Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or
Sec. 240.14a-12
DATA GENERAL 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 ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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>
[DATA GENERAL LOGO] (508) 898-5000
- -------------------------------------------------------------------------------
4400 COMPUTER DRIVE, WESTBORO, MASSACHUSETTS 01580
December 17, 1997
Dear Fellow Stockholder:
You are cordially invited to attend the Company's Annual Meeting of
Stockholders to be held at 1:00 P.M., Eastern Standard Time, on Wednesday,
January 28, 1998, at the Enterprise Room, Fifth Floor, State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts.
This year you are being asked to reelect the Company's directors. Your
Board of Directors urges you to read the accompanying proxy statement and
recommends that you vote "FOR" Proposal No. 1.
At the meeting, the Board of Directors will also report on the Company's
affairs and a discussion period will be provided for questions and comments.
The Board of Directors appreciates and encourages stockholder participation
in the Company's affairs. Whether or not you plan to attend the meeting, it is
important that your shares be represented. Please sign, date, and mail the
enclosed Proxy in the envelope provided at your earliest convenience.
Thank you for your cooperation.
Very truly yours,
/s/ Ronald L. Skates
......................................
Ronald L. Skates
President and Chief Executive Officer
<PAGE>
DATA GENERAL CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
Westboro, Massachusetts
December 17, 1997
The Annual Meeting of Stockholders of Data General Corporation will be held
at the Enterprise Room, Fifth Floor, State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts, on Wednesday, January 28, 1998, at 1:00
P.M., Eastern Standard Time, for the following purposes:
1. To elect seven directors for the ensuing year.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on December 1, 1997 will be
entitled to notice of and to vote at the meeting or any adjournment thereof.
Stockholders are requested promptly to complete, sign, date and return the
enclosed form of proxy in the envelope provided. No postage is required if
mailed in the United States.
Carl E. Kaplan
Secretary
<PAGE>
DATA GENERAL CORPORATION
4400 COMPUTER DRIVE
WESTBORO, MASSACHUSETTS 01580
----------------------------------------------------
PROXY STATEMENT
----------------------------------------------------
GENERAL INFORMATION
Proxy Solicitation
This Proxy Statement is furnished to the holders of the Common Stock,
$.01 par value per share ("Common Stock"), of Data General Corporation (the
"Company") in connection with the solicitation of proxies on behalf of the Board
of Directors of the Company for use at the Annual Meeting of Stockholders to be
held on January 28, 1998, or at any adjournment thereof, pursuant to the
accompanying Notice of Annual Meeting of Stockholders. The purposes of the
meeting and the matters to be acted upon are set forth in the accompanying
Notice of Annual Meeting of Stockholders. The Board of Directors knows of no
other business that will come before the meeting. Proxies for use at the meeting
will be mailed to stockholders on or about December 17, 1997, and will be
solicited chiefly by mail, but additional solicitations may be made by telephone
or telegram. The Company has retained Morrow & Co., Inc. to assist it with the
solicitation, at an estimated fee of $5,000, plus reimbursement of out-of-pocket
expenses. The Company may enlist the assistance of brokerage houses and banks in
soliciting proxies. All solicitation expenses, including costs of preparing,
assembling and mailing proxy material, will be borne by the Company.
Revocability and Voting of Proxy
A form of proxy for use at the meeting and a return envelope for the
proxy are enclosed. Stockholders may revoke the authority granted by their
execution of proxies at any time before their effective exercise by filing with
the Secretary of the Company a written revocation or duly executed proxy bearing
a later date or by voting in person at the meeting. Shares represented by
executed and unrevoked proxies will be voted in accordance with the choice or
instructions specified thereon. Shares represented by executed proxies which
abstain from one or all matters to be acted upon at the meeting and broker
non-votes will be considered for the purpose of determining whether or not a
quorum is present at the meeting but will not be considered in determining
whether or not the matter for which authority to vote has been properly withheld
is approved by an affirmative vote of the requisite percentage of the shares
voting on such matter. ("Broker non-votes" are shares held by brokers or
nominees which are present in person or represented by proxy, but which are not
voted on a particular matter because instructions have not been received from
the beneficial owner.) The affirmative vote of the holders of a plurality of the
shares of Common Stock present or represented at the meeting is required for the
election of directors. If no specifications are given, the proxies intend to
vote the shares represented thereby "FOR" Proposal No. 1 as set forth in the
accompanying Notice of Annual Meeting of Stockholders and in accordance with
their best judgment on any other matters that may properly come before the
meeting.
Only stockholders of record at the close of business on December 1,
1997, are entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof. The Company had outstanding on December 1, 1997, 48,691,156
shares of Common Stock, each of which is entitled to one vote upon the matters
to be presented at the meeting.
1
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of November 15, 1997,
regarding the beneficial ownership of the Company's Common Stock of (i) each
person known to the Company to own beneficially more than five percent of the
Company's outstanding Common Stock, (ii) the four most highly compensated
executive officers of the Company other than the chief executive officer, and
(iii) all present executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature Percentage of
Name and Address of Beneficial Owner of Beneficial Ownership Common Stock
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Putnam Investment Management, Inc.
One Post Office Square
Boston, Massachusetts 02109 ................. 3,215,600 (1) 6.6 %
Cramer Rosenthal McGlynn, Inc.
520 Madison Avenue
New York, New York 10022 .................... 2,730,150 (2) 5.6 %
The Capital Group Companies, Inc.
333 South Hope Street
Los Angeles, California 90071 ................ 2,440,770 (3) 5.0 %
William J. Cunningham ................................. 119,052 (4) .2 %
Arthur W. DeMelle ..................................... 102,500 (5) .2 %
Joel Schwartz ......................................... 148,917 (6) .3 %
William L. Wilson ..................................... 92,445 (7) .2 %
All present executive officers and directors
as a group (twelve persons) .................. 2,366,710 (8) 4.9 %
<FN>
(1) This figure is based on information set forth in the Form 13F, dated
October 7, 1997 (the "Putnam Schedule"), filed by Putnam Investment
Management, Inc. ("Putnam") with the Securities and Exchange Commission
on behalf of itself, its parent corporations (Putnam Investments, Inc.
and Marsh & McLennan Companies, Inc.) and The Putnam Advisory Company,
Inc. ("Putnam Advisory"). The Putnam Schedule states that Putnam has
shared power to dispose or direct the disposition of 2,151,400 of such
shares, and no power to vote or direct the vote of any of such shares.
The Putnam Schedule also states that Putnam Advisory has shared power
to dispose or direct the disposition of 1,064,200 of such shares, sole
power to vote or direct the vote of 456,600 of such shares, and no
power to vote or direct the vote of 607,600 of such shares.
(2) This figure is based on information set forth in the Form 13F, dated
October 22, 1997 (the "Cramer Schedule"), filed by Cramer Rosenthal
McGlynn, Inc. ("Cramer") with the Securities and Exchange Commission.
The Cramer Schedule states that Cramer has shared power to dispose or
direct the disposition of all of such shares, and sole power to vote or
direct the vote of all of such shares.
2
<PAGE>
(3) This figure is based on information set forth in the amendment to the
Schedule 13G, dated February 14, 1997 (the "Capital Group Schedule"),
filed by The Capital Group Companies, Inc. ("Capital Group"), with the
Securities and Exchange Commission. The Capital Group Schedule states
that Capital Group has the sole power to dispose or direct the
disposition of 2,440,770 of such shares and that Capital Group has the
sole power to vote or direct the vote of 315,000 of such shares. The
Capital Group Schedule further states that such shares included 895,770
shares resulting from the assumed conversion of 1,545,000 shares of the
Company's 7 3/4% Convertible Debentures due 2001.
(4) Includes 116,250 shares of Common Stock that may be acquired through
exercise of stock options.
(5) Includes 102,500 shares of Common Stock that may be acquired through
exercise of stock options.
(6) Includes 148,362 shares of Common Stock that may be acquired through
exercise of stock options.
(7) Includes 85,000 shares of Common Stock that may be acquired through
exercise of stock options.
(8) Includes 1,883,839 shares of Common Stock that may be acquired through
exercise of stock options.
</FN>
</TABLE>
3
<PAGE>
PROPOSAL NO. 1 -- ELECTION OF SEVEN DIRECTORS
Seven directors (constituting the entire Board) are to be elected at the
meeting. Unless otherwise specified, the enclosed proxy will be voted in favor
of the persons named below to serve until the next annual meeting of
stockholders and until their successors shall have been duly elected and shall
qualify. Each person named below is now a director of the Company, Jeffrey M.
Cunningham having been elected a director by the Board of Directors during the
1997 fiscal year, after the death of John G. McElwee. In the event any of these
nominees shall be unable to serve as a director, discretionary authority is
reserved to vote for a substitute. The Board of Directors has no reason to
believe that any of these nominees will be unable to serve.
The nominees, their ages, the year in which each first became a
director, their principal occupations or employment during the past five years,
and the number and percentage of shares of Common Stock beneficially owned by
each, are:
<TABLE>
<CAPTION>
Year Amount and
First Nature (1) Percentage
Became Principal Occupation During of Beneficial of Common
Nominee Age Director the Past Five Years Ownership Stock (2)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frederick R. Adler 71 1968 Chairman of the Executive Committee of 271,837 0.6 %
the Board of Directors since July, 1982; (7)(8)(9)
Managing General Partner of Adler &
Company, a venture capital investment
firm, and a general partner of its related
investment funds for more than five
years; of counsel to Fulbright & Jaworski
L.L.P., attorneys, and until December,
1995, Senior Partner of such firm. (3)(5)
Ferdinand Colloredo- 58 1986 Chairman of the Board and Chief Execu- 29,475
Mansfeld tive Officer of Cabot Partners Limited (7)(8)(9)
Partnership, a real estate investment
firm, since 1990; Chairman, Chief
Executive Officer and Chief Investment
Officer of Cabot, Cabot & Forbes Realty
Advisors, Inc., 1986 to 1990. (3)(4)(5)(6)
Jeffrey M. Cunningham 45 1997 Group Publisher of Forbes, Inc. since 10,679
September, 1997; Publisher of Forbes (7)(8)(9)
Magazine from 1993 to 1997, and
Associate Publisher from 1989 to
1993. (4)(5)
4
<PAGE>
Year Amount and
First Nature (1) Percentage
Became Principal Occupation During of Beneficial of Common
Nominee Age Director the Past Five Years Ownership Stock (2)
--------------------------------------------------------------------------------------------------------------------------------
Ronald L. Skates 56 1989 President and Chief Executive Officer of 1,475,008 3.0 %
the Company from November 1989 to (7)(10)
date; Executive Vice President and Chief
Operating Officer from 1988 to 1989;
Senior Vice President from 1986 to
1988. (3)
W. Nicholas Thorndike 64 1994 Corporate director and trustee. (4)(5) 29,267
(7)(8)(9)
Donald H. Trautlein 71 1989 Retired; Chairman of the Board of 17,000
Directors and Chief Executive Officer of (7)(9)
Bethlehem Steel Corporation from 1980
to 1986. (3)(4)(5)
Richard L. Tucker 57 1994 Managing Director of Trinity Investment 19,330
Management Corporation. (4)(5) (7)(8)(9)
<FN>
(1) As of November 15, 1997, unless otherwise indicated, the persons shown
have sole voting and investment power over the shares listed.
(2) Messrs. Colloredo-Mansfeld, Cunningham, Thorndike, Trautlein and Tucker
own less than 0.1% of the Company's Common Stock.
(3) Member of Executive Committee of Board of Directors.
(4) Member of Audit Committee of Board of Directors.
(5) Member of Compensation Committee of Board of Directors.
(6) Member of Nominating Committee of Board of Directors.
(7) Includes shares of Common Stock that may be acquired through exercise of
stock options, as follows: for Mr. Adler, 11,000 shares; for Mr.
Colloredo-Mansfeld, 16,000 shares; for Mr. Cunningham, 4,000 shares; for
Mr. Skates, 1,303,727 shares; for Mr. Thorndike, 16,000 shares; for Mr.
Trautlein, 10,000 shares; and for Mr. Tucker, 16,000 shares.
(8) Includes shares of Common Stock that may be acquired through exercise of
share units under the Data General Corporation Stock Compensation Plan
for Non-Employee Directors, as follows (without regard to fractional
shares): for Mr. Adler, 1,964 shares; for Mr. Colloredo-Mansfeld, 1,267
shares; for Mr. Cunningham, 679 shares; for Mr. Thorndike, 1,267 shares;
and for Mr. Tucker, 1,130 shares.
(9) Includes 2,000 restricted shares of Common Stock granted to Non-Employee
Directors in November, 1997, vesting over four years based on continued
service on the Board.
(10) Includes 6,000 shares of Common Stock owned by family members as to
which Mr. Skates disclaims beneficial ownership; includes also 32,000
shares of Common Stock in which Mr. Skates has shared voting and
investment powers, owned by family trusts of which Mr. Skates is a
co-trustee and in which each trustee has the power without the other to
both vote and dispose of trust assets.
</FN>
</TABLE>
5
<PAGE>
Mr. Adler is a director of Global Pharmaceutical Corporation, Prime
Cellular, Inc., Shells Seafood Restaurants, Inc., and USA Detergents, Inc., and
of counsel to Fulbright & Jaworski L.L.P., legal counsel to the Company. Mr.
Colloredo-Mansfeld is a director of Raytheon Company, and until November 30,
1995 was a director of Shawmut National Corporation. Mr. Colloredo-Mansfeld also
serves as Chairman of the Board of Trustees of Massachusetts General Hospital
and Trustee of the Partners HealthCare System. Mr. Cunningham serves as a member
of the Boards of Schindler Holding Ltd., the Global Economic Council, the Junior
Achievement Foundation and the American Swiss Foundation. Mr. Skates is a member
of the Board of Trustees of Massachusetts General Hospital. Mr. Thorndike serves
as a corporate director or trustee of a number of organizations, including
Bradley Real Estate Inc., Courier Corporation, Providence Journal Company,
Eastern Utility Associates and The Putnam Funds. He also serves as a Trustee of
Massachusetts General Hospital. In February, 1994, Mr. Thorndike accepted
appointment as a successor trustee of private trusts in which he has no
beneficial interest, and concurrently became, serving until October, 1994,
Chairman of the Board of two privately owned corporations controlled by such
trusts that filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code in August, 1994. Mr. Trautlein is a director of PXRE
Corporation.
The Board of Directors has an Audit Committee which met four times
during the fiscal year ended September 27, 1997 (the "1997 fiscal year").
Representatives of Price Waterhouse LLP, the Company's auditors, were present at
all such meetings. The primary functions of the Audit Committee are to provide
assistance to the Board of Directors in fulfilling its responsibilities relating
to corporate accounting and reporting practices and to maintain, by way of
regularly scheduled meetings, a direct line of communication among the
directors, the Company's internal auditors and independent accountants. In
addition, the Audit Committee is responsible for reviewing and monitoring the
performance of non-audit services by the Company's independent accountants and
for considering the range of non-audit and audit fees.
The Board of Directors has a Nominating Committee. During the 1997
fiscal year, the Nominating Committee met once. The primary functions of the
Nominating Committee are to consider qualified candidates to fill vacant seats
on the Board which may arise during the year and to recommend to the Board for
nomination for election to fill any such vacancies such candidates as it deems,
in its discretion, appropriate. The Nominating Committee does not consider
nominees recommended by stockholders for election as directors.
The Board of Directors has a Compensation Committee. During the 1997
fiscal year, the Compensation Committee met twice. The Compensation Committee's
functions are to review the compensation of the Company's executive officers and
recommend to the Board of Directors the compensation of such executive officers.
Other committees on which directors serve include the Executive
Committee, the Restricted Stock Option Committee, the Employee Stock Option
Committee, the Non-Officer Employee Stock Option Plan Committee and the Employee
Qualified Stock Purchase Plan Committee.
During the 1997 fiscal year, the Board of Directors held eight meetings.
Each of the incumbent directors attended at least 75% of the meetings of the
Board of Directors and of all the committee(s) of the Board of Directors on
which he served held during the period for which he has been a director.
6
<PAGE>
THE BOARD OF DIRECTORS DEEMS THE ELECTION TO THE BOARD OF DIRECTORS OF ALL THE
ABOVE-DESCRIBED NOMINEES TO BE IN THE BEST INTEREST OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF PROPOSAL NO. 1.
7
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
for the 1995, 1996 and 1997 fiscal years of those persons who were (i) during
the 1997 fiscal year, the chief executive officer and (ii) at the end of the
1997 fiscal year, the four most highly compensated executive officers other than
the chief executive officer.
<TABLE>
<CAPTION>
Summary Compensation Table
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term
Annual Compensation (000's) Compensation (1)
------------------------------------------------------------------------ -------------------------
Other Securities
Fiscal Year Annual Underlying
Name and Principal Position Ending Salary Bonus Compensation (2) Options
- --------------------------- ---------- ------ ----- ------------- -------
<S> <C> <C> <C> <C> <C>
Ronald L. Skates 1997 $630.0 $10,000.0 $3.7 100,000
President & 1996 $630.0 $1,360.0 $5.4 75,000
Chief Executive Officer 1995 $611.5 (3) $0 $3.0 225,000
William J. Cunningham 1997 $340.0 $275.0 $2.1 25,000
Senior Vice President 1996 $315.0 $185.0 $0 30,000
1995 $305.8 (3) $0 $0 20,000
Arthur W. DeMelle 1997 $340.0 $255.0 $0 20,000
Senior Vice President 1996 $315.0 $135.0 $8.3 30,000
1995 $305.8 (3) $0 $3.0 20,000
Joel Schwartz 1997 $340.0 $255.0 $0.9 25,000
Senior Vice President 1996 $315.0 $185.0 $2.3 30,000
1995 $305.8 (3) $50.0 $2.7 20,000
William L. Wilson 1997 $310.0 $235.0 $0 20,000
Senior Vice President 1996 $265.0 $135.0 $2.4 20,000
1995 $244.6 (3) $275.0 (4) $2.5 10,000
<FN>
(1) The Company does not maintain any long-term incentive plans other than
its option plans. All long-term compensation earned by executive
officers of the Company during the years shown have been in the form of
stock option grants under those option plans.
(2) Amounts shown reflect benefits received under a Company program
providing certain executives with tax preparation assistance.
(3) 1995 fiscal year salary numbers reflect 53 weeks of pay.
(4) Amount shown reflects guaranteed bonus payment committed in connection
with hiring Mr. Wilson in 1994 and a separate bonus awarded in fiscal
year 1995 based on operating unit performance.
</FN>
</TABLE>
8
<PAGE>
Option Grants in the 1997 Fiscal Year
The following table sets forth further information on grants of stock
options to the named executive officers during the 1997 fiscal year. The Company
does not have a stock appreciation rights plan.
<TABLE>
<CAPTION>
Option Grants in the 1997 Fiscal Year
- ------------------------------------------------------------------------------------------------------------------------------------
Number % of Total
of Options Potentially Realizable Value
Securities Granted Market at Assumed Annual Rates
Underlying to Price (3) of Stock Price Appreciation
Options Employees Option at Option For Option Term (4)
Granted in Fiscal Exercise Date of Expiration --------------------------------------
Name (1) (2) Year Price Grant Date 0% 5% 10%
- -------------------- ----------- ------- ----- --------- --------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. L. Skates 100,000 7.9 % $14.00 $14 9/29/06 $0 $880,452 $2,231,239
W. J. Cunningham 25,000 2.0 % $7.32 $14 5/8 11/3/06 $182,625 $412,565 $765,337
A. W. DeMelle 20,000 1.6 % $7.32 $14 5/8 11/3/06 $146,100 $330,052 $612,270
J. Schwartz 25,000 2.0 % $7.32 $14 5/8 11/3/06 $182,625 $412,565 $765,337
William L. Wilson 20,000 1.6 % $7.32 $14 5/8 11/3/06 $146,100 $330,052 $612,270
<FN>
(1) The grants described above were made in the 1997 fiscal year.
Thereafter, during the first forty-five days of the 1998 fiscal year,
Mr. Skates was granted an option for 500,000 shares at $20.00 per share.
Also during the first forty-five days of the 1998 fiscal year, Messrs.
Cunningham, DeMelle, Schwartz, and Wilson were each granted an option
for 17,500 shares at $10.00 and for 7,500 shares at $20.00. The closing
market price of the Company's Common Stock on the date of these grants
to Mr. Skates and the other executive officers was $20.00 per share.
(2) All of the options shown in this table, although immediately
exercisable, are subject to disposition restrictions that require that
any shares acquired on the exercise of such options be offered for
resale to the Company at the original option exercise price upon
termination of the optionee's employment with the Company for any reason
except death or retirement with the consent of the Company. These
restrictions lapse in 25% installments on each of the first four
anniversaries of the option grant.
(3) The market price shown is the closing price of the Company's Common
Stock, based on New York Stock Exchange Composite Tape trading for the
date on which the option was granted.
(4) The projected realizable values shown assume future market prices based,
pursuant to applicable Securities and Exchange Commission regulations,
on arbitrarily assumed annual stock price appreciation rates of 0%, 5%
and 10% for the full terms of the options. These projections are
provided for illustrative purposes only, in order to comply with such
regulations, and no representations are made as to what the actual
future price of the Company's stock will be at any point in time.
</FN>
</TABLE>
9
<PAGE>
Option Exercises in the 1997 Fiscal Year and Fiscal Year-End Option Values
The following table sets forth information with respect to (i) stock
options exercised by the chief executive officer and the other named executive
officers during the 1997 fiscal year, and (ii) unexercised, in-the-money stock
options held by such individuals at September 27, 1997.
<TABLE>
<CAPTION>
Option Exercises in the 1997 Fiscal Year and
1997 Fiscal Year-End Option Values
- -------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year End Fiscal Year End (1)
Shares --------------------------- -------------------------------
Acquired Exercisable Exercisable Exercisable Exercisable
on Value Vested Unvested Vested Unvested
Name Exercise Realized Options (2) Options (2) Options (2) Options (2)
- ---------------------- -------- -------- -------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
R. L. Skates 386,638 (3) $9,939,815 (3) 519,869 310,394 $9,170,570 $5,003,284
W. J. Cunningham 73,006 $1,333,718 27,500 63,750 $606,419 $1,362,347
A. W. DeMelle 50,000 $1,386,700 20,000 57,500 $446,175 $1,232,544
J. Schwartz 31,000 $829,155 59,612 63,750 $1,300,775 $1,362,347
William L. Wilson 30,000 $842,550 10,000 50,000 $221,525 $1,092,825
<FN>
(1) Year-end spread value of options are calculated based on the $27 9/16
closing price of the Company's Common Stock on September 26, 1997 (the
last trading day of the 1997 fiscal year), based on New York Stock
Exchange Composite Tape trading for such day.
(2) All of the options shown in this table, although immediately
exercisable, are subject to disposition restrictions that require that
any shares acquired on the exercise of such options be offered for
resale to the Company at the original option exercise price upon
termination of the optionee's employment with the Company for any
reason except death or retirement with the consent of the Company.
These restrictions lapse in 25% installments on each of the first four
anniversaries of the option grant. The option data shown in the
"vested" columns relate only to the portion of any currently
outstanding options that have already vested and are free of the
disposition restrictions and related resale requirement. The option
data shown in the "unvested" columns relate to the portion of any
currently outstanding options that have not yet vested, are still
subject to the disposition restrictions and related resale requirement,
and thus can be viewed as being comparable to options that are not yet
exercisable.
(3) As of November 15, 1997, Mr. Skates and Mr. Skates's family trusts
continue to own 126,638 shares (representing "value realized" at
September 27, 1997 of $2,496,519) of the 386,638 shares acquired on
exercise during the 1997 fiscal year. 10,256 shares acquired on
exercise during the 1997 fiscal year remain subject to disposition
restrictions and related resale requirement until November, 1998.
</FN>
</TABLE>
10
<PAGE>
Compensation Pursuant to Plans
Pension Plans
The Company maintains a noncontributory, defined benefit pension plan
(the "Pension Plan"). Substantially all domestic employees of the Company are
eligible to participate in the Pension Plan. All executive officers of the
Company participate in the Pension Plan. The amount of the contribution accrued
each year by the Company and participating affiliates under the Pension Plan is
actuarially determined and equals at least the minimum amount required under the
Internal Revenue Code, as amended (the "Code"). Pension benefits paid from the
Pension Plan are based on base salary, exclusive of overtime, bonuses, nonsales
incentive compensation and other similar types of payments but inclusive of
sales incentives and commissions, up to a certain maximum, and an employee's
period of service. In general, pension benefits become nonforfeitable (vested)
after the completion of five years of service.
Under the Pension Plan, a participant's pension at normal retirement
(age 65) is equal to the sum of his yearly benefits accrued during his period of
service. In general, for each year of credited service completed by an employee
after becoming a participant in the Pension Plan, the employee accrues an annual
benefit in an amount equal to 1.5 percent of his compensation. Effective in
1997, the amount of compensation taken into account to calculate the Pension
Plan benefit may not exceed $160,000 per annum under the Code. Each employee who
was a participant on October 1, 1997 had his benefit updated based on his
compensation on October 1, 1997, for each year of service as a participant in
the Pension Plan to that date. As of October 27, 1997, the estimated annual
benefits payable upon retirement at age 65, based on a single life annuity,
pursuant to the Pension Plan for the following individuals would be: to Mr.
Skates, $58,275; to Mr. W. Cunningham, $37,037; to Mr. DeMelle, $33,900; to Mr.
Schwartz, $37,037; and to Mr. Wilson, $36,184. In addition to pension benefits,
the Pension Plan provides amounts to fund medical benefits for certain retired
employees and their dependents.
In June 1989, the Board of Directors adopted the Data General
Corporation Supplemental Retirement Benefit Plan (the "Supplemental Plan")
effective October 1, 1989. The Supplemental Plan provides additional retirement
benefits for eligible employees, including executive officers of the Company,
who retire under the Company's Pension Plan. The Supplemental Plan was adopted
in order to compensate eligible employees for reductions in the benefits
calculated under the Pension Plan due to the change in the formula for the
calculation of benefits under the Pension Plan and/or legislative and regulatory
limitations. The Supplemental Plan benefit equals a participant's retirement
benefit calculated in an amount equal to one percent of his compensation not in
excess of the Federal Insurance Contribution Act ("FICA") wage base and two
percent of his compensation in excess of the FICA wage base, reduced by an
amount equal to the actual amount of the benefit that is payable under the
normal form of payment provided for under the Pension Plan. The Supplemental
Plan was also updated by basing the benefit thereunder on the participant's
compensation on October 1, 1997. The Supplemental Plan is funded pursuant to a
non-qualified deferred compensation arrangement under which the Company
transfers certain amounts to a trust to be held for the benefit of the
Supplemental Plan participants, except in the event of the insolvency of the
Company. As of October 27, 1997, the estimated annual benefits payable upon
retirement at age 65, based on a single life annuity, pursuant to the
Supplemental Plan for the following individuals would be: to Mr. Skates,
$228,645; to Mr. W. Cunningham, $54,607; to Mr. DeMelle, $49,870; to Mr.
Schwartz, $65,831; and to Mr. Wilson, $54,820.
In December 1994, the Board of Directors adopted a Supplemental
Retirement Benefit (the "Supplemental Benefit") to provide Mr. Skates a
retirement benefit to supplement that available to him under the Company's
Pension Plan and Supplemental Plan. The Supplemental Benefit provides that if
Mr. Skates retires from service to the Company at age 65, he will receive from
the Company's Pension Plan, current Supplemental Plan and the Supplemental
Benefit a combined joint and survivor annuity equal to 60% of the average of his
three
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highest years of cash compensation excluding any bonuses he may be awarded. If
Mr. Skates retires prior to attaining age 65, the 60% benefit rate will be
reduced by two percentage points for each year his retirement precedes age 65.
If at any time Mr. Skates dies, is terminated due to disability, is terminated
by the Board without cause, or his employment is terminated other than for cause
after a Change in Control (as defined in the discussion under the heading
"Employee Agreements", below), payment of the above-described benefit may
commence prior to age 65, at the reduced rate described above. As of October 27,
1997, the estimated annual benefit payable upon retirement at age 65 pursuant to
the Pension Plan, the Supplemental Plan and the Supplemental Benefit to Mr.
Skates would be $450,000.
Stock Options
The Company maintains a Restricted Stock Option Plan, Employee Stock
Option Plan, Employee Qualified Stock Purchase Plan and 1994 Non-Employee
Director Stock Option Plan which are available to the officers and directors of
the Company.
Restricted Stock Option Plan. The Restricted Stock Option Plan (the
"Restricted Plan"), which was originally adopted by the Board of Directors on
November 19, 1976 and approved by the stockholders on January 18, 1977,
authorizes the Company to grant "restricted stock options" to employees and
consultants of the Company and its subsidiaries. The Restricted Plan, which was
amended in 1988 to extend the termination date of the Restricted Plan to
December 31, 1998 and which has been amended from time to time to increase the
number of shares available thereunder, provides for the granting of options to
purchase up to 11,000,000 shares of Common Stock coupled with a prohibition
against disposition of the shares and an obligation to offer such shares for
resale to the Company at their original purchase price upon termination of
employment for any reason except death or retirement with the consent of the
Company. The restrictions against disposition and the obligation of resale lapse
from time to time as to portions of the grant, as determined by the Restricted
Stock Option Plan Committee (the "Restricted Plan Committee"). The Restricted
Plan Committee which administers the Restricted Plan consists of not fewer than
three non-employee directors, and currently consists of Messrs.
Colloredo-Mansfeld, Thorndike, Trautlein and Tucker. The Restricted Plan
provides for the issuance of Common Stock to employees for any lawful
consideration as determined by the Board of Directors so long as it is not less
than the lower of (i) 50 percent of the book value per share of Common Stock as
of the end of the fiscal year immediately preceding the date of such grant or
(ii) 25 percent of the fair market value per share of Common Stock on the date
of such grant. Subject to the terms of the Restricted Plan, the Restricted Plan
Committee has exclusive authority to select the employees or others to whom
options are granted and to determine the number of shares subject to such
options and the time or times when options are exercisable.
Employees of the Company and its subsidiaries, including officers and
consultants, who have not attained the age of 65 (approximately 5,100 persons)
are eligible to receive options under the Restricted Plan. Directors who are
also employees are eligible to receive options if they are not members of the
Restricted Plan Committee. Directors who are not employees may receive options
under the 1994 Non-Employee Director Stock Option Plan. (See the heading "1994
Non-Employee Director Stock Option Plan", below.) Options may be granted to the
same employee on more than one occasion. However, the number of shares issued to
any one employee under the Restricted Plan shall not exceed ten percent of the
aggregate number of shares issuable thereunder nor exceed three percent during
any consecutive twelve-month period. The Company reserves the right under the
Restricted Plan to terminate an employee's option with the employee's consent
and to substitute one or more options with different terms and conditions,
including a lower option price. Options may be granted under the Restricted Plan
from time to time through December 31, 1998, the termination date of the Plan.
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An option granted under the Restricted Plan is a non-statutory option
and is taxed in accordance with Section 83 of the Code and the regulations
thereunder. An employee granted an option under the Restricted Plan generally
will realize income when the shares purchased pursuant to the option become
transferable or are no longer subject to a substantial risk of forfeiture. The
income realized (the difference between the exercise price of the option and the
fair market value of the shares at the time the shares are transferable or are
no longer subject to a substantial risk of forfeiture) will be ordinary income
to the employee for which the Company can claim a business expense deduction.
Employee Stock Option Plan. The Employee Stock Option Plan (the "Stock
Option Plan"), which was adopted by the Board of Directors on October 6, 1981,
approved by the stockholders on January 19, 1982 and amended from time to time
thereafter, among other things, to increase the number of shares available
thereunder, authorizes the Company to grant either "incentive stock options" to
employees of the Company or its subsidiaries, under Section 422A of the Code, or
non-qualified options to purchase collectively up to 7,000,000 shares of Common
Stock. Substantially all employees of the Company and of designated subsidiaries
(approximately 5,100 persons) are eligible to participate in the Stock Option
Plan. The purpose of the Stock Option Plan is to strengthen the Company's
ability to attract, motivate, and retain key employees and, in particular, to
provide the Company with the necessary flexibility to compete for highly skilled
personnel.
The Stock Option Plan is administered by an Employee Stock Option Plan
Committee appointed by the Board of Directors (the "Stock Option Committee"),
currently consisting of Messrs. Colloredo-Mansfeld, Thorndike, Trautlein and
Tucker, which, subject to the provisions of the Stock Option Plan, has exclusive
authority to select the times when and the employees to whom stock options may
be granted, the number of shares of Common Stock to be acquired by the exercise
of stock options, the exercise price and the term during which options may be
exercised.
To qualify as an incentive stock option under Section 422A of the Code,
an option, among other things, must (i) not be exercisable more than ten years
from the date of grant; (ii) have an exercise price equal to or in excess of the
fair market value of the Common Stock on the date of grant and (iii) not be
transferable other than by will or laws of descent and distribution and must be
exercisable during the employee's lifetime only by him. The non-qualified
options may be granted with an exercise price as determined by the Stock Option
Committee so long as it is not less than the lower of (i) 50 percent of the book
value per share of Common Stock as of the end of the fiscal year immediately
preceding the date of such grant or (ii) 25 percent of the fair market value per
share of Common Stock on the date of such grant.
The option agreements between the Company and the optionee contain
restrictions against disposition of the shares acquired upon exercise of
non-qualified options and contain the obligation on the part of the optionee to
offer such shares for resale to the Company at their original purchase price
upon termination of the optionee's employment with the Company. The restrictions
against disposition and the obligation of resale lapse from time to time as to
portions of the grant, as determined by the Stock Option Committee.
An employee who is granted an incentive stock option will generally
recognize no income or gain on the grant or exercise of the incentive stock
option. If stock purchased pursuant to the exercise of an incentive stock option
is sold more than two years from the date the option is granted and one year
from the date of exercise, the gain realized on the sale of the stock (the
difference between the exercise price of the option and the amount realized on
the sale) will be treated as long-term capital gain rather than as ordinary
income. In general, in the case of incentive stock options, the excess of the
fair market value of the shares on the date of exercise (or, if later, the date
the shares become vested for purposes of Section 83 of the Code) over the
exercise price is included in alternative minimum taxable income for purposes of
the "alternative minimum tax" provisions of the Code. The non-qualified options
are taxed in accordance with Section 83 of the Code and regulations thereunder
in the same
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manner as restricted stock options. (See previous discussion of tax consequences
under the heading "Restricted Stock Option Plan", above.)
In general, the Company can deduct as a business expense only the amount
equal to the ordinary income, if any, recognized by an employee upon his sale of
Common Stock purchased pursuant to an incentive stock option, as well as the
ordinary income realized by an optionee with respect to the exercise of a
non-qualified option. Under current accounting practice, no charge to the income
of the Company will result from the grant or exercise of an incentive stock
option because the exercise price of the incentive stock option must equal or
exceed the fair market value of the Common Stock on the date of grant. In the
case of a grant of a non-qualified stock option an amount equal to the excess of
the fair market value of the Common Stock at the date of grant over the exercise
price would be amortized as a charge over the option's vesting period. The tax
effect of the benefit of such business expense for tax return purposes in excess
of that charged to earnings will be credited to the Company's additional paid-in
capital.
Employee Qualified Stock Purchase Plan. The Employee Qualified Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors on
November 10, 1970 and approved by the stockholders on January 12, 1971. The
Purchase Plan, which has been amended from time to time to increase the number
of shares available thereunder, authorizes the Company to issue up to 11,100,000
shares of Common Stock.
Substantially all employees of the Company and its designated
subsidiaries who have completed ninety days' employment with the Company or its
designated subsidiaries (approximately 5,100 persons) are eligible to
participate in the Purchase Plan. The Company believes that the Purchase Plan
has advanced the interests of the Company and its subsidiaries and furthered its
growth and development by encouraging and enabling employees to acquire the
Common Stock of the Company and an increased personal and proprietary interest
in the continued success and progress of the Company.
Under the Purchase Plan, options are granted twice yearly and are
exercisable six months from the date of grant. The option price is the lesser of
85 percent of the average market price of the Common Stock of the Company on (i)
the date the option is granted or (ii) the last day of the six month period.
Each eligible employee who continues to be a participant in the Purchase Plan on
the last day of the six month period is deemed to have exercised his option on
such date. The number of shares purchased at the option price by each
participating employee is determined by the amounts accumulated through payroll
deductions of up to 10 percent of such employee's regular base pay during such
six-month period.
Under the Purchase Plan, options granted to participants are intended to
constitute options granted pursuant to an "employee stock purchase plan" within
the meaning of Section 423 of the Code. Accordingly, no taxable income will be
realized by an employee until the shares purchased pursuant to an option are
sold. Under certain circumstances, all or a portion of the gain realized may be
treated as ordinary income to the employee, and the Company will be entitled to
claim a business expense deduction of the amount of ordinary income recognized
by the employee.
The Purchase Plan is administered by the Employee Qualified Stock
Purchase Plan Committee (the "Purchase Plan Committee"), which is composed of at
least three members of the Board of Directors. The Purchase Plan Committee
currently consists of Messrs. Adler, Trautlein and Tucker. Members of the
Purchase Plan Committee are presently not eligible to participate in the
Purchase Plan, nor is any employee entitled to participate in the Purchase Plan
to the extent his rights to purchase Common Stock would accrue at a rate which
exceeds $25,000 of fair market value of such stock, as determined at the time
such option is granted, for each calendar year in which such option is
outstanding at any time, or that, after the granting of the option, such
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employee would own more than five percent of the Common Stock of the Company, as
defined and prescribed by the Code.
During the 1997 fiscal year, pursuant to the Purchase Plan, Mr. Skates
purchased 2,379 shares of Common Stock at an average per share price of $8.93;
Mr. W. Cunningham purchased 2,046 shares of Common Stock at an average per share
price of $10.38; Mr. Schwartz purchased 455 shares of Common Stock at an average
per share price of $11.40; Mr. Wilson purchased 2,020 shares of Common Stock at
an average per share price of $10.52; and all executive officers as a group
purchased 6,900 shares of Common Stock at an average per share price of $9.99.
1994 Non-Employee Director Stock Option Plan. The 1994 Non-Employee
Director Stock Option Plan (the "1994 Directors' Plan") was adopted by the Board
of Directors on October 31, 1993 and approved by the stockholders on January 26,
1994. The 1994 Directors' Plan authorizes the Company to issue up to 150,000
shares of the Company's Common Stock. The 1994 Directors' Plan provides for the
issuance of an annual option to purchase 4,000 shares of the Company's Common
Stock to each non-employee director who is elected to the Board of Directors at
the Annual Meeting of Stockholders. The exercise price per share will be equal
to 100% of the closing price of the Company's Common Stock on the date of the
Company's Annual Meeting of Stockholders at which the subject director is
elected to the Board of Directors.
The 1994 Directors' Plan was established to serve the best interests of
the Company by enhancing the ability of the Company to attract and retain the
services of knowledgeable and experienced persons who, through their efforts and
expertise, can make a significant contribution to the success of the Company by
serving as members of the Company's Board of Directors.
The 1994 Directors' Plan provides that the option to purchase Common
Stock will be coupled with a prohibition against disposition of the shares and
an obligation to offer such shares for resale to the Company for any reason
except death, disability, or retirement with the consent of the Company. The
restrictions against disposition and the obligation of resale will lapse
cumulatively to the extent of 25 percent of the grant on each anniversary date
of grant of the option. Options will not be transferable other than by will or
the laws of descent and distribution, and will be exercisable during the
lifetime of an optionee only by the optionee. Options will be exercisable only
while the optionee is serving as a director of the Company or (i) within 12
months of his retirement from the Board of Directors with the consent of the
Company; (ii) within 12 months of the optionee becoming disabled to serve as a
director of the Company; (iii) by his heirs or estate within 12 months of his
death. Options terminate ten years from the date of grant. In the event of a
Change of Control of the Company (see definition of "Change of Control" in the
discussion under the heading "Employee Agreements", below) the restrictions
against disposition and the obligation of resale of the shares acquired pursuant
to an option under the 1994 Directors' Plan will lapse and the shares will
become freely tradeable.
An option granted under the 1994 Directors' Plan will be a non-statutory
stock option and will be taxed in accordance with Section 83 of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder. A director
granted an option pursuant to the 1994 Directors' Plan generally will realize
income when the shares purchased under the option become transferable or are no
longer subject to a substantial risk of forfeiture. The income realized (the
difference between the exercise price of the option and the fair market value of
the shares at the time the shares become transferable or are no longer subject
to a substantial risk of forfeiture) will be ordinary income to the optionee for
which the Company will be able to claim a business expense deduction.
The Board may terminate, modify or suspend the 1994 Directors' Plan
provided that no such modification shall, without further stockholders'
approval, increase the maximum number of shares which may be issued under the
1994 Directors' Plan (other than adjustments for capital changes), shorten the
period over which restrictions
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against disposition and obligation of resale lapse, amend the option exercise
price (other than adjustments for capital changes), or extend the period during
which options may be granted or exercised under the 1994 Directors' Plan. During
the 1997 fiscal year, Messrs. Adler, Colloredo-Mansfeld, Thorndike, Trautlein
and Tucker were each granted an option under the 1994 Directors' Plan to
purchase 4,000 shares of the Company's Common Stock with an exercise price per
share of $18.13, which was the fair market value on the date of grant, and Mr.
J. Cunningham was granted an option under the 1994 Directors' Plan to purchase
4,000 shares of the Company's Common Stock with an exercise price per share of
$33.32, which was the fair market value on the date of grant.
Employee Agreements
Beginning in February 1989, the Company entered into employment
agreements (the "Agreements") which become effective upon a change in control of
the Company with its full-time executive officers, including Messrs. Skates, W.
Cunningham, DeMelle, Schwartz and Wilson. The Board of Directors believes that
such Agreements will better ensure retention of the current officers and attract
the services of new officers. The Board also believes that under such Agreements
officers are able to devote their full attention and energies to the conduct of
the Company's business without the potentially disturbing distractions that
might arise from a change in control of the Company. Should the Company receive
any proposals with respect to any change in its control, such officers could
then, without being influenced by the uncertainties of their own situations,
assess such proposals, formulate an objective opinion as to whether such
proposals would be in the best interests of the Company and its stockholders and
take such other action regarding such proposals as the Board of Directors might
determine to be appropriate. Each Agreement has a three year term and becomes
effective upon a change in control of the Company as defined in the Agreements.
The Agreements provide that, if a change in control of the Company
should occur, and if within three years thereafter (i) the employment of the
officer is terminated for reasons other than death, disability, retirement, or
"Cause" (as defined in the Agreements); or (ii) the officer voluntarily
terminates his or her employment for "Good Reason" (as defined in the
Agreements); or (iii) the officer voluntarily terminates his or her employment
for any reason or no reason within thirty days of the first anniversary of a
change in control of the Company (the "Window Period") the officer would receive
specified severance compensation. The Agreements provide generally for the
continuation of employment of the officer with the Company for a three year
period following the date of the change in control upon substantially the same
terms and conditions with respect to duties, responsibilities, salaries,
bonuses, welfare, fringe and other benefits as those enjoyed prior to the date
of the change in control of the Company.
"Good Reason" permitting an officer to receive the specified severance
compensation upon voluntary termination of his or her employment with the
Company during the three year term of the Agreement is defined as a diminution
of responsibilities, assignment of inappropriate duties, failure of the Company
to comply with the compensation and benefit provisions of the Agreement, failure
of the Company to comply with the relocation provisions of the Agreement, any
purported termination in violation of the Agreements or the failure of any
successor to comply with the Agreements.
Upon termination of employment with the Company for death, disability,
retirement or by the officer without Good Reason (other than during the Window
Period) the Company has no obligations under the Agreement other than those
accrued on the date of termination and the customary Company provided death
benefits, disability benefits or retirement benefits as the case may be. Upon
termination by the Company for Cause, the only obligation of the Company to the
officer is for salary and deferred compensation accrued by the officer to the
date of termination. If the officer terminates his or her employment with the
Company for Good Reason, or
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without any reason during the Window Period, or his or her employment with the
Company is terminated by the Company without Cause, during the term of the
Agreement, then the officer is entitled to (a) a lump sum cash payment equal to
the sum of (1) his or her accrued salary, accrued annual bonus and deferred
compensation to the date of termination, (2) three times his or her annual base
salary and three times his or her "Highest Annual Bonus" (as defined in the
Agreements); (b) retirement benefits and health benefits for the remainder of
the term of the Agreement; (c) certain legal fees and expenses incurred as a
result of termination of employment; and (d) immediate acceleration of the
exercisability of the options granted to the officer pursuant to the Company's
Restricted Stock Option Plan and Employee Stock Option Plan, and immediate lapse
of any restrictions against disposition and obligation of resale of the Common
Stock to the Company, with the officer being able to exercise his or her options
under the Restricted Stock Option Plan and the Employee Stock Option Plan within
a period of sixty days following the termination date. The definition of Highest
Annual Bonus is the greater of the highest annual bonus paid in the past three
years or 30% of his or her annual base salary.
The Company has established a trust fund, with the Boston Safe Deposit
and Trust Company as Trustee. The trust fund is to be funded upon a change in
control of the Company. The purpose of the trust fund is to ensure the proper
payment of the Company's obligations under the Agreements.
In the event that the amount payable to an officer under his or her
Agreement would be subject to the excise tax for federal tax purposes pursuant
to Section 4999 of the Code (the "Excise Tax"), then, unless the value of the
payment of the Excise Tax by the Company to the Executive does not exceed
$50,000 or more, the officer is entitled to receive an additional payment in an
amount such that, after payment by the officer of all taxes, including income
taxes and the Excise Tax imposed upon such additional payment, the officer is in
the same after-tax position as if no Excise Tax had been imposed upon the
officer. If the value to the executive does not exceed $50,000 or more, then the
lump sum cash payment to that officer will be reduced by the amount necessary to
avoid the Excise Tax, up to the aggregate of $50,000.
A change in control of the Company means for purposes of the Agreements:
(i) the acquisition, other than from the Company, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or
more of either the then outstanding shares of Common Stock of the Company (the
"Outstanding Company Common Stock") or the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"), provided,
however, that any acquisition by the Company or any of its subsidiaries, or by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its subsidiaries, or by any corporation with respect to which,
following such acquisition, more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such acquisition in substantially the
same proportion as their ownership, immediately prior to such acquisition, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, shall not constitute a change of control; or (ii)
individuals who, as of January 1, 1989, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board,
provided that any individual becoming a director subsequent to January 1, 1989
whose election, or nomination for election, by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company (as
such terms are used in
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Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii)
approval by the stockholders of the Company of a reorganization, merger or
consolidation, in each case, with respect to which all or substantially all of
the individuals and entities who were the respective beneficial owners of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such reorganization, merger
or consolidation, or of a complete liquidation or dissolution of the Company or
of the sale or other disposition of all or substantially all of the assets of
the Company.
The Code limits the business expense deduction available for so-called
golden parachute payments. A portion of the payments (if any) made (or deemed
made) by the Company under the Agreements may not be deductible as a result of
those limits.
Compensation of Directors
Directors who are full-time officers of the Company receive no
additional compensation for serving on the Board of Directors or its committees.
Directors who are not full-time officers receive an annual retainer of $25,000
in addition to $1,000 for each meeting attended. Directors who serve on one or
more than one of the Audit Committee, the Compensation Committee, the Restricted
Plan Committee, the Stock Option Committee and the Nominating Committee receive
an additional annual retainer of $5,000, but directors who serve on more than
one such committee are limited to only one additional retainer of $5,000.
Directors serving on such committees receive $1,000 for each committee meeting
they attend. In November, 1997, each non-employee director was also awarded a
2,000 share grant of restricted stock vesting over four years based on continued
service on the Board.
In November, 1996, the Board of Directors adopted, effective for
calendar years beginning January 1, 1997, a "Stock Compensation Plan for
Non-Employee Directors" permitting each non-employee director to elect, prior to
the start of a calendar year, to defer all or part of the retainer and other fee
compensation payable to such director for such year in the form of stock-based
units based on the price of the Company's common stock on the date such
compensation would have otherwise been payable. Any such deferred stock-based
units will be converted into, and paid out as, actual shares of stock following
the director's termination of services as a director.
For a description of options granted to non-employee directors, see the
heading "1994 Non-Employee Director Stock Option Plan", above.
In November, 1991, the Company adopted a retirement program for
non-employee directors. This program provides a retirement benefit to each
non-employee director who either reaches age 72 (the mandatory retirement age
for members of the Company's Board of Directors) or completes at least five
years of service as a non-employee director. The retirement benefit is equal to
the highest Board retainer paid to the director during his years of service to
the date of the director's retirement and is payable for a period of years (not
to exceed a maximum of 15 years) equal to the director's years of service on the
Board. The five-year eligibility service requirement is waived in the event of
death in service, retirement due to poor health or retirement within two years
of a change in control, as previously defined under the heading "Employee
Agreements", above. In the event of death after retirement, the director's
spouse (if any) is entitled to a death benefit equal to the remaining balance
(if any) of benefits otherwise payable to the director at the time of his death.
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JOINT REPORT OF COMPENSATION COMMITTEE
AND STOCK OPTION COMMITTEES
The Compensation Committee and Stock Option Committees of the Board of
Directors (respectively, the "Compensation Committee" and the "Stock Option
Committees", and collectively, the "Committees") are each composed entirely of
non-employee directors.
The Compensation Committee is responsible for establishing and
administering the overall compensation policies applicable to the Company's
corporate officers, and determining the annual cash compensation levels of the
Company's senior management. The three Stock Option Committees (which are all
comprised of the same directors) are responsible for establishing the general
policies applicable to granting, vesting and other terms of stock options
granted to current and newly hired officers and other employees under the
Company's stock option plans, and for determining the size and terms of the
option grants made to the Company's executive officers, among others.
The Committees view their charter as being to ensure that the Company's
officer compensation programs are structured and implemented in a manner that
recognizes the Company's need to attract and retain the caliber of senior
executives and other key employees required for the Company to compete in a
highly competitive and rapidly evolving business sector, while recognizing and
emphasizing the importance and value of achieving targeted annual and long-term
performance objectives at the corporate, operating unit and individual levels.
Section 162(m)
The annual bonus opportunities and option grants provided to certain
executive officers may result in compensation that may not be fully deductible
under some circumstances, due to the limitations imposed by Internal Revenue
Code Section 162(m). In this regard, the Committees have reviewed the effects
upon the Company of Section 162(m), which limits tax deductions for annual
compensation in excess of one million dollars paid to any of the five most
highly compensated executive officers of a corporation. The Committees noted
that due to the Company's large net operating loss carryover position, Section
162(m) would have no material impact on the Company's consolidated results of
operations for fiscal year 1997.
ANNUAL REVIEW PROCESS REGARDING PERFORMANCE
AND CASH AND STOCK COMPENSATION LEVELS
During the summer and fall of 1997, the Committees and the Company's
Chief Executive Officer (the "CEO") conducted, with the assistance and advice of
an independent executive compensation consultant, detailed reviews of the levels
and mix of officer cash and stock compensation, taking into account corporate,
operating unit and individual performance for the fiscal year ended on September
27, 1997.
This annual review process included interim meetings involving the CEO,
designated Committee representatives and the compensation consultant as well as
formal Committee meetings to consider the progress of the annual reviews and to
evaluate the recommendations of the working group. As part of the process, the
CEO reviewed with the Committees (i) the assessment of each officer's
performance by his/her immediate supervisor, (ii) the CEO's assessment of the
performance of each executive officer and of the other officers, and (iii) the
CEO's specific recommendations regarding salary, annual bonus and stock option
grant actions for the officer group, and the rationale for such actions. In
addition, the Committees held various private discussions regarding such
matters.
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Review of Base Salaries
As part of the annual compensation review process, the base salary rate
of each corporate officer was reviewed, taking into account: (i) each officer's
individual performance for the preceding 12 months compared against assigned
revenue, margin, net income and other goals, and against fiscal 1996
performance, (ii) the scope and importance of the functions the officer
performed or for which the officer was responsible during and as of the end of
the 1997 fiscal year, (iii) the assessment of the officer's initiative,
managerial ability and overall contributions to corporate performance, (iv) the
advice of the independent executive compensation consultant regarding the
competitiveness of the current officer salary levels compared to the external
market based on 1997 survey data, and (v) internal equity considerations.
The weighting given to these factors varied from officer to officer,
based in part upon the importance of the officer's position to the Company and
the caliber of the incumbent, but the Compensation Committee intended that
executive officer base salaries generally be competitive with the estimated
relevant market for each position. Based on 1997 survey data (including a survey
of more than twenty-five large computer sector companies) and the advice of the
outside compensation consultant regarding such data, the Compensation Committee
believes that the base salaries for the Company's current executive officers are
generally in the 50th to 75th percentile compared to other large computer
companies.
As a result of the fiscal year 1997 review and after taking into account
the Company's performance during the 1997 fiscal year, the Compensation
Committee, at the recommendation of the CEO, effective for fiscal year 1998,
approved increases in the salaries of two executive officers named in the
"Summary Compensation Table" set forth above (Messrs. Cunningham and Wilson) to
$360,000 and $330,000, respectively, and also reviewed and approved increases
for selected other corporate officers.
Annual Bonus Awards
For the 1997 fiscal year, the Board, at the recommendation of the
Compensation Committee and the Company's CEO, provided bonus opportunities and
awards to four of the named executives in the "Summary Compensation Table" set
forth above (Messrs. Cunningham, DeMelle, Schwartz and Wilson), as well as
certain other corporate officers, based on the Company's earnings-per-share
performance, but subject to certain discretionary adjustments (based on level
and importance of an individual officer's contributions to the Company's and/or
a unit's overall performance, and other factors).
For the 1998 fiscal year, the Board, at the recommendation of the
Compensation Committee and the Company's CEO, provided bonus opportunities to
four of the named executives in the "Summary Compensation Table" set forth above
(Messrs. Cunningham, DeMelle, Schwartz and Wilson), as well as certain other
corporate officers, based on the Company's earnings-per-share performance for
the 1998 fiscal year, but subject to certain discretionary adjustments (based on
the level and importance of the individual officer's contributions to the
Company's and/or a unit's overall performance, and other factors).
Stock Option Grants
As part of its officer compensation programs, the Company has
traditionally utilized stock options priced primarily at 50% of market on the
date of grant (25% of market for a portion of the initial grants to certain
newly hired officers, and 100% of market in the case of all recent option grants
to the Company's CEO) and vesting generally in four equal annual installments.
For the 1998 fiscal year, the Stock Option Committees have approved option
grants to the officer group (other than the CEO) which are priced in part at
100% of market value and in part at 50% of current market value.
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The Stock Option Committees believe that option grants have been
effective for both new hire and retention purposes in establishing substantial
stock-based investment risks for key employees that emphasize the importance of
shareholder return and encourage a focus on long term results.
The Stock Option Committees also have established general guidelines
(which were reviewed and updated in 1997) regarding the size and pricing of
officer stock option grants, which establish certain target parameters for
officer option grants, based on various factors, and are intended to provide a
consistent basis for judging the internal fairness and external competitiveness
of officer stock option grants. The Stock Option Committees believe that the
stock option grants made in November, 1996 and November, 1997 reflect, and, in
aggregate, are consistent with, such guidelines.
CEO COMPENSATION
CEO Cash Compensation
The Compensation Committee's actions in 1996 and in 1997 with respect to
Mr. Skates's cash compensation for the 1997 fiscal year (as reflected in the
"Summary Compensation Table" above) were based upon reviews of both proxy and
survey data regarding the CEO cash compensation practices of other computer
companies, as well as the Committee's evaluations of Mr. Skates's performance as
CEO during the year and the Company's performance during the year, both on an
overall basis and in terms of key strategic initiatives.
For the reasons set forth in the Company's December 18, 1996 Proxy
Statement, the Board, at the recommendation of the Compensation Committee,
continued Mr. Skates's salary for the 1997 fiscal year at $630,000, the same
salary applicable to fiscal year 1996.
As described in the December, 1996 Proxy Statement, the Board, at the
Compensation Committee's recommendation, also approved the continuation in the
1997 fiscal year of a CEO bonus formula initially approved in 1995 that was
based upon earnings-per-share performance and, alternatively, upon increases in
the Company's market capitalization. In fiscal year 1996, Mr. Skates earned a
bonus of $1,360,000 based on the earnings-per-share performance of the Company.
No bonus was earned in fiscal 1996 under the increased market capitalization
formula. The Company's market capitalization utilizing the 30-day average share
price at the end of fiscal 1997 was 3.4 times, or $1,129,700,000 greater than,
the market capitalization utilizing the 30-day average share price at the end of
fiscal 1996. Based on this increase in market capitalization, the Board in
September, 1997, at the recommendation of the Compensation Committee,
established $10,000,000 as Mr. Skates's bonus for fiscal 1997.
Additionally, in September 1997, the Board awarded Mr. Skates a
restricted bonus as an incentive to remain in the employment of the Company as
CEO for an additional three (3) years. This bonus was set at $7,000,000 and
shall become earned and vested and the restrictions related thereto shall lapse
over the three year period commencing on September 28, 1997 and ending September
30, 2000. The bonus shall become fully vested and free of restrictions upon a
change in control of the Company, or upon termination of Mr. Skates's employment
by the Company. If Mr. Skates terminates his employment with the Company
voluntarily prior to October 1, 2000, he shall be obligated to repay the Company
on the day of such termination any unvested amounts paid to him under the terms
of the agreement.
In November 1997, the Board, at the recommendation of the Compensation
Committee and after taking into account 1997 survey and proxy data with respect
to the CEO cash compensation practices of more than twenty-five other large
computer sector companies, decided to increase Mr. Skates's salary for the 1998
fiscal year to $750,000.
At the same time, the Board, at the recommendation of the Compensation
Committee, also approved a CEO bonus opportunity for the 1998 fiscal year that
was similar to that provided in the 1997 fiscal year in that it is based upon
performance against specified earnings-per-share goals (subject, for the 1998
fiscal year, to a maximum of 300% of base salary), or, if greater, performance
measured on the basis of the increase (if any) in the Company's
21
<PAGE>
market capitalization during the 1998 fiscal year, based on the 30-day average
price of the Company's Common Stock as of the end of the 1998 fiscal year
compared against the 30-day average price of the Company's Common Stock as of
the end of the 1997 fiscal year (subject to a maximum of $3.5 million, except in
the event of a change of control). The Board also reserved the right to adjust
this bonus in the event of extraordinary transactions and to award other
bonuses.
CEO Stock Options Awards
After taking into account the recommendations of the Compensation
Committee, the Stock Option Committees decided in November, 1996 and November,
1997 to award Mr. Skates stock options to purchase 100,000 shares and 500,000
shares, respectively. In each case, the options were priced at 100% of the
market price of the Company's stock at the time of grant. The Stock Option
Committees based these actions on a number of factors, including, among others,
(i) their assessment of the overall quality and value of Mr. Skates's efforts
and the Company's progress during the 1996 and 1997 fiscal years, and the
Company's earnings performance, strategic initiatives and stock price
performance during such years; (ii) information regarding the size and value of
CEO stock options grants among other large computer companies, and the advice of
the Company's outside compensation consultant regarding such data; (iii) the
size of Mr. Skates's prior stock option grants; (iv) the size and value of the
vested in-the-money stock options still held by Mr. Skates as of the end of 1996
and 1997 fiscal years; and (v) the size of Mr. Skates's base salary, annual
bonus award opportunities for the 1997 and 1998 fiscal years, and retention
bonus opportunities for the fiscal years 1998, 1999 and 2000.
Conclusion
The Compensation Committee and Stock Option Committees are of the
opinion that the Company's senior management compensation programs achieve an
appropriate risk/reward balance, and are consistent with the Committee's goals
of having programs that enable the Company to compete for high caliber
executives in a highly competitive and continually evolving sector, while also
emphasizing the importance of achieving annual and long-term performance goals.
Compensation Committee Stock Option Committees
---------------------- -----------------------
Frederick R. Adler Ferdinand Colloredo-Mansfeld
Ferdinand Colloredo-Mansfeld W. Nicholas Thorndike
W. Nicholas Thorndike Donald H. Trautlein
Donald H. Trautlein Richard L. Tucker
Richard L. Tucker
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<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock during the
five fiscal years ended September 27, 1997 with the cumulative total return on
the Standard & Poors 500 Index and the Standard & Poors Computers (Hardware)
Index (formerly, the Computer Systems Index). The comparison assumes $100 was
invested on September 30, 1992 in the Company's Common Stock and in each of such
indices and assumes reinvestment of dividends, where applicable.
<TABLE>
<CAPTION>
---------- --------- --------- -------- -------- ---------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
- ----------------------------------- ---------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Data General Corporation $100 $93 $91 $94 $127 $242
- ----------------------------------- ---------- --------- --------- -------- -------- ---------
S&P 500 Index 100 $113 $117 $152 $183 $257
- ----------------------------------- ---------- --------- --------- -------- -------- ---------
S&P Computers (Hardware) Index $100 $67 $97 $140 $170 $314
- ----------------------------------- ---------- --------- --------- -------- -------- ---------
</TABLE>
23
<PAGE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has been the independent accountants for the
Company and will serve in that capacity for the 1998 fiscal year. A
representative of Price Waterhouse LLP will be present at the Annual Meeting,
will have an opportunity to make a statement if he desires to do so, and will be
available to respond to appropriate questions from stockholders.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Ownership of and certain transactions in Company stock by executive
officers, directors and certain other persons are required to be reported to the
Securities and Exchange Commission pursuant to Section 16 of the Exchange Act.
In June, 1997, Mr. Ronald L. Skates, President, Chief Executive Officer and
Director of the Company, exercised stock options for 3,305 shares which he did
not sell and which he continues to own. The Company inadvertently did not file a
Form 4 in July, 1997 for this transaction and filed a late Form 4 on August 9,
1997.
STOCKHOLDER PROPOSALS
All stockholder proposals that are intended to be presented at the
January, 1998 Annual Meeting of Stockholders of the Company must be received by
the Company no later than August 17, 1998, for inclusion in the Board of
Directors' proxy statement and form of proxy relating to that meeting.
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at
the meeting. However, if any other business properly comes before the meeting,
it is the intention of the persons named in the enclosed proxy to vote on such
matters in accordance with their best judgment.
The prompt return of your proxy will be appreciated and helpful in
obtaining the necessary votes. Therefore, whether or not you expect to attend
the meeting, please sign the proxy and return it in the enclosed envelope.
By Order of the Board of Directors
Carl E. Kaplan
Secretary
Dated: December 17, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K WILL BE SENT
WITHOUT CHARGE TO ANY STOCKHOLDER REQUESTING IT IN WRITING FROM:
ATTENTION: MR. DAVID ROY
INVESTOR RELATIONS DEPARTMENT
DATA GENERAL CORPORATION
3400 COMPUTER DRIVE
WESTBORO, MASSACHUSETTS 01580
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<PAGE>
DATA GENERAL CORPORATION
P R O X Y
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JANUARY 28, 1998
Ronald L. Skates and Frederick R. Adler, and each of them, as the true and
lawful attorneys, agents and proxies of the undersigned, with full power of
substitution, are hereby authorized to represent and to vote, as designated
below, all shares of Common Stock of Data General Corporation held of record by
the undersigned on December 1, 1997, at the Annual Meeting of Stockholders to be
held at 1:00 P.M. on January 28, 1998, at the Enterprise Room, Fifth Floor,
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts,
and at any adjournments thereof. Any and all proxies heretofore given are hereby
revoked.
PLEASE MARK, DATE AND SIGN THE REVERSE SIDE AND MAIL PROMPTLY IN THE ENCLOSED
ENVELOPE.
(SEE REVERSE SIDE)
DATA GENERAL CORPORATION
P.O. BOX 11235
NEW YORK, N.Y. 19203-0235
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<TABLE>
<S> <C>
Proposal No.1: Election of FOR all nominees / / WITHHOLD AUTHORITY to vote / / *EXCEPTIONS / /
Directors listed below for all nominees listed below
</TABLE>
Nominees: Frederick R. Adler, Ferdinand Colloredo-Mansfeld,
Jeffrey M. Cunningham, Ronald L. Skates,
W. Nicholas Thorndike, Donald H. Trautlein
and Richard L. Tucker.
(INSTRUCTIONS: To withhold authority to vote for any
individual nominee, mark the "Exceptions" box and write the
nominee's name in the space provided below)
* Exceptions: ______________________________________________
Change of Address and
or Comments Mark Here / /
Unless otherwise specified this Proxy will be voted FOR Proposal No. 1.
The Board of Directors recommends a vote FOR Proposal No. 1.
Discretionary authority is hereby granted with
respect to such other matters as may properly come
before the meeting. The signer acknowledges
receipt of the Notice of Annual Meeting of
Stockholders and the Proxy Statement furnished
therewith.
IMPORTANT: Please sign exactly as name appears
hereon. Each joint owner shall sign. Executors,
administrators, trustees, etc. should give full
title.
Dated: ____________________________________, 199__
---------------------------------------------------
Signature
---------------------------------------------------
Signature
Please Sign, Date and Return the Proxy Card Promptly. Votes MUST be indicated
(X) in Black or Blue ink.
<PAGE>
[DATA GENERAL LOGO]
DATA GENERAL CORPORATION
4400 Computer Drive, Westboro, MA 01580
Telephone (508) 898-5000
Dear Stockholder:
Attached below is your proxy card for the January 28, 1998 Annual Meeting of
Stockholders of Data General Corporation. Also enclosed please find the Notice
of Annual Meeting and Proxy Statement.
YOUR VOTE IS IMPORTANT. UNLESS ENOUGH STOCKHOLDERS VOTE THEIR PROXIES, THE
COMPANY WILL NOT BE ABLE TO COMPLETE THE BUSINESS AT ITS MEETING, WHICH WILL
RESULT IN THE ADDITIONAL EXPENSE OF FURTHER MAILINGS TO STOCKHOLDERS UNTIL
ENOUGH VOTES ARE RECEIVED.
Whether or not you plan to attend the Stockholder's Meeting, please immediately
complete and sign the proxy card, and return it in the envelope provided.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU MAY OWN.
Thank you.
PLEASE DETACH PROXY CARD HERE
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