<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 [ ]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Ditgital Equipment 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:
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<PAGE> 2
DIGITAL LOGO
September 18, 1997
Dear Fellow Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders
("Meeting"), which will be held this year on Thursday, November 13, 1997, at
11:00 A.M., at the World Trade Center, Commonwealth Pier, 164 Northern Avenue,
Boston, Massachusetts.
The notice of meeting and proxy statement that follow describe the business
to be conducted at the meeting. We also will give a presentation on the current
status of our business.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the enclosed Notice of
Annual Meeting and Proxy Statement, I urge you to complete, sign, date and
return your proxy ballot in the envelope provided. If the address on the
accompanying material is incorrect, please advise our Investor Services
Department in writing at 111 Powdermill Road, Maynard, Massachusetts 01754.
For the Board of Directors,
/s/ Robert B. Palmer
ROBERT B. PALMER
Chairman of the Board, President and
Chief Executive Officer
DIGITAL EQUIPMENT CORPORATION, 111 POWDERMILL ROAD, MAYNARD, MASSACHUSETTS 01754
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 3
DIGITAL EQUIPMENT CORPORATION
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NOTICE OF 1997 ANNUAL MEETING
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To the Stockholders of DIGITAL EQUIPMENT CORPORATION:
Notice is hereby given that the Annual Meeting of Stockholders ("Meeting")
of Digital Equipment Corporation, a Massachusetts corporation, will be held on
Thursday, November 13, 1997, at 11:00 A.M., at the World Trade Center,
Commonwealth Pier, 164 Northern Avenue, Boston, Massachusetts, for the following
purposes:
1. To elect three members to the Board of Directors to serve for a
three-year term as Class II Directors.
2. To approve an amendment to the 1968 Employee Stock Purchase Plan to
increase the number of shares subject thereto by 3,900,000 shares.
3. To approve an amendment to the 1981 International Employee Stock
Purchase Plan to increase the number of shares subject thereto by
3,600,000 shares.
4. To ratify the selection of the firm of Coopers & Lybrand L.L.P. as
auditors for the fiscal year ending June 27, 1998.
5. To consider and act upon the four stockholder proposals set forth in the
Proxy Statement.
6. To transact such other business as may properly come before the meeting.
Stockholders entitled to notice of and to vote at the meeting shall be
determined as of the close of business on September 15, 1997, the record date
fixed by the Board of Directors for such purpose.
By Order of the Board of Directors,
/s/ Gail S. Mann
GAIL S. MANN, Clerk
September 18, 1997
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STOCKHOLDERS ARE REQUESTED TO SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE TO DIGITAL EQUIPMENT CORPORATION,
P.O. BOX 1006, NEW YORK, NEW YORK 10269.
<PAGE> 4
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PROXY STATEMENT
------------------------------
INTRODUCTION
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of Digital Equipment Corporation (the "Corporation") for use
at the 1997 Annual Meeting of Stockholders (the "Meeting").
An Annual Report to Stockholders, containing financial statements for the
fiscal year ended June 28, 1997, has been sent to all stockholders entitled to
vote. This proxy statement and form of proxy were first sent to stockholders on
or about the date of the accompanying Notice of 1997 Annual Meeting.
Only common stockholders of record as of the close of business on September
15, 1997 will be entitled to vote at the Meeting and any adjournments thereof.
As of that date, 147,773,294 shares of Common Stock of the Corporation
(excluding treasury shares) were issued and outstanding. Each share outstanding
as of the record date will be entitled to one vote, and stockholders may vote in
person or by proxy. Execution of a proxy will not in any way affect a
stockholder's right to attend the meeting and vote in person. Any stockholder
giving a proxy has the right to revoke it at any time before it is exercised by
written notice to the Clerk of the Corporation. In addition, stockholders
attending the Meeting may revoke their proxies at that time.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the meeting is necessary
to constitute a quorum for the transaction of business. Votes withheld from any
nominee for election as director, abstentions and broker "non-votes" are counted
as present or represented for purposes of determining the presence or absence of
a quorum for the meeting. A "non-vote" occurs when a nominee holding shares for
a beneficial owner votes on one proposal, but does not vote on another proposal
because, in respect of such other proposal, the nominee does not have
discretionary voting power and has not received instructions from the beneficial
owner. An automated system administered by the Corporation's solicitation agent
tabulates the votes. The vote on each matter submitted to stockholders is
tabulated separately. Abstentions are included in the number of shares present
or represented and voting on each matter. Broker "non-votes" are not so
included.
<PAGE> 5
The persons named as attorneys in the proxies are directors and/or officers
of the Corporation. All properly executed proxies returned in time to be cast at
the Meeting, if no contrary instruction is indicated, will be voted as stated
below under "Election of Directors." In addition to the election of Class II
Directors, the stockholders will consider and vote upon proposals to (i) approve
an amendment to the 1968 Employee Stock Purchase Plan to increase the number of
shares available for issuance thereunder; (ii) approve an amendment to the 1981
International Employee Stock Purchase Plan to increase the number of shares
available for issuance thereunder; and (iii) ratify the selection of auditors.
Where a choice has been specified on the proxy with respect to these matters,
the shares represented by the proxy will be voted in accordance with the
specification and will be voted FOR if no specification is indicated. Directors
are elected by a plurality of votes cast and the affirmative vote of a majority
of the shares present or represented at the Meeting and voting on such other
matters is required for approval of those matters.
The stockholders will also consider and act upon four stockholder proposals
relating to (i) the declassification of the Board of Directors, (ii) the
redemption of the Corporation's stockholder rights plan, (iii) the engagement of
an investment banking firm to explore alternatives to enhance the value of the
Corporation and (iv) the separation of the offices of President and Chairman of
the Board of Directors. The Board of Directors recommends a vote against each of
these proposals. Where a choice has been specified on the proxy with respect to
any stockholder proposal, the shares represented by the proxy will be voted in
accordance with the specification and will be voted AGAINST if no specification
is indicated. The affirmative vote of a majority of the shares present or
represented at the Meeting and voting on such matter is required for approval of
each of these stockholder proposals.
The Corporation knows of no other matter to be presented at the Meeting. If
any other matter should be presented at the Meeting upon which a vote properly
may be taken, shares represented by all proxies received by the Corporation will
be voted with respect thereto in accordance with the judgment of the persons
named as attorneys in the proxies.
ELECTION OF DIRECTORS
The Board of Directors of the Corporation is divided into three classes.
Each class serves three years, with the terms of office of the respective
classes expiring in successive years. The directors in Class III will be
nominees for election to three-year terms at the 1998 Annual Meeting of
Stockholders and the directors in Class I will be nominees for election to
three-year terms at the 1999 Annual Meeting of Stockholders.
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<PAGE> 6
The present term of office for the directors in Class II ("Class II
Directors") expires at the Meeting. Vernon R. Alden, Thomas L. Phillips and
Delbert C. Staley were each elected at the Annual Meeting of Stockholders held
November 10, 1994, and are nominees for re-election to a three-year term as
Class II Directors. If re-elected, the Class II Director nominees will be
elected for a three-year term and until their successors have been duly elected
and have qualified; however, pursuant to the Corporation's current Retirement
Policy for Directors ("Policy"), each Class II Director would reach retirement
age prior to the end of such three-year term. Under the Policy, Messrs. Alden
and Staley would retire on the date of the Annual Meeting of Stockholders in
1998, and Mr. Phillips would retire on the date of the Annual Meeting of
Stockholders in 1999.
Shares represented by all proxies received by the Board of Directors and
not so marked as to withhold authority to vote for any individual nominee will
be voted (unless one or more nominees is unable or unwilling to serve) for the
election of all nominees for Class II Directors. The Board of Directors knows of
no reason why any such nominee should be unable or unwilling to serve, but if
such should be the case, proxies will be voted for the election of some other
person or the Board of Directors will fix the number of directors at a lesser
number.
Set forth below is information with respect to each nominee for Class II
Director to be elected at the Meeting and for each Class I Director and Class
III Director whose term of office continues after the Meeting.
NOMINEES TO BE ELECTED AT THE MEETING
(CLASS II DIRECTORS)
VERNON R. ALDEN
Mr. Alden, age 74, was Chairman of the Board and Executive Committee of
The Boston Company, Inc., a financial services company, from 1969 to
1978. He was President of Ohio University from 1962 to 1969. Mr. Alden
is a director of Intermet Corporation and Sonesta International Hotels
Corporation. He is also a trustee of several cultural and educational
organizations. He has been a director of the Corporation since 1959 and
is a member of the Audit Committee and Nominating Committee.
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<PAGE> 7
THOMAS L. PHILLIPS
Mr. Phillips, age 73, retired as Chairman of the Board and Chief
Executive Officer of Raytheon Company ("Raytheon") in March 1991, having
served as Chief Executive Officer since 1968, and as Chairman of the
Board since 1975. He has been a director of Raytheon since 1962. Mr.
Phillips is also a director of SRA International, Inc., State Street
Research and Management Co. and Knight-Ridder, Inc. Mr. Phillips has
been a director of the Corporation since 1991. He is Chairman of the
Compensation and Management Development Committee and is a member of the
Nominating Committee.
DELBERT C. STALEY
Mr. Staley, age 73, was Chairman, Chief Executive Officer and a director
of NYNEX Corporation ("NYNEX") from 1983 until his retirement in
September 1989. He continued serving as a director of NYNEX and served
as Chairman of NYNEX International Management Committee until October
1991. Mr. Staley is a director of Polaroid Corporation and SRA
International, Inc., and is Chairman of Alcatel Network Systems Inc. Mr.
Staley has been a director of the Corporation since 1993 and is a member
of the Compensation and Management Development Committee and Strategic
Direction Committee.
DIRECTORS WHOSE TERM EXPIRES AT THE 1998 ANNUAL MEETING (CLASS III DIRECTORS)
COLBY H. CHANDLER
Mr. Chandler, age 72, retired as Chairman of the Board and Chief
Executive Officer of Eastman Kodak Company ("Kodak") in May 1990. Prior
to that time he had been Chief Executive Officer, Chairman of the Board
and Chairman of the Executive Committee of Kodak since July 1983. He
assumed the presidency of Kodak in January 1977. Mr. Chandler was a
director of Kodak from 1974 to 1993. Mr. Chandler has been a director of
the Corporation since 1989. He is Chairman of the Audit Committee and a
member of the Nominating Committee.
ARNAUD DE VITRY
Mr. de Vitry, age 71, is an engineering consultant. From 1980 to 1990,
Mr. de Vitry was Chairman of the Board and Chief Executive Officer of
Eureka SICAV, France, an
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<PAGE> 8
investment company. He is a director of Ionics, Incorporated. Mr. de
Vitry has been a director of the Corporation since 1957 and is Chairman
of the Nominating Committee.
THOMAS P. GERRITY
Dr. Gerrity, age 56, has served as Dean of the Wharton School of the
University of Pennsylvania since July 1990. From 1969 to 1989, Dr.
Gerrity was chief executive officer of Index Group, Inc. ("Index"), an
information technology consulting company he founded. In 1988, Index
became part of Computer Sciences Corporation ("CSC") and Dr. Gerrity was
subsequently appointed president of CSC's commercial professional
services group, CSC Consulting. Dr. Gerrity is a director of Fannie Mae,
CVS Corporation, Reliance Group Holdings, Inc., Sun Company, Inc. and
Union Carbide Corporation. He has been a director of the Corporation
since 1992, and is a member of the Compensation and Management
Development Committee and Strategic Direction Committee.
DIRECTORS WHOSE TERM EXPIRES AT THE 1999 ANNUAL MEETING (CLASS I DIRECTORS)
FRANK P. DOYLE
Mr. Doyle, age 66, retired in December 1995 as an Executive Vice
President of General Electric Company ("GE"). Mr. Doyle had been an
Executive Vice President of GE and a member of its corporate executive
office since July 1992 and was a Senior Vice President from 1981 to July
1992. He is a director of the Paine Webber Group Inc., Roadway Express,
Inc., and Educational Testing Service. Mr. Doyle has been a director of
the Corporation since 1995 and is a member of the Audit Committee and
Strategic Direction Committee.
KATHLEEN F. FELDSTEIN
Dr. Feldstein, age 56, has been President of Economics Studies, Inc., an
economics consulting firm, since 1987. Dr. Feldstein is a director of
Bank America Corporation, Conrail Corporation and The John Hancock
Mutual Life Insurance Company. Dr. Feldstein has been a director of the
Corporation since 1993 and is a member of the Audit Committee.
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<PAGE> 9
ROBERT B. PALMER
Mr. Palmer, age 57, has been President and Chief Executive Officer of
the Corporation since October 1992, and Chairman of the Board since May
1995. Mr. Palmer joined the Corporation in 1985 and served as Vice
President, Semiconductor and Interconnect Technology until 1990, and as
Vice President, Manufacturing, Logistics and Component Engineering from
1990 to 1992. From 1983 to 1985, he was Executive Vice President of
Semiconductor Operations at Mostek Corporation ("Mostek"), a subsidiary
of United Technologies Corporation. Mr. Palmer was a co-founder of
Mostek, where he held a series of senior management positions prior to
its acquisition in 1980 by United Technologies Corporation. Mr. Palmer
is a director of AlliedSignal Inc. Mr. Palmer has been a director of the
Corporation since 1992 and is Chairman of the Strategic Direction
Committee.
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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Shown below is certain information as of August 1, 1997, with respect to
beneficial ownership of shares of the Corporation's Common Stock and of
Depositary Shares, each representing one-fourth of a share of the Corporation's
Series A 8 7/8% Cumulative Preferred Stock (the "Depositary Shares"), by each
director (including the three nominees for Class II Directors), by each
executive officer named in the Summary Compensation Table set forth on page 13
and by all directors and executive officers as a group. Unless otherwise
indicated, the named person or members of the group possess sole voting and
investment power with respect to the shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNER SHARES BENEFICIALLY OWNED
----------------------------------------------------------------------------------
<S> <C>
Vernon R. Alden.......................................... 48,459(1)(2)
4,000(3)
Colby H. Chandler........................................ 10,333(1)
6,257(4)
Arnaud de Vitry.......................................... 113,593(1)(5)
Frank P. Doyle........................................... 2,825(6)
Kathleen F. Feldstein.................................... 5,333(7)
Thomas P. Gerrity........................................ 17,333(1)
Robert B. Palmer......................................... 776,045(8)
Thomas L. Phillips....................................... 10,333(1)
Delbert C. Staley........................................ 6,333(7)
Bruce L. Claflin......................................... 89,695(9)
Harold D. Copperman...................................... 112,496(10)
John J. Rando............................................ 149,048(11)
William D. Strecker...................................... 141,651(12)
All directors and executive officers as a group (18
persons)............................................... 1,908,531(13)
</TABLE>
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(1) Includes 5,000 shares of Common Stock which the director has the right
to acquire by exercise of a stock option granted pursuant to the Corporation's
1990 Stock Option Plan for Nonemployee Directors ("1990 Nonemployee Directors
Plan") and 333 shares of Common Stock which the director has the right to
acquire by exercise of a stock option granted pursuant to the Corporation's 1995
Stock Option Plan for Nonemployee Directors (the "1995 Nonemployee Directors
Plan").
(2) Includes 22,357 shares of Common Stock held by Mr. Alden's wife, as to
which shares Mr. Alden disclaims beneficial ownership.
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(3) Represents 4,000 Depositary Shares. These Depositary Shares represent
less than 1% of the Corporation's issued and outstanding Depositary Shares and
Preferred Stock.
(4) Represents Common Stock units under the directors' deferred
compensation plan described on page 11. Under the plan, nonemployee directors
may elect to defer receipt of all or a portion of their compensation in the form
of Common Stock units. Common Stock units carry no voting rights.
(5) Includes 104,660 shares of Common Stock held by Mr. de Vitry's wife,
as to which shares Mr. de Vitry disclaims beneficial ownership.
(6) Represents 2,000 shares of Common Stock which Mr. Doyle has the right
to acquire by exercise of a stock option granted pursuant to the Corporation's
1990 Nonemployee Directors Plan and 825 shares of Common Stock which the
director has the right to acquire by exercise of a stock option granted pursuant
to the Corporation's 1995 Nonemployee Directors Plan.
(7) Includes 4,000 shares of Common Stock which the director has the right
to acquire by exercise of a stock option granted pursuant to the Corporation's
1990 Nonemployee Directors Plan and 333 shares of Common Stock which the
director has the right to acquire by exercise of a stock option granted pursuant
to the Corporation's 1995 Nonemployee Directors Plan.
(8) Includes 751,009 shares of Common Stock which Mr. Palmer has the right
to acquire by exercise of stock options, 58,000 of which are subject to
restrictions on disposition which lapse over time. Also includes 4,000 shares
awarded as restricted stock under the Corporation's 1995 Equity Plan subject to
restrictions on disposition which lapse over time.
(9) Includes 57,750 shares of Common Stock which Mr. Claflin has the right
to acquire by exercise of stock options. Also includes 22,000 shares of Common
Stock awarded as restricted stock under the Corporation's 1990 and 1995 Equity
Plans subject to restrictions on disposition which lapse over time.
(10) Includes 101,054 shares of Common Stock which Mr. Copperman has the
right to acquire by exercise of stock options. Also includes 10,000 shares of
Common Stock awarded as restricted stock under the Corporation's 1995 Equity
Plan subject to restrictions on disposition which lapse over time.
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(11) Includes 146,000 shares of Common Stock which Mr. Rando has the right
to acquire by exercise of stock options, 4,060 of which are subject to
restrictions on disposition which lapse over time.
(12) Includes 138,550 shares of Common Stock which Mr. Strecker has the
right to acquire by exercise of stock options, 6,600 of which are subject to
restrictions on disposition which lapse over time. Also includes 1,691 shares of
Common Stock held by Mr. Strecker's wife, as to which shares Mr. Strecker
disclaims beneficial ownership.
(13) The group is comprised of the executive officers named in the Summary
Compensation Table on page 13 and those persons who were directors and executive
officers of the Corporation on August 1, 1997. Includes 1,528,804 shares of
Common Stock which the directors and executive officers as a group have the
right to acquire by exercise of stock options granted under the Corporation's
stock plans, 78,430 of which are subject to restrictions on disposition which
lapse over time. In addition, includes 129,472 shares held by family members of
officers or directors, as to which shares the applicable officer or director
disclaims beneficial ownership. Also includes 40,000 shares awarded as
restricted stock under the Corporation's 1990 or 1995 Equity Plans subject to
restrictions on disposition that lapse over time. Excludes 4,000 Depositary
Shares held by such directors and executive officers. The 1,908,531 shares held
by all directors and executive officers as a group would represent less than 1%
of the Corporation's issued and outstanding Common Stock, assuming exercise of
the stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of the forms and written representations received by the
Corporation pursuant to Section 16(a) of the Securities Exchange Act of 1934,
the Corporation believes that during the period June 30, 1996 through June 28,
1997, the directors and executive officers complied with all applicable
Section 16 filing requirements except that one report for Harold D. Copperman, a
Senior Vice President, was filed three months late.
MEETINGS OF THE BOARD; COMMITTEES OF THE BOARD
During the fiscal year ended June 28, 1997, the Board of Directors met 12
times (including in-person and teleconference meetings), the Audit Committee met
five times, the Compensation and Management Development Committee met five
times, the Nominating Committee met one time and the Strategic Direction
Committee met two times. All directors attended more than 75% of the total
number of meetings of the Board and the committees on which
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they serve. At least once each year, the Corporation's independent, unaffiliated
directors ("Outside Directors") meet in Executive Session without the Chairman
or any other member of management present. During these sessions, the Outside
Directors review, among other things, the performance of the Chairman and Chief
Executive Officer.
The Board of Directors has an Audit Committee, a Compensation and
Management Development Committee, a Nominating Committee and a Strategic
Direction Committee. Each of the Audit, Compensation and Management Development
and Nominating Committees is comprised solely of Outside Directors. It is the
Board's intention to continue this practice.
The Audit Committee selects the independent auditors to be employed by the
Corporation, subject to ratification by the Corporation's stockholders, reviews
generally the internal and external audit plans and the results thereof, and
reviews generally the Corporation's internal controls with the internal and
external auditors. The members of the Audit Committee are Mr. Chandler,
Chairman, Messrs. Alden and Doyle and Dr. Feldstein.
The Compensation and Management Development Committee reviews the
compensation of senior management, reviews and recommends to the Board the
adoption of any compensation plans in which directors and officers are eligible
to participate and reviews and recommends to the Board the compensation of
directors. The Committee also administers and interprets the Corporation's stock
plans and, subject to the provisions of the plans, selects the employees who are
to participate in such plans and determines the terms of their participation.
The members of the Compensation and Management Development Committee are Mr.
Phillips, Chairman, Dr. Gerrity and Mr. Staley.
The Nominating Committee is responsible for nominations to the Board of
Directors. The members of the Nominating Committee are Mr. de Vitry, Chairman,
and Messrs. Alden, Chandler, and Phillips. The Nominating Committee will
consider highly qualified candidates proposed in writing by stockholders.
Stockholders who wish to propose a nomination should submit the person's name
and background information to the Clerk of the Corporation.
The Strategic Direction Committee reviews and makes recommendations to the
Board on alternative strategic initiatives for the Corporation, taking into
account competitive and industry factors, technical developments, corporate
goals and the corporate resources necessary to implement alternative
initiatives. The members of the Strategic Direction Committee are Mr. Palmer,
Chairman, and Mr. Doyle, Dr. Gerrity and Mr. Staley.
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COMPENSATION OF DIRECTORS
Each director who is not also an employee of the Corporation received a
retainer of $25,000 for his or her services during the fiscal year ended June
28, 1997, plus $1,000 for each Board meeting and each committee meeting
attended. Directors are also reimbursed for out-of-pocket expenses incurred in
attending Board and committee meetings.
Directors may defer all or any part of their retainer or meeting fees
pursuant to a deferred compensation plan. Pursuant to the plan, nonemployee
directors of the Corporation may elect to defer receipt of all or a specified
portion of their compensation in the form of cash, with an interest rate related
to the ten-year U.S. Government Rate, or in the form of units, the value of each
unit initially being equal to the average fair market value of one share of the
Common Stock of the Corporation on the ten trading days preceding the date the
compensation being deferred would otherwise be payable. The plan provides that
compensation deferred under the plan, whether in the form of cash or units, will
be paid out in cash after a deferral period of at least three years. Directors
may elect that compensation so deferred be paid out in a lump sum or in up to
fifteen annual installments. Payment of compensation deferred under the plan
commences in January of the year following the last year of the deferral period.
Pursuant to a retirement plan for nonemployee directors adopted in May
1987, each nonemployee director of the Corporation on the date of adoption of
the plan, and every other nonemployee director who is 70 years of age or older,
who has completed at least five years of service on the Board and who commenced
service as a director prior to January 1, 1995, is entitled upon termination of
service to an annualized benefit for life which is equal to the annual retainer
for nonemployee directors in effect on the date of termination of service. The
plan also provides for coordinated disability benefits for all participating
nonemployee directors equal to the annual retainer in effect on the date of
total disability. Effective on the date of the Meeting, eligibility is further
limited to those directors who are age 65 or older on such date.
Each nonemployee director of the Corporation also participates in the 1995
Stock Option Plan for Nonemployee Directors (the "1995 Nonemployee Directors
Plan"). The 1995 Nonemployee Directors Plan provides that annually, on the date
of the Annual Meeting of Stockholders, (i) each director age 65 or older on the
date of the Meeting, who commenced service as a director of the Corporation
prior to January 1, 1995 and whose service as a director will continue, is to
receive an option to purchase 3,500 shares of the Corporation's Common Stock at
a price equal to the fair market value of the Corporation's Common Stock on the
date of grant and (ii) each director who is under age 65 on the date of the
Meeting or who
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commenced service as a director of the Corporation after January 1, 1995 and
whose service as a director will continue, is to receive an option to purchase
6,000 shares of the Corporation's Common Stock at a price equal to the fair
market value of the Corporation's Common Stock on the date of grant. The options
become exercisable at the rate of 33% on the first and second anniversaries of
the date of grant and 34% on the third anniversary of the date of grant. The
options expire ten years from the date of grant, unless terminated earlier in
accordance with the terms of the Plan.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows compensation for the Chief Executive
Officer and the four other most highly compensated executive officers for the
fiscal year ended June 28, 1997.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------ -----------------------
OTHER RESTRICTED ALL
ANNUAL STOCK STOCK OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#) ($)(4)
- ------------------------ ---- -------- -------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert B. Palmer........ 1997 $901,939 $100,000 $ 0 $ 0(5) 185,000(8) $ 24,774
Chairman of the 1996 900,016 0 0 302,000(6) 185,000(9) 24,923
Board, President, 1995 900,016 375,000 0 399,609(7) 300,000 0
Chief Executive
Officer
Bruce L. Claflin........ 1997 393,274(13) 300,000 121,590 419,062(5) 65,000(8)(10) 2,000
Senior Vice President 1996(12) -- -- -- -- -- --
1995(12) -- -- -- -- -- --
Harold D. Copperman..... 1997 465,394 50,000 8,197 481,405(5) 65,000(8)(10) 8,289
Senior Vice President 1996(12) -- -- -- -- -- --
1995(12) -- -- -- -- -- --
John J. Rando........... 1997 465,394 170,000 0 83,124(5) 65,000(8) 10,728
Senior Vice President 1996 400,960 0 0 0 65,000(9) 10,907
1995 348,089 175,000 0 143,859(7) 125,000(11) 0
William D. Strecker..... 1997 451,931 115,000 0 83,124(5) 50,000(8) 10,626
Vice President 1996 450,008 0 0 0 65,000(9) 10,617
1995 450,008 110,000 0 95,906(7) 60,000(11) 0
</TABLE>
- ---------------
(1) Represents a cash bonus earned by such individual in the applicable
fiscal year and paid during the first quarter of the next fiscal year, unless
the recipient has elected that payment thereof be deferred. See "Deferred
Compensation Plan for Executives."
(2) Represents customary one-time relocation and allowance payments to
executives joining the Corporation.
13
<PAGE> 17
(3) If the Corporation were to begin to pay dividends on its Common Stock,
holders of restricted Common Stock would receive cash dividends on the shares of
restricted Common Stock held by them. The amount ultimately realized by any
named executive officer in respect of restricted Common Stock depends upon the
value of the Corporation's Common Stock when the executive officer sells the
shares, which can only occur after the restrictions lapse.
(4) Represents matching contributions of $3,000 by the Corporation under
its Savings and Investment Plan ("SAVE Plan") for each of Messrs. Palmer,
Copperman, Rando and Strecker, and of $2,000 for Mr. Claflin, and under its SAVE
Restoration Plan as follows: Mr. Palmer, $21,774, Mr. Copperman, $5,289, Mr.
Rando, $7,728, and Mr. Strecker, $7,626.
(5) Represents the dollar value on September 17, 1996, the award date, of
an award to each of Messrs. Claflin, Copperman, Rando and Strecker of shares of
restricted Common Stock. The fair market value of a share of Common Stock on
such date was $41.562. Each of Messrs. Claflin, Copperman, Rando and Strecker
were granted 1,000, 2,500, 2,000 and 2,000 shares of restricted Common Stock,
respectively, on such date. Restrictions with respect to 50% of these shares
lapsed on December 17, 1996 and the remaining restrictions lapsed on June 17,
1997. Also represents, in the case of each of Messrs. Claflin and Copperman, the
dollar value on August 21, 1996, the award date, of an award of 10,000 shares of
restricted Common Stock. On such date, the fair market value of the Common Stock
was $37.75. Restrictions with respect to 50% of these shares lapsed on August
21, 1997 and the remaining restrictions will lapse on August 21, 1998. At the
end of fiscal year 1997, each of Messrs. Palmer, Claflin and Copperman held
4,000, 22,000 and 10,000 shares of restricted Common Stock, respectively, and
neither Mr. Rando nor Mr. Strecker held any shares of restricted stock. The
value of the restricted shares held by each of Messrs. Palmer, Claflin and
Copperman at June 27, 1997, the last business day of the fiscal year, was, as of
such date, $145,000, $797,500, and $362,500, respectively. On such date, the
fair market value of a share of Common Stock was $36.25. See Footnote 6 below
with respect to an award of restricted stock to Mr. Palmer in August 1996, which
is reflected on the table as fiscal year 1996 compensation.
(6) Represents the dollar value on August 21, 1996, the award date, of an
award to Mr. Palmer of 8,000 shares of restricted Common Stock. On such date,
the fair market value of a share of Common Stock was $37.75. Restrictions with
respect to 50% of these shares lapsed on February 21, 1997 and the remaining
restrictions will lapse on February 21, 1998.
(7) Represents the dollar value on August 14, 1995, the award date, of an
award to such individual of restricted Common Stock. On such date, the fair
market value of a share of Common Stock was $42.625. Each of Messrs. Palmer,
Rando and Strecker were granted 9,375, 3,375 and 2,250 shares of restricted
Common Stock, respectively. Restrictions with respect to 50% of these shares
lapsed on February 14, 1996 and the remaining restrictions lapsed on February
14, 1997.
14
<PAGE> 18
(8) Reflects a stock option to purchase shares of the Corporation's Common
Stock granted on August 20, 1997, shortly after the end of fiscal year 1997.
(9) Reflects a stock option to purchase shares of the Corporation's Common
Stock granted on August 21, 1996, shortly after the end of fiscal year 1996.
(10) Does not include a stock option to purchase 100,000 and 140,000 shares
of the Corporation's Common Stock granted to each of Messrs. Claflin and
Copperman, respectively, on August 21, 1996.
(11) Reflects a stock option to purchase shares of the Corporation's Common
Stock granted to the named executive officer in August 1995.
(12) Mr. Claflin, who joined the Corporation in 1995, and Mr. Copperman,
who joined the Corporation in 1993, each became an executive officer of the
Corporation during fiscal year 1997. Accordingly, only their compensation for
fiscal year 1997 is reflected in the table.
(13) See "Employment Arrangements."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows information regarding grants of stock options
during the fiscal year ended June 28, 1997 to the named executive officers. The
table also includes grants of stock options to the named executive officers on
August 20, 1997. The Corporation did not grant any stock appreciation rights
during fiscal year 1997 nor during the period from the end of such fiscal year
through August 20, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------- GRANT DATE VALUE
% OF TOTAL EXERCISE ----------------
OPTIONS/SARS OR BASE GRANT DATE
OPTIONS/SARS GRANTED TO PRICE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES(1) ($/SH) DATE VALUE($)(2)
- ------------------------------- ------------ ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Robert B. Palmer............... 185,000(3) 2.5% $ 46.687 8/20/07 $2,982,045
185,000(4) 2.5 37.75 8/21/06 2,421,296
Bruce L. Claflin............... 65,000(3) 0.8 46.687 8/20/07 1,047,746
100,000(4) 1.4 37.75 8/21/06 1,308,809
Harold D. Copperman............ 65,000(3) 0.8 46.687 8/20/07 1,047,746
140,000(4) 1.9 37.75 8/21/06 1,832,332
John D. Rando.................. 65,000(3) 0.8 46.687 8/20/07 1,047,746
65,000(4) 0.8 37.75 8/21/06 850,726
William D. Strecker............ 50,000(3) 0.7 46.687 8/20/07 805,958
65,000(4) 0.8 37.75 8/21/06 850,726
</TABLE>
15
<PAGE> 19
- ---------------
(1) Reflects percentage of total options granted to all employees from June
30, 1996 through August 20, 1997.
(2) The Grant Date Present Values shown were determined using a
Black-Scholes pricing model with the following assumptions and adjustments:
stock price volatility of 35%, an interest rate of 6.3%, with respect to options
granted in August 1996, and 6.1% with respect to options granted in August 1997,
representing the interest rate on a U.S. Treasury security on the dates of grant
with a maturity date corresponding to that of the option term; and an assumed
3.6-year option term. The Corporation's use of this model should not be
construed as an endorsement of its accuracy. Whether the model's assumptions
will prove to be accurate cannot be known at the date of grant. The ultimate
value of the options, if any, will depend on the future value of the
Corporation's Common Stock, which cannot be forecast with reasonable accuracy,
and on the holders' investment decisions.
(3) Reflects stock options granted on August 20, 1997, shortly after the
end of fiscal year 1997, under the Corporation's 1995 Equity Plan, at exercise
prices equal to the fair market value of the Corporation's Common Stock on the
date of grant. The options have a term of ten years and become exercisable
ratably over three years from the date of grant.
(4) Reflects stock options granted on August 21, 1996, shortly after the
end of fiscal year 1996, under the Corporation's 1995 Equity Plan, at exercise
prices equal to the fair market value of the Corporation's Common Stock on the
date of grant. The options have a term of ten years and become exercisable
ratably over three years from the date of grant.
16
<PAGE> 20
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table summarizes for each of the named executive officers the
number of stock options exercised during the fiscal year ended June 28, 1997,
the aggregate dollar value realized upon exercise, and the dollar value of
in-the-money, unexercised options held at June 28, 1997. None of the named
executive officers hold any SARs. Value realized upon exercise is the difference
between the fair market value of the underlying stock on the exercise date and
the exercise price of the option. The value of unexercised, in-the-money options
at fiscal year-end is the difference between the exercise price and the fair
market value of the underlying stock on June 27, 1997, the last business day of
the fiscal year. The closing price of the Corporation's Common Stock on the New
York Stock Exchange on such date was $36.25.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/
FY-END(#) SARS AT FY-END($)
SHARES VALUE ------------------------------- ----------------------------
ACQUIRED REALIZED RESTRICTED/ RESTRICTED/
NAME ON EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE
- -------------------- -------------- -------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Palmer.... 0 $ 0 621,500 358,000(2) $ 2,002,560 0
Bruce L. Claflin.... 0 0 24,750 150,250 0 0
Harold D.
Copperman......... 14,854 315,506 21,454 195,454 22,114 247,371
John J. Rando....... 16,500 332,277 78,860 153,190(2) 283,696 0
William D.
Strecker.......... 0 0 90,700 111,800(2) 559,048 0
</TABLE>
- ---------------
(1) Does not include options granted to any of the named executive officers
on August 20, 1997. See "Summary Compensation Table" and "Option/SAR Grants in
Last Fiscal Year."
(2) A portion of these options represent immediately exercisable options
for restricted stock, with restrictions on disposition of the underlying shares
lapsing ratably over periods of three to ten years from date of grant. The
number of underlying shares subject to such options on June 28, 1997 for the
named executive officers was as follows: Mr. Palmer, 71,000; Mr. Rando, 4,440
and Mr. Strecker, 6,600. The remaining options held by Messrs. Palmer, Rando and
Strecker were granted during fiscal years 1995, 1996 and 1997 and become
exercisable ratably over three years.
PENSION PLANS
The Corporation and its subsidiaries have pension plans covering
substantially all of their employees. Effective March 1, 1996, the Corporation's
defined benefit pension plan (the "Prior
17
<PAGE> 21
Pension Plan") for its U.S. employees was amended and renamed the Cash Account
Pension Plan (the "New Pension Plan").
Under the Prior Pension Plan, benefits were based upon the employee's
earnings during service with the Corporation and were payable after retirement
in the form of annuities or a lump sum benefit and the annual amount payable
upon retirement at age 65 was, in general, 1.5% of the aggregate amount of the
participant's eligible compensation earned on and after July 1, 1989. Those
persons who were active participants under the Prior Pension Plan on July 1,
1989, or who later become active participants and were credited with prior
service, were also eligible to receive 1.5% of the average of the participant's
annual compensation between July 1, 1984 and July 1, 1989, multiplied by the
number of years of accredited service prior to July 1, 1989.
Under the New Pension Plan, benefits for U.S. employees are based upon the
employee's eligible earnings during service with the Corporation, and are
credited quarterly by the Corporation at the rate of 4% of the employee's total
eligible pay for that quarter, plus interest. The accumulated, vested account
balance is payable in one lump sum or in monthly payments, as elected by the
participant, upon the employee's retirement or termination of employment with
the Corporation. The New Pension Plan continues the Prior Pension Plan formula
for five years for all employees who on February 29, 1996 had reached age 50 and
had completed at least five years of vesting service, or who were age 60 or
older. At the earlier of March 31, 2001 or the employee's date of termination,
his or her benefit will be the greater of the value of the benefit accrued under
the Prior Pension Plan's formula or the employee's then current account balance
under the New Pension Plan. A participant is 100% vested in his or her benefit
after completing five years of service with the Corporation. For purposes of
calculating a participant's pension benefit under either the Prior Pension Plan
or the New Pension Plan, annual compensation is currently limited to $150,000,
subject to adjustment to reflect cost of living increases, pursuant to the
Internal Revenue Code of 1986, as amended (the "Code").
The Digital Equipment Corporation Restoration Pension Plan (the
"Restoration Plan"), adopted effective as of May 1, 1992 (amended and renamed
the Digital Equipment Corporation Cash Account Pension Restoration Plan
effective as of March 1, 1996), compensates the Corporation's employees for
reductions in the benefits calculated under either the Prior or the New Pension
Plan, as the case may be, due to legislative and regulatory limitations. The
Restoration Plan, which is a non-qualified plan under the Code, and which is
unfunded, provides additional retirement compensation equal to the difference
between the benefit a
18
<PAGE> 22
participant would receive under either Pension Plan without the legislative and
regulatory limitations and the benefit actually payable to the participant under
either Pension Plan.
Estimated annual retirement benefits payable as a straight life annuity
under the New Pension Plan and Restoration Plan at age 65 based on projected
compensation and continued employment for the following individuals would be:
Mr. Palmer, $181,000; Mr. Claflin, $86,000; Mr. Copperman, $69,000; Mr. Rando,
$269,000; and Mr. Strecker, $198,000.
In addition, the Corporation has a Savings and Investment Plan ("SAVE
Plan") which allows eligible U.S. employees to defer up to 14% (15% as of July
1, 1997) of their eligible compensation on a tax-deferred basis into a tax
exempt trust pursuant to rules set forth in the Code. The Corporation makes a
matching contribution to the trust for the benefit of each participant in the
SAVE Plan at a rate equal to the lesser of (a) 33 1/3% of such employee's
contributions or (b) 2% of such employee's annual eligible compensation (subject
to Code limitations). The employee accounts are invested by the plan trustee in
up to nine investment alternatives (which increased to ten on July 1, 1997), as
directed by the employee. Annual employee pre-tax deferrals are currently
limited to $9,500 for the 1997 calendar year.
The Digital Equipment Corporation SAVE Restoration Plan was adopted
effective July 1, 1995. The SAVE Restoration Plan, which is a non-qualified plan
under the Code and is unfunded, allows any SAVE Plan participant whose annual
eligible compensation is at least $150,000 (subject to adjustment to reflect
cost of living increases) and who defers the maximum amount of his or her
eligible compensation under the SAVE Plan for the year, to receive a credit
equal to 2% of the amount by which such employee's eligible compensation for
that year exceeds $150,000 (as adjusted), resulting in a total matching
contribution equal to what would have otherwise been provided under the SAVE
Plan but for legislative and regulatory limitations. See "Summary Compensation
Table."
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
Executive officers may defer all or any part of their Executive Incentive
Plan ("EIP") award pursuant to the Deferred Compensation Plan for Executives
(the "Executive Plan"). Under the Executive Plan, participants may elect to
defer all or a portion of their EIP award in the form of cash, with an interest
rate related to the ten-year U.S. Government Rate, or in the form of units, the
value of each unit initially being equal to the average fair market value of one
share of the Common Stock of the Corporation on the ten trading days preceding
the date the amount being deferred would otherwise be payable. The Executive
Plan also provides that amounts deferred under the plan, whether in the form of
cash or units, will be paid out in cash
19
<PAGE> 23
after a deferral period of at least three years. Participants may elect that
amounts so deferred be paid out in a lump sum or in up to fifteen annual
installments. Payment of amounts deferred under the Executive Plan commences in
January of the year following the last year of the deferral period.
EMPLOYMENT ARRANGEMENTS
In connection with his offer of employment in October 1995, the Corporation
(i) agreed to pay Mr. Claflin a base salary of $350,000 a year, which has
subsequently been increased to $500,000 in recognition of his assumption of
additional responsibilities; (ii) awarded Mr. Claflin 20,000 shares of
restricted Common Stock with restrictions on disposition lapsing at the rate of
40%, 30% and 30% on each anniversary of his date of hire; (iii) agreed to make
certain cash payments to Mr. Claflin as reimbursement for the loss of a cash
bonus from his former employer; (iv) awarded Mr. Claflin a non-qualified stock
option to purchase 75,000 shares of the Corporation's Common Stock, vesting
ratably over three years, at an exercise price equal to the fair market value of
the Corporation's Common Stock on the date of grant; and (v) agreed to indemnify
Mr. Claflin for liabilities and expenses incurred by him in connection with
action by his former employer relating to the exercise by Mr. Claflin of certain
stock options to purchase stock of such former employer. In addition, the
Corporation agreed that in the event Mr. Claflin's employment is terminated
without cause within the first two years of his employment with the Corporation,
he would receive an amount equal to his then current annual base salary.
20
<PAGE> 24
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the five-year return for the Corporation's
Common Stock against the Standard & Poor's ("S&P") 500 Stock Index and the S&P
Computer Systems Index. The graph assumes $100 was invested on June 27, 1992 in
the Corporation's Common Stock and $100 was invested at that time in each of the
S&P indexes. The comparative data assumes that all dividends, if any, were
reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
DIGITAL EQUIPMENT CORPORATION, S&P 500, AND S&P COMPUTER SYSTEMS
<TABLE>
<CAPTION>
DIGITAL
MEASUREMENT PERIOD EQUIPMENT S&P 500 COMPUTER
(FISCAL YEAR COVERED) CORPORATION S&P 500 SYSTEMS
<S> <C> <C> <C>
1992 100.0 100.0 100.0
1993 118.5 113.6 67.8
1994 55.1 115.2 72.7
1995 118.1 145.1 120.6
1996 130.8 182.8 135.5
1997 104.3 241.2 214.3
</TABLE>
21
<PAGE> 25
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee (the "Committee") of
the Board of Directors is comprised of three independent non-employee directors.
The Committee is responsible for approving executive officer compensation and
for administering the cash incentive and equity participation plans that govern
the variable compensation paid to senior management of the Corporation. The
following report describes the Corporation's executive compensation practices
and the actions of the Committee regarding compensation paid to executive
officers for fiscal year 1997.
The Corporation's executive compensation programs are designed to link the
level of executive compensation to corporate, organizational and individual
performance, and to variations in shareholder value. In addition, these programs
are intended to motivate executives to improve the Corporation's financial
performance and to make executives accountable for the performance of the
business units or functions for which they are responsible. It is also a goal of
these programs to attract and retain talented executives, which the Committee
believes can be particularly challenging during periods of transition in the
Corporation and volatility in the information technology industry. The
Corporation's compensation philosophy provides that variable short and long-term
incentive compensation, particularly stock options, will constitute a
significant portion of executive compensation.
The Committee's compensation decisions and awards for fiscal year 1997
generally were weighted toward vehicles which would provide incentives for
executives to improve the Corporation's financial performance and link the level
of executive compensation to variations in shareholder value. As in past years,
the Committee reviewed the total compensation of the named executive officers
and those other executive officers who report directly to Mr. Palmer relative to
the compensation of executives of other large and competitor companies,
including companies in the Standard & Poor's Computer Systems Index, others in
the Corporation's industry and select cross-industry "Fortune 100" companies,
all of which are referred to in this Report as the "Comparison Group." The
Committee also reviewed each executive officer's performance and the performance
of the division, business unit or function for which such officer was
responsible.
The Corporation's standard executive compensation program consists of three
major elements: base salary, short-term cash incentives and long-term incentives
principally in the
22
<PAGE> 26
form of stock options. The Committee combines these elements to address the
following objectives:
- attract and retain talented executives by paying them a competitive
base salary;
- reward targeted and superior corporate, organizational and individual
performance through cash incentives;
- motivate and encourage performance that increases shareholder value
and contributes to the future success of the Corporation through
grants of stock options and, when appropriate, awards of restricted
stock.
Base Salaries. Base salary levels are determined relative to external
market and Comparison Group practices, the internal scope and impact of the job
and the overall performance of the Corporation. The Corporation strives to set
base salary levels at the competitive median to attract and retain key talent
and from time to time adjusts the salaries of executive officers to achieve
these objectives.
Each of the executive officers received a salary increase during fiscal
year 1997. These salary increases were made in recognition of the assumption by
such officer of significant additional responsibilities and/or in order to bring
such officer's salary in line with the competitive salary range for his
position.
Cash Incentives. The purpose of the Corporation's Executive Incentive Plan
is to motivate and reward key employees, including executive officers, for
corporate, organizational and individual performance for any given year. The
program for fiscal year 1997 provided each participant, including all executive
officers, with an opportunity for a cash incentive based on the Corporation's
achievement of certain financial objectives related to net income, and for
participants affiliated with the Corporation's divisions and business units,
partly on achievement of performance targets established for the applicable
division or business unit related to net income and cash flow. The program also
provided for funding adjustment based on participants' contributions to the
achievement of corporate strategic objectives.
While the Corporation did not achieve the targeted level of corporate
profitability, certain divisions and business units did achieve their
performance targets for the year. In determining the level of payout for
executive officers, the Committee considered multiple factors, including
non-financial factors and achievement of strategic objectives, as well as
achievement of stated financial objectives.
23
<PAGE> 27
Equity Participation Plans. Stock options continue to be a major component
of the Corporation's compensation strategy because this compensation vehicle
closely aligns the interests of management with those of stockholders. Stock
options are periodically granted to executive officers based on an assessment of
each officer's potential to contribute to the future success of the Corporation
and relative to practices of companies in the Comparison Group. In determining
the size and vesting schedules of these grants, the Committee considered the
continuing challenges facing the Corporation and its senior management team as
the Corporation refines and implements its strategy within a new organizational
structure and strives to improve its financial performance. Consistent with its
articulated compensation philosophy, shortly after the end of the fiscal year,
the Corporation granted to all executive officers, including each of the named
executive officers, non-qualified stock options at an exercise price equal to
the fair market value of the Common Stock on the date of grant. The options
listed in the tables above carry a ten-year term, and become exercisable ratably
over three years.
The Corporation from time to time grants awards of restricted stock to
attract and retain key employees, including executive officers, or to recognize
a key employee's contributions. Certain executive officers, including the named
executive officers, received restricted stock awards in August and September
1996. These awards were granted to motivate and retain executives to
successfully implement the restructuring plan approved at the end of fiscal year
1996 and to take concerted action to promote growth in key segments of the
business.
Chief Executive Compensation. At the end of fiscal year 1997, Mr. Palmer's
annual base salary was increased to $950,000 from $900,000. The Committee noted
that Mr. Palmer's base salary had not been increased in four years and
determined that such an increase was appropriate in order to bring Mr. Palmer's
salary more in line with the competitive salary range for his position. In
making this determination, the Committee reviewed information prepared by an
outside compensation consultant who analyzed compensation relative to the
compensation of chief executive officers of Comparison Group companies.
Consistent with the Corporation's compensation philosophy to reward individual
performance principally through short and long-term incentives, Mr. Palmer's
compensation package is weighted more heavily toward variable and equity
compensation, as described below, rather than base salary.
Mr. Palmer also participated in the Corporation's Executive Incentive Plan
and his cash incentive opportunity under the Plan was based on the achievement
of a corporate net income target. As noted above, the Corporation did not
achieve its corporate profitability target for fiscal year 1997. The Committee
acknowledged, however, Mr. Palmer's achievements during the fiscal year,
including his development and implementation of a new organizational
24
<PAGE> 28
structure and his leadership role in asserting and protecting the Corporation's
intellectual property rights. In recognition of these accomplishments, the
Committee awarded Mr. Palmer a cash incentive of $100,000, as reflected in the
Summary Compensation Table above.
In August 1997, the Committee granted to Mr. Palmer a non-qualified stock
option to purchase a total of 185,000 shares of the Corporation's Common Stock,
at an exercise price equal to the fair market value of the Common Stock on the
date of grant. The option carries a term of ten years and is exercisable ratably
over three years. In determining the size and vesting schedule of Mr. Palmer's
stock option grant, the Committee considered Mr. Palmer's previously noted
accomplishments, the challenges facing the chief executive officer of a dynamic
information technology company and the practices of companies in the Comparison
Group.
The Committee periodically reviews Mr. Palmer's total compensation, as well
as the components thereof, with an outside compensation consultant. The
Committee believes that Mr. Palmer's total compensation is appropriate, taking
into account the significance of his responsibilities, the performance of the
Corporation and the compensation of chief executive officers of companies within
the Comparison Group.
Compensation Deductibility. The Committee has reviewed the potential
consequences for the Corporation of Internal Revenue Code section 162(m), which
imposes a limit on 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. This provision excludes certain forms of
"performance-based compensation" from the compensation taken into account for
purposes of that limit, such as the value of stock options and restricted stock
awards granted under the Corporation's 1990 and 1995 Equity Plans. Payments
under the Corporation's Executive Incentive Plan are not so excluded. Section
162(m) essentially had no impact on the Corporation's consolidated results of
operations for fiscal year 1997. The Committee will continue to monitor the
impact of this provision on the Corporation.
Compensation and Management Development Committee:
Thomas L. Phillips, Chairman
Thomas P. Gerrity
Delbert C. Staley
25
<PAGE> 29
PROPOSAL TO AMEND THE 1968 EMPLOYEE STOCK PURCHASE PLAN
TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
On August 21, 1997, the Board of Directors amended the 1968 Employee Stock
Purchase Plan (the "Employee Plan") to increase the number of shares subject
thereto by 3,900,000 shares. The amendment will become effective only upon
approval by the stockholders. This increase in shares is needed to enable the
Corporation to continue operating the Employee Plan for the benefit of eligible
employees.
The Board of Directors recommends a vote FOR approving the amendment to the
Employee Plan.
DESCRIPTION OF THE 1968 EMPLOYEE STOCK PURCHASE PLAN
In 1968 the Board of Directors and the stockholders adopted the Employee
Plan for substantially all employees of the Corporation and its participating
subsidiaries, other than directors of the Corporation. Since adoption of the
Employee Plan, a total of 48,800,000 shares have been authorized for issuance
thereunder. At August 1, 1997, approximately 25,800 employees were eligible to
participate in the Employee Plan, and approximately 13,200 employees were
participating.
The Employee Plan permits employees to purchase shares of the Corporation's
Common Stock twice yearly through accumulated payroll deductions, up to a
maximum of 10% of total compensation. The six-month periods June 1 to November
30 and December 1 to May 31 are the payment periods ("Payment Period") during
which payroll deductions are accumulated under the Employee Plan. The price at
which shares are purchased is an amount equal to 85% of the fair market value of
the stock on the first or last business day of the applicable six-month Payment
Period, whichever is lower.
The Board of Directors may terminate or amend the Employee Plan, provided
that no amendment shall, without stockholder approval, increase the number of
shares of Common Stock to be offered under the Plan or change the class of
employees eligible to participate in the Plan.
During the period June 30, 1996 through June 28, 1997, the named executive
officers of the Corporation purchased shares under the Employee Plan as follows:
Mr. Claflin, 1,122 shares and Mr. Copperman, 635 shares; all current executive
officers as a group, 4,760 shares; and all employees as a group (excluding
current and named executive officers but including current officers who are not
executive officers), 2,584,929 shares.
26
<PAGE> 30
At August 1, 1997, 44,387,447 shares had been purchased by employees under
the Employee Plan and 4,412,553 shares remained available.
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE
Generally, the following tax consequences under the United States Internal
Revenue Code of 1986, as amended (the "Code"), are applicable to shares
purchased under the Employee Plan:
1. No taxable income will be realized by the employee at the time of
the purchase of the shares.
2. If the employee disposes of the shares two years or more after the
date of the beginning of the Payment Period when the employee acquired the
shares, then the employee at that time will recognize as taxable
compensation income an amount equal to the lesser of:
(a) the excess of the fair market value of the shares on the date
of such disposition over the price at which the shares were purchased,
or
(b) 15% of the fair market value of the shares at the beginning of
the Payment Period.
In addition, the employee may recognize a long-term capital gain or
loss in an amount equal to the difference between the amount realized upon
the sale of the shares and the basis of the shares (i.e., the purchase
price plus the amount, if any, taxed as compensation income).
3. If the employee disposes of the shares within two years after the
date of the beginning of the Payment Period when the employee acquired the
shares, the employee at that time will recognize taxable compensation
income equal to the fair market value of the shares on the date of purchase
(the last business day of the applicable Payment Period) less the amount
paid for the shares. In addition, the employee will recognize a capital
gain or loss in an amount equal to the difference between the amount
realized upon the sale of the shares and the basis of the shares (i.e., in
this case, the purchase price plus the amount taxed as compensation
income). If the employee holds the shares for more than one year, this gain
or loss will be a long-term capital gain or loss and subject to a capital
gains tax rate. If the shares are held for more than 18 months, the capital
gains tax rate is reduced further.
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4. The Corporation will be entitled to a deduction for federal income
tax purposes in an amount equal to the amount which is considered ordinary
compensation income if the employee disposes of the shares within two years
of the beginning of the Payment Period when the employee acquired the
shares.
PROPOSAL TO AMEND THE 1981 INTERNATIONAL EMPLOYEE STOCK PURCHASE
PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
On August 21, 1997, the Board of Directors amended the 1981 International
Employee Stock Purchase Plan (the "International Plan") to increase the number
of shares subject thereto by 3,600,000 shares. The amendment will become
effective only upon approval by the stockholders. This increase in shares is
needed to enable the Corporation to continue operating the International Plan
for the benefit of eligible employees.
The Board of Directors recommends a vote FOR approving the amendment to the
International Plan.
DESCRIPTION OF THE 1981 INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
In 1981, the Board of Directors and the stockholders adopted the
International Plan. Since adoption of the International Plan, a total of
16,100,000 shares have been authorized for issuance thereunder. At August 1,
1997 approximately 24,100 employees were eligible to participate in the
International Plan, and approximately 11,300 employees were participating.
The provisions of the International Plan are substantially the same as the
Employee Plan described above. The International Plan was adopted in order to
extend the benefits of the Employee Plan to employees of selected non-U.S.
subsidiaries of the Corporation or branches thereof. The International Plan is
not intended to be a tax-qualified plan under the Code.
The Board of Directors may terminate or amend the International Plan,
provided that no amendment shall, without stockholder approval, increase the
number of shares of Common Stock to be offered under the Plan or change the
class of employees eligible to participate in the Plan.
During the period June 30, 1996 through June 28, 1997, no executive
officers purchased shares under the International Plan and all employees as a
group (excluding current and named executive officers but including current
officers who are not executive officers) purchased a total of 1,855,717 shares
under the International Plan.
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At August 1, 1997, 13,251,415 shares had been purchased under the
International Plan and 2,848,585 shares remained available.
Employees participating in the International Plan will be subject to
taxation in accordance with the laws of the countries where they are resident or
employed. Accordingly, the tax consequences applicable to employees will vary
depending on the country. Because the International Plan is not a U.S.
tax-qualified plan, employees of participating foreign subsidiaries who are U.S.
citizens or resident aliens also recognize taxable compensation income under the
Code, but may be entitled, with certain limitations, to a U.S. foreign tax
credit equal to the taxes paid to foreign countries in respect of the shares.
RATIFICATION OF SELECTION OF AUDITORS
The Audit Committee of the Board of Directors has selected the firm of
Coopers & Lybrand L.L.P., independent accountants, to serve as auditors for the
fiscal year ending June 27, 1998, subject to ratification by the stockholders.
Coopers & Lybrand L.L.P. has served as the Corporation's auditors since the
organization of the Corporation. The Board of Directors recommends a vote FOR
ratification of this selection. It is expected that a member of the firm of
Coopers & Lybrand L.L.P. will be present at the Meeting, will have an
opportunity to make a statement if so desired and will be available to respond
to appropriate questions.
STOCKHOLDER PROPOSALS
1. Stockholder Proposal Regarding the Election of Directors by Classes
Kenneth Steiner, 14 Stoner Avenue, Great Neck, New York, 11021, the holder
of 150 shares of Common Stock, has notified the Corporation of his intention to
introduce the proposal set forth below for consideration and action by the
stockholders at the Annual Meeting. Mr. Steiner's proposed resolution and
supporting statement, for which the Board of Directors and the Corporation
accept no responsibility, are set forth below. THE BOARD OF DIRECTORS OPPOSES
THIS PROPOSAL FOR THE REASONS STATED AFTER SUCH PROPOSAL.
Eliminate Classified Board of Directors Resolution
"RESOLVED, that the stockholders of the company request that the Board of
Directors take the necessary steps, in accordance with state law, to declassify
the Board of Directors so
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that all directors are elected annually, such declassification to be effected in
a manner that does not affect the unexpired terms of directors previously
elected."
Supporting Statement
The election of directors is the primary avenue for stockholders to
influence corporate governance policies and to hold management accountable for
implementation of those policies. I believe that the classification of the Board
of Directors, which results in only a portion of the Board being elected
annually, is not in the best interests of the Company and its stockholders.
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. I believe that the Company's classified Board of
Directors maintains the incumbency of the current Board and therefore of current
management, which in turn limits management's accountability to stockholders.
The elimination of the Company's classified Board would require each new
director to stand for election annually and allow stockholders an opportunity to
register their views on the performance of the Board collectively and each
director individually. I believe this is one of the best methods available to
stockholders to insure that the Company will be managed in a manner that is in
the best interests of the stockholders.
A classified board might also be seen as an impediment to a potential
takeover of the company's stock at a premium price. With the inability to
replace a majority of the board at one annual meeting, an outside suitor might
be reluctant to make an offer in the first place.
I am a founding member of the Investors Rights Association of America and I
believe that concerns expressed by companies with classified boards that the
annual election of all directors could leave companies without experience [sic]
directors in the event that all incumbents are voted out by stockholders, are
unfounded. In my view, in the unlikely event that stockholders vote to replace
all directors this decision would express stockholder dissatisfaction with the
incumbent directors and reflect the need for change.
I URGE YOUR SUPPORT. VOTE FOR THIS RESOLUTION.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
In 1990, pursuant to legislation enacted in Massachusetts, the Board of
Directors of the Corporation was classified into three classes of directors,
with the terms of office of the
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respective classes expiring in successive years. This legislation, entitled "An
Act to Provide Protection to Massachusetts Corporations" (the "Act"), provides
that publicly-held corporations organized under Massachusetts law are required
to have a classified board of directors consisting of three classes as nearly
equal in size as possible. The stated purpose of this legislation is to provide
protection to Massachusetts corporations, including their stockholders,
employees, suppliers and customers and the communities in which the
corporations' facilities are located.
The Board of Directors believes that its classified Board serves the
Corporation and its stockholders well and is consistent with the public policy
articulated by the Commonwealth of Massachusetts, the state in which the
Corporation is organized. The Board does not believe that directors elected for
staggered terms are any less accountable to stockholders than they would be if
elected annually, since the same standards of performance apply regardless of
the term of service. Moreover, it believes that a classified board enhances the
likelihood of continuity and stability in the conduct of Board business since
generally two-thirds of the directors will have had prior experience and
familiarity with the business of the Corporation. The Board believes that this
contributes to more effective long-term strategic planning.
The classified Board is intended to encourage persons who may seek to
acquire control of the Corporation to initiate such action through negotiations
with the Board. At least two meetings of stockholders generally would be
required to replace a majority of the Board. By reducing the threat of an abrupt
change in the composition of the entire Board, classification of directors would
give the Board sufficient time to review any takeover proposal, study
appropriate alternatives and achieve the best result for stockholders. The Board
believes that although a classified Board enhances the ability to negotiate
favorable terms with a proponent of an unsolicited proposal, it does not
necessarily discourage takeover offers.
The Act provides that a corporation may elect to be exempt from its
classified Board provisions by a vote of the directors, or by a vote of the
holders of two-thirds of the outstanding voting stock. Therefore, the adoption
of this proposal would not in itself eliminate the classified Board, but would
only amount to an advisory recommendation to the Board that it take the
necessary steps to achieve that outcome.
The Board recognizes that an essentially identical proposal was submitted
by the proponent in 1995. Although the proposal received the affirmative vote of
a majority of the votes cast, it received the affirmative vote of only 38.2% of
the then outstanding shares of common stock. The Board continues to believe that
its classified Board of Directors is in the best interests of the Corporation
and its stockholders.
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FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THIS PROPOSAL.
2. Stockholder Proposal Regarding Redemption of Stockholder Rights Plan
Glenn Freedman, 2 Spruce Street, Great Neck, New York, 11021, the owner of
150 shares of Common Stock, has notified the Corporation of his intention to
introduce the proposal set forth below for consideration and action by the
stockholders at the Annual Meeting. Mr. Freedman's proposed resolution and
supporting statement, for which the Board of Directors and the Corporation
accept no responsibility, are set forth below. THE BOARD OF DIRECTORS OPPOSES
THIS PROPOSAL FOR THE REASONS STATED BELOW.
Poison Pill Resolution
RESOLVED, that the shareholders recommend that our Board of Directors, at
the earliest practical date, redeem or submit to a binding shareholder vote the
corporation's "poison pill" share purchase rights plan.
Supporting Statement
The board of directors, unilaterally and without shareholder participation
or approval, adopted a share purchase rights plan, more commonly known as a
"poison pill." After carefully studying this issue, I have come to the
conclusion that this Plan is detrimental to shareholders and should either be
dismantled or put to a binding shareholder vote on its continued use.
From my homework on this issue, I've learned that poison pills may serve to
harm shareholder value and entrench current management by deterring stock
acquisition offers that are not favored by the board of directors. In my view
management's failure to seek the input and approval of the company's owners on
an action of such critical importance indicates that management is placing its
interests above those of the shareholders.
The Securities and Exchange Commission has stated: "Tender offers can
benefit shareholders by offering them an opportunity to sell their shares at a
premium and by guarding against management entrenchment. However, because poison
pills are intended to deter non-negotiated tender offers, and because they have
this potential effect without shareholder consent, poison pill plans can
effectively prevent shareholders from even considering the merits of a takeover
that is opposed by the board." (SEC Release No. 34-23486 [July 31, 1986].)
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Beyond the effect of poison pills on specific acquisition offers, however,
I am convinced that the company's adoption of the Plan significantly reduces
management's accountability to shareholders. Acquisition offers aside, the
poison pill may simply relieve management from the task of striving for maximum
shareholder value.
Again, I strongly feel that adoption of the Plan without shareholder
consent was contrary to the long-term interests of all shareholders and
offensive to the concepts of management accountability and corporate democracy.
I urge you to vote for this proposal which recommends that the board redeem the
Plan or submit it for shareholder approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
In 1989, the Board of Directors adopted a Stockholder Rights Plan (the
"Rights Plan") pursuant to which the Corporation authorized the distribution of
one Common Stock Purchase Right ("Right") for each share of outstanding common
stock. The Board adopted the Rights Plan to guard against potential abuses
during the takeover process and to ensure that all of the Corporation's
stockholders are treated fairly and equally in the event of an unsolicited
takeover of the Corporation.
The Board continues to believe, as it did when the Rights Plan was first
adopted, that in the event of an unsolicited offer for control of the
Corporation, the Rights Plan will allow the Board adequate time and flexibility
to evaluate the adequacy of a potential offer, to develop alternatives which may
better maximize stockholder value and to negotiate the highest possible price
from a potential acquiror. Contrary to the proponent's assertions, the Rights
Plan does not prevent unsolicited offers from occurring, nor prevent an
acquisition at a price that is fair and equitable for all stockholders. Instead,
the Rights Plan encourages a potential bidder to negotiate in good faith with
the Board of Directors, which is in the best position to negotiate on behalf of
all stockholders. Under the terms of the Rights Plan, the Board may redeem the
Rights to facilitate an acquisition that it determines, in the exercise of its
fiduciary responsibilities, adequately reflects the value of the Corporation and
is in the best interests of all stockholders.
A number of companies with stockholder rights plans similar to the Rights
Plan have received unsolicited takeover offers, and their boards have redeemed
their rights after determining that the negotiated price adequately reflected
the value of the company and that the acquisition was in the best interests of
all stockholders. In fact, two independent studies, one conducted in 1988 by
Georgeson & Company, a nationally recognized proxy solicitation
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and investor relations firm, and the other conducted in 1993 and confirmed in
1995 by Robert Comment and G. William Schwert of the Bradley Policy Research
Center, University of Rochester, found that companies with rights plans received
higher takeover premiums than those companies without rights plans.
The Board believes the proponent's assertions that the Rights Plan reduces
the accountability of management to the stockholders and relieves management
from the task of striving for maximum stockholder value are unfounded. In
deciding to adopt the Rights Plan, the Corporation's Board of Directors
considered its fiduciary responsibilities carefully, sought and carefully
weighed information and advice from experienced, independent legal and financial
advisors, and drew on its collective experience with many other companies and
its extensive knowledge of the Corporation's own business and circumstances. The
Board continues to believe, as it did when the Rights Plan was adopted, that the
Rights Plan is in the best interests of the Corporation and its stockholders in
that it represents a reasonable and appropriate means of addressing and
protecting against potentially abusive and coercive tactics associated with
unsolicited takeover attempts.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THIS PROPOSAL.
3. Stockholder Proposal Regarding the Engagement of an Investment Banker to
Explore Alternatives to Enhance the Value of the Corporation
William Steiner, 4 Radcliff Drive, Great Neck, New York, 11024, the owner
of 100 shares of Common Stock, has notified the Corporation of his intention to
introduce the proposal set forth below for consideration and action by the
stockholders at the Annual Meeting. Mr. Steiner's proposed resolution and
supporting statement, for which the Board of Directors and the Corporation
accept no responsibility, are set forth below. THE BOARD OF DIRECTORS OPPOSES
THIS PROPOSAL FOR THE REASONS STATED AFTER SUCH PROPOSAL.
Sale or Merger of Company
Resolved: that the shareholders of the Company recommend and deem it desirable
and in their best interest that the board of directors immediately engage the
services of a nationally recognized investment banker to explore all
alternatives to enhance the value of the Company. These alternatives should
include, but not be limited to, the possible sale, merger or other transaction
involving the Company. A specific view should be taken towards determining
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<PAGE> 38
whether a sale to the highest bidder would be appropriate. The company should
issue a report to shareholders within 1 year.
Supporting Statement
In support of the above resolution, the proponent believes that in view of the
unacceptable performance of the Company over the past five years, the deplorable
stock price, and in my opinion, ineffective management, the board of directors
should take immediate action to engage the services of an investment banker to
explore all alternatives to enhance the value of the Company which should
include actively exploring an outright sale.
Nell Minow, a highly acclaimed corporate governance specialist, and principal of
the LENS Fund, which specializes in increasing the value of under-performing
companies, has stated:
"Companies can only justify asking investors to take the risk of
investing in equities by delivering a competitive rate of return on the
invested capital. When a company's management and board cannot meet that
goal, they owe it to their investors to submit themselves to an
independent evaluation by an outside firm, to insure that all options
are objectively evaluated.
If a company's performance lags over a sustained period, it is time for
the shareholders to send a message of no confidence to the board,
reminding them that they have to hold management -- and themselves -- to
a higher standard."
I am a member of the Investors Rights Association of America and it is my
opinion that the value of the Company can be enhanced if the above resolution is
carried out and the shareholders would at long last be able to salvage
meaningful monetary rewards for their patience and long suffering.
I URGE YOUR SUPPORT. VOTE FOR THIS RESOLUTION.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
The Board of Directors is cognizant of its fiduciary responsibilities and
strives to discharge these responsibilities in a manner which the Board believes
is in the best interests of the Corporation and its stockholders. The Board
periodically reviews with management the Corporation's strategic and business
plans. The Board, with input from management as appropriate, also regularly
evaluates actions that may be taken to maximize shareholder value. To assist the
Board in this regard, the Corporation maintains relationships with nationally
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recognized investment banking firms and periodically seeks input from such firms
and other advisors.
The Board believes that the Corporation can more effectively consider, and
implement as appropriate, the suggestions of its external advisors when this
process is conducted confidentially. In this way, ideas can be developed and
debated without the fear of rumors or uninformed public discussion that could
harmfully restrict the Board's options or disrupt the public market for the
Corporation's stock. A published report of the sort suggested by the proponent
would, in the Board's view, create uncertainty with customers, suppliers and
employees, as well as stockholders, which could inhibit the Corporation's
efforts to pursue successfully its strategic plan.
Accordingly, the Board of Directors does not believe that it is in the best
interests of the Corporation or its stockholders to engage an investment banking
firm at this time for the specific purpose of preparing a report to stockholders
on alternatives to enhance the value of the Corporation, including a sale or
merger of the Corporation.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THIS PROPOSAL.
4. Stockholder Proposal Regarding Separating Offices of President and Chairman
The CWA/ITU Negotiated Pension Plan (the "Fund"), P.O. Box 2380, Colorado
Springs, Colorado 80901, the owner of 48,000 shares of Common Stock, has
notified the Corporation of its intention to introduce the proposal set forth
below for consideration and action by the stockholders at the Annual Meeting.
The Fund's proposed resolution and supporting statement, for which the Board of
Directors and the Corporation accept no responsibility, are set forth below. THE
BOARD OF DIRECTORS OPPOSES THIS PROPOSAL FOR THE REASONS STATED AFTER SUCH
PROPOSAL.
Shareholder Proposal
Resolved that the shareholders request the Board of Directors of Digital
Equipment Corporation ("DEC") to amend the By-Laws to require that the President
and the Chairman of the Board shall not be the same person.
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Statement of Support
The offices of Chairman of the Board, and President and Chief Executive
Officer, are currently vested in the person of Robert B. Palmer. The CWA/ITU
Negotiated Pension Plan believes that separation of these positions would be an
important step toward improved corporate governance.
The two positions have distinct duties. The President is the Chief
Executive Officer of DEC and, as such is responsible for the supervision and
control of its business. In contrast, the Chairman of the Board is responsible
for running the Board of Directors, which is primarily responsible for
overseeing the performance of the President and other management personnel.
When the President is named as Chairman of the Board, the chief person to
be overseen by the Board is placed in a position to control both the agenda of
the Board and the flow of information that the Board receives. As a result,
shareholders and financial analysts have a reduced degree of assurance that
directors will be independent and effective, because there will be less
assurance that directors will know when to ask questions, and what the right
questions are.
Moreover, this is a time when it appears imperative that the Board ask
questions with a view toward correcting the Corporation's dismal performance. An
indication of that dismal performance lies in the fact that the price of DEC
stock has declined from a high of $76 per share in February of 1996 to a low of
$25 per share in April of 1997 (Value Line, April 25, 1997).
In this context, the New York Times reported on April 18, 1997, that the
DEC Alpha microprocessor "is widely acknowledged as the fastest chip among its
peers," but "Digital has failed to translate that selling point into leadership
[in sales]." In fact, according to Business Week (Apr. 28, 1997), the Alpha chip
"ranks dead last in market share with less than 1% of the $18 billion
microprocessor market, v.s. Intel's 92%."
Moreover, the New York Times article states that revenue from Alpha based
products actually "declined 12 percent" during the third quarter at the same
time that rival companies "reported double-digit growth in . . . selling to
virtually the same customer base." The article adds, "Analysts said that Digital
suffered from weak marketing compared with competitors."
The CWA/ITU Negotiated Pension Plan believes that a separation of the
positions of Chairman and President could help DEC find answers to the salient
questions that are raised in
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the Business Week article: "How could a superior computer chip fail to catch
on?" and why is the company "blowing it?"
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
The Board of Directors believes that the interests of the Corporation and
its stockholders are best served by having the Corporation's President and Chief
Executive Officer serve as Chairman of the Board of Directors.
The proponent suggests that the independence of the Corporation's Board of
Directors is compromised by having the President and Chief Executive Officer
also serve as Chairman of the Board. The Board does not believe this to be the
case, particularly given that eight of the nine current members of the Board are
independent, unaffiliated directors, and three of the four committees of the
Board -- Compensation and Management Development ("CMDC"), Nominating and
Audit -- are comprised entirely of independent, unaffiliated directors. As noted
in the CMDC's Report in this Proxy Statement, the independent CMDC reviews
periodically the Chairman and Chief Executive Officer's compensation. In
addition, the outside directors meet at least once each year without the
Chairman or any member of management present, at which time the outside
directors, among other things, review the performance of the Chairman.
The independent insight, advice and counsel that each outside Director
contributes to the Corporation would not be enhanced by separating the office of
Chairman and President. Each outside director is a full participant in major
strategic and policy discussions. Contrary to the implications of the proposal,
the Corporation's by-laws neither provide the Chairman with special oversight
responsibilities, nor do they insulate an executive Chairman from Board
oversight. The by-laws simply provide that the Chairman presides at meetings of
the Board and stockholders.
The Board believes that the Corporation and its stockholders have benefited
from the full-time attention of a Chairman who is also the President and Chief
Executive Officer. The President and Chief Executive Officer, as the sole
employee Director, is uniquely positioned to share with and prioritize for the
Board those issues facing management and the Corporation that require the
attention of the Board. Through a Chairman who is also President and Chief
Executive Officer of the Corporation, the Board believes it not only is kept
very well-informed about the Corporation and the information technology
industry, but that it can more effectively hold management accountable.
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Accordingly, the Board believes the existing structure supports the Board's
exercise of its oversight responsibilities and does not compromise the
independence of the Board of Directors.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THIS PROPOSAL.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation. In
addition to soliciting stockholders through its regular employees, the
Corporation will request banks and brokers to solicit customers of theirs who
have shares of Common Stock of the Corporation registered in the name of a
nominee. The Corporation will reimburse such banks and brokers for their
reasonable out-of-pocket costs, at the rates suggested by the New York Stock
Exchange. Solicitation by officers and employees of the Corporation may also be
made of some stockholders in person, or by mail, telephone or facsimile,
following the original solicitation. Georgeson & Company Inc. has been retained
by the Corporation to assist with the solicitation of proxies at a cost to the
Corporation estimated not to exceed $20,000.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Proposals of stockholders intended for inclusion in the proxy statement to
be mailed to all stockholders entitled to vote at the 1998 Annual Meeting of
Stockholders of the Corporation must be received at the Corporation's principal
executive offices not later than May 21, 1998. In order to curtail controversy
as to the date on which a proposal was received by the Corporation, proponents
should submit their proposals by Certified Mail -- Return Receipt Requested.
September 18, 1997
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SOLICITED BY BOARD OF DIRECTORS
DIGITAL EQUIPMENT CORPORATION
PROXY FOR 1997 ANNUAL MEETING
The undersigned hereby appoints Robert B. Palmer and Thomas C. Siekman, and
each of them, as attorneys of the undersigned, with full power of substitution,
to vote all shares of stock which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of Digital Equipment Corporation to be held on
November 13, 1997, at 11:00 A.M. at the World Trade Center, Commonwealth Pier,
164 Northern Avenue, Boston, Massachusetts, and at any adjournment thereof, upon
the matters set forth in the proxy statement for such Annual Meeting. The
foregoing attorneys are authorized to vote, in their discretion, upon such other
business as may properly come before the meeting or any adjournment thereof.
ELECTION OF CLASS II DIRECTORS: THE NOMINEES FOR THE BOARD OF DIRECTORS TO
SERVE FOR A THREE-YEAR TERM AS CLASS II
DIRECTORS ARE:
Vernon R. Alden, Thomas L. Phillips and Delbert C. Staley
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below. (To vote or
withhold authority for all nominees, see below.)
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS SPECIFIED, OR WHERE NO DIRECTION IS GIVEN, WILL BE
VOTED FOR THE ELECTION OF CLASS II DIRECTORS, FOR THE PROPOSALS IN ITEMS 2, 3
AND 4 AND AGAINST THE PROPOSALS IN ITEMS 5, 6, 7 AND 8.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND THE
PROPOSALS IN ITEMS 2, 3 AND 4.
<TABLE>
<S> <C>
1. To elect three members of the Board of Directors for a three-year term as
Class II Directors consisting of the foregoing nominees. [ ] FOR [ ] WITHHOLD AUTHORITY
2. To approve the amendment to the 1968 Employee Stock Purchase Plan to
increase the number of shares subject thereto by 3,900,000 shares. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued and to be signed and dated on other side)
3. To approve the amendment to the 1981 International Employee Stock
Purchase Plan to increase the number of shares subject thereto by
3,600,000 shares. [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the selection of Coopers & Lybrand L.L.P. as auditors for the
fiscal year ending June 27, 1998. [ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE STOCKHOLDER PROPOSALS IN
ITEMS 5, 6, 7 AND 8.
<TABLE>
<S> <C>
5. To approve a stockholder proposal relating to the declassification of the
Board of Directors. [ ] FOR [ ] AGAINST [ ] ABSTAIN
6. To approve a stockholder proposal relating to the redemption of the
Corporation's stockholder rights plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN
7. To approve a stockholder proposal relating to the engagement of an
investment banker to explore alternatives to enhance the value of the
Corporation. [ ] FOR [ ] AGAINST [ ] ABSTAIN
8. To approve a stockholder proposal relating to the separation of the
offices of President and Chairman. [ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
The undersigned plans to attend the Annual Meeting [ ]
Signature(s)
.................................
.................................
Date......................., 1997
NOTE: SIGNATURE(S) SHOULD AGREE
WITH NAME(S) AS PRINTED ON THIS
PROXY. IF SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE YOUR
FULL TITLE AS SUCH.
PLEASE SIGN AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE
