock dividend (but only on Common
Stock), stock split, reverse stock split, recapitalization, reorganization,
merger, consolidation, separation, or like change in the capital structure of
the Company affecting the Common Stock of the Company. In the event of a
liquidation of the Company, or a merger, reorganization, or consolidation of the
Company with any other corporation in which the Company is not the surviving
corporation or the Company becomes a wholly-owned subsidiary of another
corporation, any unexercised options theretofore granted under the Plan shall be
deemed canceled unless the surviving corporation in any such merger,
reorganization, or consolidation elects to assume the options under the Plan or
to issue substitute options in place thereof; provided, however, that,
notwithstanding the foregoing, if such options would otherwise be canceled in
accordance with the foregoing, the optionee shall have the right, exercisable
during a ten-day period ending on the fifth day prior to such liquidation,
merger, reorganization, or consolidation, to exercise the optionee's option in
whole or in part without regard to any installment exercise provisions in the
optionee's option agreement. To the extent that the foregoing adjustments relate
to stock or securities of the Company, such adjustments shall be made by the
Administrator, the determination of which in that respect shall be final,
binding, and conclusive, provided that an Incentive Stock Option shall not
without the consent of the optionee be adjusted in a manner that causes the
option to fail to continue to qualify as an Incentive Stock Option.
7. Termination or Amendment of Plan. The Board or the Committee may at
any time or from time to time suspend, terminate or amend the Plan; provided
that, without approval of the shareholders of the Company, there shall be,
except as specifically permitted by the Plan, no increase in the total number of
shares issuable upon exercise of options granted under the Plan, no change in
the class of persons eligible to receive options granted under the Plan, and no
extension of the latest date upon which options may be granted under the Plan;
and provided further that, without the consent of the optionee, no amendment may
adversely affect any then outstanding option or any unexercised portion thereof
without the consent of the holder of such option.
8. Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Board or the Committee administering the Plan shall be indemnified by the
Company against reasonable expenses, including attorney's fees, actually and
necessarily incurred in connection with the defense of any action, suit, or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any action, suit, or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit, or
proceeding that such member is liable for negligence or misconduct in the
performance of his or her duties, provided that within 60 days after institution
of any such action, suit, or proceeding, the member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
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9. 1978 Nonqualified Stock Option Plan. The Plan as set forth herein
constitutes an amendment and restatement of the Company's 1978 Nonqualified
Stock Option Plan which was adopted in 1978. The Administrator may, in its
discretion, authorize the conversion, to the fullest extent permitted by law, of
Nonqualified Stock Options granted under the 1978 Nonqualified Stock Option Plan
prior to such amendment to Incentive Stock Options under this Plan, as so
amended. Any such options converted to Incentive Stock Options shall be treated
as Incentive Stock Options for all purposes under the Plan; provided, however,
that none of the terms or conditions of any of such options, including, but not
limited to, the exercise price, the term of the option, and the time(s) within
which the option may be exercised, shall be altered or amended by reason of such
conversion.
10. Options Granted Prior to Amendment and Restatement. The Plan, as
amended and restated from time to time, shall, in the discretion of the
Administrator, apply to and govern options granted under the Plan prior to the
date of any such amendment or restatement, subject to the consent of any holder
of an option who would be disadvantaged by application to such option of the
Plan as amended and restated after the grant of such option.
11. Term of Plan. Unless sooner terminated by the Board or the Committee
in its sole discretion, the Plan will expire on November 10, 2004 (the
"Termination Date"). Options may be granted under the Plan until midnight on the
Termination Date, whereupon the Plan shall terminate. No options may be granted
during any suspension of the Plan or after its termination. Notwithstanding the
foregoing, each option properly granted under the Plan shall remain in effect
until such option has been exercised or terminated in accordance with its terms
and the terms of the Plan.
12. Miscellaneous.
12.1 Plan Provisions Regarding Incentive Stock Options. Options
originally granted as Incentive Stock Options but that subsequently become
Nonqualified Stock Options need not satisfy any requirements of the Plan
applicable to Incentive Stock Options.
12.2 Other Compensation Plans. The adoption of this Plan shall not
affect any other stock option, incentive, or compensation plans in effect for
the Company or any of its subsidiaries, and the Plan shall not preclude the
Company or any of its subsidiaries from establishing any other forms of
incentive compensation for employees, directors, or advisors of the Company or
any of its subsidiaries.
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September 28, 1998
TO: Participants in the Western Digital Corporation
Retirement Savings and Profit Sharing Plan
As a participant in the Western Digital Corporation Retirement Savings and
Profit Sharing Plan, you have the right to vote the shares of Western Digital
common stock allocated to your account.
To allow you to do this, we are enclosing a voting instruction card, which when
completed will give instructions to the trustee of the plan, T. Rowe Price Trust
Company, on how you wish your shares to be voted. Also enclosed are a Summary
Annual Report, Annual Report on Form 10-K, and Proxy Statement which explains
the issues being presented for shareholder approval at the Annual Meeting of
Shareholders to be held on November 5, 1998.
In addition to the election of directors and the ratification of the selection
of KPMG Peat Marwick LLP as independent accountants, the Company is asking for
your approval of the following proposal:
Approval of the amendment to the Company's 1978 Employee Stock Option
Plan to authorize and reserve for issuance an additional 10,000,000
shares as described in the proxy statement.
Your Board of Directors unanimously recommends that you vote FOR each of these
proposals.
As a stock owner in Western Digital, ONLY YOU (through the trustee) CAN VOTE
YOUR SHARES. No one else has that right. If you do not provide the trustee with
voting instructions, your shares will not be voted. Therefore, it is important
that your shares, no matter how large or small the amount, be represented at the
Annual Meeting of Shareholders.
Please take the time to complete the enclosed card and return it in the
enclosed, pre-addressed envelope as soon as possible.
Thank you for your cooperation.
Michael A. Cornelius
<PAGE> 31
[WESTERN DIGITAL CORPORATION
LETTERHEAD]
[Date]
[Name]
[Address]
Dear [Name]:
Since your organization is a substantial investor in the Common Stock of Western
Digital Corporation, I am enclosing with this letter a copy of the Notice of
Annual Meeting, Proxy Statement, Proxy Cards and Annual Report on Form 10-K for
the upcoming Annual Meeting of Shareholders, to be held on Thursday, November 5,
1998. Knowing that your shares are held through a custodian bank and that the
normal path of distribution of these items could result in some delay, I thought
you would appreciate receiving your personal copy of these materials at the same
time they are being sent to holders of record.
Any comments or questions you may have concerning the proposal described in the
Proxy Statement are welcome and I would very much appreciate the opportunity to
discuss them with you personally. Please feel free to call me at [phone number].
On behalf of our Board of Directors and all the people at Western Digital
Corporation, thank you for your continued interest and support.
Sincerely,
/s/ Robert J. Blair
Robert J. Blair
Vice President, Investor Relations
<PAGE> 32
PROXY WESTERN DIGITAL CORPORATION
8105 IRVINE CENTER DRIVE
IRVINE, CA 92618
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles A. Haggerty and Michael A.
Cornelius, and each of them, as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote as designated
below all the shares of Common Stock of Western Digital Corporation held of
record by the undersigned on September 11, 1998, at the Annual Meeting of
Shareholders to be held on November 5, 1998, and at any postponements or
adjournments thereof. The proposals referred to below are described in the Proxy
Statement, dated as of September 28, 1998, which is being delivered in
connection with the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, line
through or otherwise strike out the nominee's name below)
<TABLE>
<S> <C> <C> <C>
Charles A. Haggerty I. M. Booth Andre R. Horn Irwin Federman
Anne O. Krueger Thomas E. Pardun James A. Abrahamson Peter D. Behrendt
</TABLE>
2. APPROVAL OF THE AMENDMENT TO THE COMPANY'S EMPLOYEE STOCK OPTION PLAN TO
AUTHORIZE AND RESERVE FOR ISSUANCE AN ADDITIONAL 10,000,000 SHARES AS
DESCRIBED IN THE PROXY STATEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT
ACCOUNTANTS FOR THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(IMPORTANT -- PLEASE SIGN ON OTHER SIDE)
<PAGE> 33
(CONTINUED FROM OTHER SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3.
Dated: , 1998
-------------------------
--------------------------------------
(Signature)
--------------------------------------
(Signature )
Please sign your name exactly as it
appears hereon. When shares are held
by joint tenants, both should sign.
When signing as attorney, executor,
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 full partnership name
by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE> 34
TO: T. ROWE PRICE TRUST COMPANY
TRUSTEE OF THE WESTERN DIGITAL CORPORATION RETIREMENT SAVINGS AND PROFIT
SHARING PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE PROPOSALS.
With respect to shares of Common Stock of Western Digital Corporation
included in the Retirement Savings and Profit Sharing Plan, you are hereby
instructed to vote all shares allocated to my account in the plan in accordance
with the following:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, line
through or otherwise strike out the nominee's name below)
<TABLE>
<S> <C> <C> <C>
Charles A. Haggerty I. M. Booth Andre R. Horn Irwin Federman
Anne O. Krueger Thomas E. Pardun James A. Abrahamson Peter D. Behrendt
</TABLE>
2. APPROVAL OF THE AMENDMENT TO THE COMPANY'S EMPLOYEE STOCK OPTION PLAN TO
AUTHORIZE AND RESERVE FOR ISSUANCE AN ADDITIONAL 10,000,000 SHARES AS
DESCRIBED IN THE PROXY STATEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT
ACCOUNTANTS FOR THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, Charles A. Haggerty and Michael A. Cornelius are
authorized to vote upon such other business as may properly come before the
meeting.
(IMPORTANT -- PLEASE SIGN ON OTHER SIDE)
<PAGE> 35
(CONTINUED FROM OTHER SIDE)
TO PARTICIPANTS IN THE WESTERN DIGITAL CORPORATION RETIREMENT SAVINGS AND PROFIT
SHARING PLAN
As a participant in the Retirement Savings and Profit Sharing Plan, with
respect to shares of Western Digital Corporation Common Stock included in the
plan at September 11, 1998, you have the right to instruct T. Rowe Price Trust
Company, the Trustee, how to vote shares allocated to your accounts in the plan.
For your information, a copy of the Proxy Statement for the Annual Meeting of
Shareholders to be held on November 5, 1998, is forwarded herewith.
MY SHARES SHALL BE VOTED IN THE
MANNER DIRECTED ABOVE. IF THIS
FORM IS PROPERLY EXECUTED BUT NO
DIRECTION IS MADE ABOVE, THE
SHARES SHALL BE VOTED FOR THE
NOMINEES NAMED IN PROPOSAL 1 AND
FOR PROPOSALS 2 AND 3.
Dated: , 1998
--------------------
--------------------------------
(Signature)
PLEASE MARK, SIGN, DATE AND
RETURN THIS INSTRUCTION CARD
PROMPTLY USING THE ENCLOSED
ENVELOPE.
