<PAGE> 1
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LSI LOGIC 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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LSI LOGIC CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 4, 2000
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of LSI Logic
Corporation (the "Company"), a Delaware corporation, will be held on May 4, 2000
at 1:00 p.m., local time, at the Company's offices located at 4420 Arrowswest
Drive, Colorado Springs, Colorado 80907, for the following purposes:
1. To elect six directors to serve for the ensuing year and until
their successors are elected.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of common stock
from 450,000,000 shares to 1,300,000,000 shares.
3. To approve an amendment to the Amended and Restated Employee Stock
Purchase Plan to increase the number of shares of common stock reserved for
issuance thereunder by 1,500,000.
4. To approve an amendment to the Company's 1991 Equity Incentive Plan
to increase the number of shares of common stock reserved for issuance
thereunder by 10,000,000.
5. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for its 2000 fiscal year.
6. To transact such other business as may properly come before the
meeting and any adjournments thereof.
These items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only stockholders of record at the close of business on March 17, 2000 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
date, sign and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she returned a proxy.
Sincerely,
David E. Sanders
Secretary
Milpitas, California
March 24, 2000
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN
IT IN THE ENCLOSED ENVELOPE (TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES).
<PAGE> 3
LSI LOGIC CORPORATION
------------------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of LSI Logic Corporation
(referred to as "LSI Logic" or the "Company") for use at the Annual Meeting of
Stockholders to be held on May 4, 2000 at 1:00 p.m., local time, or at any
adjournment(s) thereof, for the purposes set forth in this proxy statement and
in the accompanying Notice of Annual Meeting of Stockholders. The annual meeting
will be held at the LSI Logic offices located at 4420 Arrowswest Drive, Colorado
Springs, Colorado 80907. The address of the Company's principal executive
offices is 1551 McCarthy Boulevard, Milpitas, California 95035, and the
Company's telephone number is (408) 433-8000.
These proxy solicitation materials were mailed on or about March 24, 2000
to all stockholders entitled to vote at the meeting.
RECORD DATE; SHARES OUTSTANDING
Stockholders of record at the close of business on the record date of March
17, 2000 (the "Record Date") are entitled to notice of and to vote at the
meeting. As of the Record Date, 302,749,965 shares of the Company's common
stock, $0.01 par value, were issued and outstanding. On the Record Date, the
closing price of the Company's common stock on the New York Stock Exchange was
$77.25 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering a written notice of
revocation or a duly executed proxy bearing a later date to the Company or by
attending the meeting and voting in person.
VOTING AND SOLICITATION
On all matters other than the election of directors, each share has one
vote. See "ELECTION OF DIRECTORS -- REQUIRED VOTE." The cost of soliciting
proxies will be borne by the Company. The Company has retained the services of
Georgeson & Company, Inc. to aid in the solicitation of proxies from brokers,
bank nominees and other institutional owners. The Company estimates that it will
pay Georgeson & Company, Inc. a fee not to exceed $14,000 for its services and
will reimburse it for certain out of pocket expenses estimated to be $12,000. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Proxies may be solicited by
some of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the annual meeting
is a majority of the votes eligible to be cast by holders of shares of common
stock issued and outstanding on the Record Date. Shares that are voted "FOR,"
"AGAINST," or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as votes cast
at the annual meeting with respect to a matter (the "Votes Cast").
The Company intends to count abstentions for purposes of determining both
the presence or absence of a quorum and the total number of Votes Cast with
respect to any matter (other than the election of directors). Broker non-votes
will not be considered to be Votes Cast with respect to the particular proposal
on which the
<PAGE> 4
broker has expressly not voted. Accordingly, broker non-votes will not affect
the outcome of the voting on a proposal that requires a majority of the Votes
Cast (such as the approval of a plan amendment). However, with respect to a
proposal that requires a majority of the outstanding shares (such as an
amendment to the certificate of incorporation), a broker non-vote has the same
effect as a vote against the proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2001 annual meeting and that stockholders
desire to have included in the Company's proxy materials relating to such
meeting must be received by the Company no later than November 24, 2000, which
is 120 calendar days prior to the anniversary of this year's mail date, and must
be in compliance with applicable laws and regulations in order to be considered
for possible inclusion in the proxy statement and form of proxy for that
meeting.
If a stockholder wishes to present a proposal at the Company's annual
meeting in the year 2001 and the proposal is not intended to be included in the
Company's proxy statement relating to that meeting, the stockholder must give
advance notice to the Company prior to the deadline for such meeting determined
in accordance with the Bylaws (the "Bylaw Deadline"), as described below in the
section entitled "Other Matters". If a stockholder gives notice of such a
proposal after the Bylaw Deadline, the stockholder will not be permitted to
present the proposal to the stockholders for a vote at the meeting.
SEC rules also establish a different deadline for submission of stockholder
proposals that are not intended to be included in the Company's proxy statement
with respect to discretionary voting (the "Discretionary Vote Deadline"). The
Discretionary Vote Deadline for the year 2001 annual meeting is February 7, 2001
(45 calendar days prior to the anniversary of the mailing date of this proxy
statement). If a stockholder gives notice of such a proposal after the
Discretionary Vote Deadline, the Company's proxy holders will be allowed to use
their discretionary voting authority to vote against the stockholder proposal
when and if the proposal is raised at the Company's year 2001 annual meeting.
Because the Bylaw Deadline is not capable of being determined until the Company
publicly announces the date for its next annual meeting, it is possible that the
Bylaw Deadline may occur after the Discretionary Vote Deadline. In such a case,
a proposal received after the Discretionary Vote Deadline but before the Bylaw
Deadline would be eligible to be presented at next year's annual meeting and the
Company believes that its proxy holders would be allowed to use the
discretionary authority granted by the proxy card to vote against the proposal
at the meeting without including any disclosure of the proposal in the proxy
statement relating to such meeting.
The Company has not been notified by any stockholder of his or her intent
to present a stockholder proposal from the floor at this year's Annual Meeting.
The enclosed proxy card grants the proxy holders discretionary authority to vote
on any matter properly brought before the Annual Meeting, including any
stockholder proposals received between the date of this proxy statement and the
Bylaw Deadline for this year's Annual Meeting, which is March 30, 2000 (the
sixth day after this proxy statement is mailed).
EFFECT OF STOCK SPLIT
On January 25, 2000, the Company announced a two-for-one common stock
split, effective February 4, 2000, that was distributed on February 16, 2000.
Except for the number of authorized shares discussed in Proposal Two or as
otherwise noted, all references to number of shares, stock option data and
market prices of the Company's common stock in this Proxy have been restated to
reflect the stock split.
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SECURITY OWNERSHIP
SECURITY OWNERSHIP
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of the Record Date, by all
persons known to the Company to be beneficial owners of five percent or more of
the Company's Common Stock, by all directors and executive officers named in the
Summary Compensation Table on page 17 of this proxy statement and by all current
directors and executive officers as a group. All figures below are adjusted for
the two-for-one common stock split effective February 4, 2000.
<TABLE>
<CAPTION>
NUMBER
OF SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
NAME OWNED OWNED
---- ------------ -----------
<S> <C> <C>
Massachusetts Financial Services Company(1)................. 17,408,250 5.90%
FMR Corp(2)................................................. 15,877,238 5.34%
Wilfred J. Corrigan(3)...................................... 13,229,904 4.38%
T.Z. Chu(4)................................................. 151,400 *
Malcolm R. Currie(5)........................................ 279,000 *
James H. Keyes(6)........................................... 132,500 *
R. Douglas Norby(7)......................................... 304,170 *
Matthew J. O'Rourke(8)...................................... 7,500 *
Joseph M. Zelayeta(9)....................................... 486,500 *
John P. Daane(10)........................................... 397,180 *
John D'Errico(11)........................................... 110,434 *
*
All current directors and executive officers as a group 14
persons(12)............................................... 15,928,028 5.27%
</TABLE>
- ---------------
* Less than 1%
(1) As reported in a Schedule 13G dated February 11, 2000, filed with the
Commission, by the Massachusetts Financial Services Company ("MFS"). As of
December 31, 1999, MFS had sole voting power and sole dispositive power
over all of these shares. The address for MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
(2) As reported in a Schedule 13G dated February 14, 2000, filed with the
Commission, by the Fidelity and Management Research Corporation ("FMR"). As
of December 31, 1999, FMR had sole voting power and sole dispositive power
over all of these shares. The address for FMR is 82 Devonshire Street,
Boston, Massachusetts 02109.
(3) Includes options to purchase 2,650,000 shares, which are presently
exercisable or will become exercisable within 60 days of the Record Date.
(4) Includes options to purchase 57,500 shares, which are presently exercisable
or will become exercisable within 60 days of the Record Date.
(5) Includes options to purchase 37,500 shares, which are presently exercisable
or will become exercisable within 60 days of the Record Date.
(6) Includes options to purchase 37,500 shares, which are presently exercisable
or will become exercisable within 60 days of the Record Date.
(7) Includes options to purchase 232,500 shares, which are presently
exercisable or will become exercisable within 60 days of the Record Date.
(8) Includes options to purchase 7,500 shares, which are presently exercisable
or will become exercisable within 60 days of the Record Date.
(9) Includes options to purchase 455,500 shares, which are presently
exercisable or will become exercisable within 60 days of the Record Date.
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(10) Includes options to purchase 369,000 shares, which are presently
exercisable or will become exercisable within 60 days of the Record Date.
(11) Includes options to purchase 97,500 shares, which are presently exercisable
or will become exercisable within 60 days of the Record Date.
(12) Includes options to purchase 4,719,500 shares, which are presently
exercisable or will become exercisable within 60 days of the Record Date.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
Company's six nominees named below. All nominees are currently directors of the
Company. If any nominee of the Company is unable or declines to serve as a
director at the time of the annual meeting, the proxies will be voted for a
nominee designated by the current Board of Directors to fill the vacancy. If
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in accordance with cumulative voting
so as to elect as many of the nominees listed below as possible. In such event,
the proxy holders will determine the specific nominees for whom to vote. The
term of office of each person elected as a director will continue until the next
annual meeting or until his successor has been elected and qualified.
The names of the nominees for election to the Board of Directors, and
certain information about them, are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Wilfred J. Corrigan... 62 Chairman of the Board of Directors and Chief 1981
Executive Officer of the Company
T.Z. Chu.............. 65 Retired President of Hoefer Pharmacia Biotech, Inc. 1992
Malcolm R. Currie..... 73 Chief Executive Officer, Currie Technologies, Inc. 1992
James H. Keyes........ 59 Chairman and Chief Executive Officer of Johnson 1983
Controls, Inc.
R. Douglas Norby...... 64 Executive Vice President and Chief Financial Officer 1993
of the Company
Matthew J. O'Rourke... 61 Consultant; Retired Partner, Price Waterhouse LLP 1999
</TABLE>
There are no family relationships between or among any directors or
executive officers of the Company.
Mr. Corrigan, a founder of the Company, has served as Chief Executive
Officer and a director of the Company since our organization in January 1981.
Mr. Corrigan also serves on the boards of directors of several privately held
corporations.
Mr. Chu served as President of Hoefer Pharmacia Biotech, Inc., a
biotechnology company, from March 1995 until his retirement in February 1997.
From August 1993 until March 1995, Mr. Chu served as President and Chief
Executive Officer of Hoefer Scientific Instruments, a manufacturer of scientific
instruments.
Dr. Currie has served as Chief Executive Officer of Currie Technologies,
Inc., a manufacturer of electric propulsion systems for bicycles and other light
vehicles, since February 1997. Dr. Currie served as Chairman and Chief Executive
Officer of Hughes Aircraft Company from March 1988 until his retirement in July
1992. He presently serves on the Board of Directors for Investment Company of
America, ENOVA Systems, Inc. and Regal One Corp., and as Chairman of the Board
of Trustees of the University of Southern California.
4
<PAGE> 7
Mr. Keyes has served as Chairman and Chief Executive Officer of Johnson
Controls, Inc., an automotive systems and facility management and control
company, since January 1993. Mr. Keyes also serves on the Boards of Directors of
Pitney Bowes Inc. and the Chicago Federal Reserve Board.
Mr. Norby has served as Executive Vice President and Chief Financial
Officer of the Company since November 1996. From September 1993 until November
1996, Mr. Norby served as Senior Vice President and Chief Financial Officer of
Mentor Graphics Corporation, an electronic design automation company. Mr. Norby
is also on the Board of Directors of Alexion Pharmaceuticals, Inc.
Mr. O'Rourke was a partner with the accounting firm Price Waterhouse LLP
from 1972 until his retirement in June 1996. Prior to his retirement, he served
as Managing Partner at Price Waterhouse's New York National Office from 1994 to
1996 and as Managing Partner for Northern California from 1988 to 1994. Since
his retirement, Mr. O'Rourke has been engaged as an independent business
consultant. Mr. O'Rourke is also member of the Board of Directors of Read-Rite
Corporation.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of nine meetings during
the fiscal year ended December 31, 1999. The Board of Directors has an Audit
Committee and a Compensation Committee, both of which consist solely of
non-employee directors. The Board of Directors does not have a nominating
committee or a committee performing the functions of a nominating committee.
The Audit Committee, which consists of Dr. Currie (who serves as its
chairman), Mr. Chu, Mr. Keyes and Mr. O'Rourke, held three meetings during the
last fiscal year. The Audit Committee recommends engagement of the Company's
independent accountants, and is primarily responsible for approving the services
performed by the Company's independent accountants and for reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls.
The Compensation Committee, which consists of Mr. Keyes (who serves as its
chairman), Mr. Chu, Dr. Currie and Mr. O'Rourke, held three meetings during the
last fiscal year. The Compensation Committee reviews and approves the Company's
executive compensation policy and makes recommendations concerning the Company's
employee benefit plans.
During the fiscal year ended December 31, 1999, all incumbent directors
attended at least 75% of the aggregate number of meetings of the Board of
Directors and meetings of the committees of the Board on which they served.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not employees of the Company
receive an annual fee of $25,000 paid on a prorated basis and $1,500 for each
meeting they attend, plus reimbursement of expenses for attendance at Board and
committee meetings. The Company's 1995 Director Stock Option Plan, as adopted by
the Board of Directors and approved by the stockholders, provides for a grant of
non-statutory stock options to non-employee directors of the Company. Each
non-employee director is granted an initial option to purchase 15,000 shares of
common stock on the date on which he or she first becomes a director. In
addition, on April 1 of each year, each non-employee director is automatically
granted a subsequent option to purchase 12,500 shares of common stock of the
Company, if on the date of grant he or she has served on the Board of Directors
for at least six months. The vesting schedule for initial options granted under
the 1995 Director Stock Option Plan is set at 25% on each of the first four
anniversaries of the grant. Subsequent option grants become exercisable in full
six months after the date of grant. Options may be exercised only while the
optionee is a director of the Company, within 12 months after death or within
three months after the optionee ceases to serve as a director of the Company,
but in no event after the ten-year term of the option has expired. As of the
Record Date, a total of 1,000,000 shares have been reserved for issuance under
the 1995 Director Stock Option Plan, of which 225,000 shares are subject to
outstanding options, no shares have been issued upon exercise of options, and
775,000 shares remain available for grant. During fiscal 1999, giving effect to
the two-for-one stock split effective February 4, 2000, an option to purchase
25,000 shares was granted to each of
5
<PAGE> 8
Directors Currie, Keyes and Chu having an exercise price of $16.125 per share;
and an option to purchase 30,000 shares was granted to Director O'Rourke, having
an exercise price of $18.50 per share.
REQUIRED VOTE
Directors shall be elected by a plurality. The six nominees for director
receiving the highest number of affirmative votes of the shares entitled to be
voted for them shall be elected as directors. Votes against, votes withheld and
broker non-votes have no legal effect on the election of directors due to the
fact that such elections are by a plurality.
Every stockholder voting in the election of directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected (six) multiplied by the number of votes to which the
stockholder's shares are entitled, or may distribute the stockholder's votes on
the same principle among as many candidates as the stockholder thinks fit,
provided that votes cannot be cast for more than six candidates. However, no
stockholder shall be entitled to cumulate votes for a candidate unless the
candidate's name has been properly placed in nomination in accordance with the
Company's by-laws prior to the meeting, and the stockholder, or any other
stockholder, has given notice at the meeting prior to the voting of the
stockholder's intention to cumulate votes. The proxy holders will exercise
discretionary authority to cumulate votes in the event that additional persons
are nominated for election of directors.
MANAGEMENT RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED ABOVE.
PROPOSAL TWO
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Restated Certificate of Incorporation of the Company, as currently in
effect, provides that the authorized capital stock of the Company shall consist
of 450,000,000 shares of Common Stock, $0.01 par value, and 2,000,000 shares of
Preferred Stock. The proposed amendment would increase the number of shares of
Common Stock authorized for issuance by 850,000,000 to a total of 1,300,000,000
shares. The proposed amendment is intended to provide the Company flexibility to
meet its future needs for unreserved Common Stock.
The Company's number of authorized shares of Common Stock, currently at
450,000,000, was increased to that number in 1997 from 250,000,000 by approval
of the Company's stockholders. Since the increase in the Company's authorized
capital stock in 1997, the Company has issued a total of approximately
161,175,800 additional shares, adjusted for the two-for-one stock split
effective February 4, 2000, and the issuance of new shares pursuant to various
capital transactions, including corporate mergers and employee benefit plan
transactions. On the Record Date, the Company's market capitalization was
approximately $23,387,434,796.
As of the Record Date, 302,749,965 shares of the Common Stock were issued
and outstanding; 29,121,407 shares were reserved for issuance upon conversion of
certain convertible notes; and 67,690,656 shares were reserved under the
Company's employee stock benefit plans, leaving approximately only 50,437,970
shares of Common Stock available for future issuance. The number of shares
remaining available is not considered adequate for the Company's future possible
requirements.
Although the Company has no firm plans to use the additional authorized
shares of Common Stock, the Company's Board of Directors believes that it is
prudent to increase the number of authorized shares available for issuance in
connection with possible future actions. Such actions may include, but are not
limited to stock dividends -- if the Board of Directors, for example, were to
determine that it would be desirable to facilitate a broader base of
shareholders -- financing, corporate mergers, acquisitions of property, employee
benefit plans and for other general corporate purposes. For example, in 1999 and
2000, the Company raised approximately $345,000,000 and $500,000,000,
respectively, through the issuance of notes convertible into the Company's
Common Stock (collectively "Notes"). Based on the current market price of the
Company's Common Stock, the Company anticipates that the Notes will be fully
converted into the Company's Common Stock in
6
<PAGE> 9
accordance with their terms. Further, the semiconductor industry is
characterized by constant technological change, rapid product obsolescence, and
evolving industry standards. To remain competitive, the Company must continue to
acquire new technology through acquisitions and to make significant investments
in new facilities and capital equipment, for which the remaining number of
unreserved shares would likely be inadequate. Having such additional authorized
Common Stock available for issuance in the future would allow the Board of
Directors to issue shares of Common Stock without the delay and expense
associated with seeking stockholder approval. Elimination of such delays and
expense occasioned by the necessity of obtaining stockholder approval will
better enable the Company, among other things, to engage in financing
transactions and acquisitions as well as to take advantage of changing market
and financial conditions on a more competitive basis as determined by the Board
of Directors.
POSSIBLE EFFECTS OF THE AMENDMENT
If the proposed amendment is approved, the Board of Directors may cause the
issuance of additional shares of Common Stock without further vote of
stockholders of the Company, except as provided under Delaware corporate law or
under the rules of any national securities exchange on which shares of Common
Stock of the Company are then listed. Current holders of Common Stock have no
preemptive or like rights, which means that current stockholders do not have a
right to purchase any new issue of capital stock of the Company in order to
maintain their proportionate ownership thereof. Therefore, to the extent that
the additional authorized shares are issued in the future, they will decrease
the existing stockholders' percentage of equity ownership and, depending on the
price at which these are issued, could be dilutive to the existing stockholders.
An effect of the increase in the number of authorized shares of Common
Stock may be to deter or prevent a change in control of the Company without
further action by stockholders. In November 1988, the Board of Directors
established a Shareholder Rights Plan ("Rights Plan") and issued under the
Rights Plan as a dividend to the holders of Common Stock, rights to purchase
Series A Participating Preferred Stock. In the event the rights become
exercisable, the Company might have to issue a substantial number of new shares
of Common Stock in order to effectuate the Rights Plan. Although under the
Rights Plan the Company is not now obligated to reserve shares of Common Stock
for issuance thereunder, a failure to have sufficient authorized shares
available could result in a delay or failure of implementation of all aspects of
the Rights Plan. The Agreement was amended and restated in November 1998 to
extend its term until December 15, 2008. A copy of the Amended and Restated
Rights Agreement was filed with the Securities and Exchange Commission on
December 8, 1998 as an exhibit to the Registration Statement on Form 8-A
pursuant to Section 12(a) of the Securities Exchange Act of 1934. The foregoing
brief description of the Rights Plan is qualified in its entirety by reference
to the text of the Rights Agreement.
The Board of Directors is not currently aware of any attempt to take over
or acquire the Company. While it may be deemed to have potential anti-takeover
effects, the proposed amendment to increase the authorized Common Stock is not
prompted by any specific effort or takeover threat currently perceived by
management. Moreover, management does not intend to propose additional
anti-takeover measures in the foreseeable future.
REQUIRED VOTE
The affirmative vote of a majority of the shares of Common Stock
outstanding on the Record Date will be required to approve PROPOSAL TWO. If the
proposed amendment to the Restated Certificate of Incorporation is approved by
the stockholders, such amendment will become effective upon filing an amendment
to the Restated Certificate of Incorporation with the Delaware Secretary of
State. If the amendment is authorized and the Certificate of Amendment to the
Restated Certificate of Incorporation is filed, the text of the first paragraph
of Article 4 of the Company's Restated Certificate of Incorporation will be
amended to read as follows:
"This corporation is authorized to issue two classes of shares designated,
respectively, "Common Stock" and "Preferred Stock." The total number of shares
that this corporation shall have authority to issue is one
7
<PAGE> 10
billion three hundred and two million (1,302,000,000), of which one billion
three hundred million (1,300,000,000) shall be Common Stock with a par value of
$0.01 per share and two million (2,000,000) shall be Preferred Stock with a par
value of $0.01 per share."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION.
PROPOSAL THREE
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE
NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
GENERAL
The Amended and Restated Employee Stock Purchase Plan ("ESPP") was adopted
by the Board of Directors and approved by the stockholders in April 1983. A
total of 225,000 shares of common stock were initially reserved for issuance
thereunder. From time to time since April 1983, the Board of Directors and
stockholders have approved amendments to the ESPP to increase the number of
shares reserved for issuance thereunder, and to change certain other provisions.
Giving effect to the two-for-one stock split effective February 4, 2000, as of
the Record Date, of the 36,437,740 shares reserved for issuance under the ESPP
(without giving effect to this amendment), 32,992,672 shares had been issued.
The Company estimates that it will have utilized a substantial portion of the
3,445,068 remaining available shares by the end of the exercise period ending
May 14, 2000, leaving an inadequate number of shares available for issuance
thereafter.
The Board of Directors believes that it is in the best interest of the
Company to provide employees with an opportunity to purchase Common Stock
through payroll deductions. Employees have rated the ESPP as their most valuable
benefit. As of the Record Date, over 69% of the eligible employees are
participating in the ESPP.
PROPOSED AMENDMENT TO THE ESPP
On February 17, 2000, the Board of Directors approved an amendment to the
ESPP to increase the number of shares reserved under the ESPP by 1,500,000 to a
total of 37,937,740 shares.
Giving effect to the two-for-one stock split effective February 4, 2000,
the total number of shares of common stock reserved for issuance under the ESPP
is 36,437,740, of which 3,445,068 are currently available for issuance. These
are not enough shares to meet anticipated demand because participation in the
ESPP has increased. Therefore, stockholder approval is sought to increase the
number of shares of common stock reserved for issuance under the ESPP by
1,500,000. If the proposed amendment is approved, the total number of shares of
common stock reserved for issuance under the ESPP will be 37,937,740 on a
split-adjusted basis. This amount includes the 2,614,948 shares, adjusted for
the two-for-one stock split effective February 4, 2000, automatically added to
the ESPP on January 1, 2000 ("Annual Replenishment"), which was previously
approved by the stockholders. The Annual Replenishment consists of 1.15% of the
Company's Common Stock issued and outstanding at fiscal year end less the number
of shares available for future option grants under the ESPP at fiscal year end.
The number of shares of common stock reserved for issuance under the ESPP, as
amended by this proposal, together with the Annual Replenishment, is anticipated
to be sufficient to meet the Company's requirements for the next 12 months if
the Company continues to issue shares under the ESPP at rates approximating
historical levels.
REQUIRED VOTE
The affirmative vote of a majority of the Votes Cast at the annual meeting
will be required to approve PROPOSAL THREE.
8
<PAGE> 11
SUMMARY OF THE ESPP
The essential features of the ESPP are outlined below.
Purpose
The purpose of the ESPP is to provide employees of the Company and of its
majority-owned subsidiaries designated by the Board of Directors who participate
in the ESPP with an opportunity to purchase common stock of the Company through
payroll deductions.
Administration
The ESPP is currently being administered by the Board of Directors,
although that body may appoint a committee to perform that function. All
questions of interpretation or application of the ESPP are determined in the
sole discretion of the Board of Directors or its committee, and its decisions
are final and binding upon all participants. Members of the Board of Directors
who are eligible employees are permitted to participate in the ESPP but may not
vote on any matter affecting the administration of the ESPP or the grant of any
option pursuant to the ESPP. No member of the Board of Directors who is eligible
to participate in the ESPP may be a member of the committee appointed to
administer the ESPP. No charges for administrative or other costs may be made
against the payroll deductions of a participant in the ESPP. Members of the
Board of Directors receive no additional compensation for their services in
connection with the administration of the ESPP.
Eligibility
Any person who is employed by the Company (or by any of its majority-owned
subsidiaries designated by the Board) for at least 20 hours per week and more
than five months in a calendar year is eligible to participate in the ESPP. As
of the Record Date, approximately 6,300 employees were eligible to participate
in the ESPP and approximately 4,400 of those were participating.
Offering Dates
The ESPP is currently implemented by consecutive overlapping 12-month
offering periods. The offering periods begin May 15 and November 15 of each
year. Each offering period is composed of two six-month purchase periods.
However, the offering period that began on October 1, 1998 is a 24-month period
that will end on September 29, 2000 and consists of four six-month purchase
periods, because it commenced prior to the amendments to the ESPP that were
approved by the stockholders in 1999. The Board of Directors has the power to
alter the duration of the offering periods without stockholder approval if such
change is announced prior to the scheduled beginning of the first offering
period to be affected.
Eligible employees become participants in the ESPP by delivering a
subscription agreement to the Company authorizing payroll deductions. An
employee who becomes eligible to participate in the ESPP after the commencement
of an offering period may not participate in the ESPP until the commencement of
the next offering period.
Purchase Price
The purchase price per share at which shares are purchased under the ESPP
is the lower of (a) 85% of the fair market value of a share of Company common
stock on the enrollment date for an offering period or (b) 85% of the fair
market value of a share of common stock on the applicable purchase date within
that offering period. If shares are to be added to the ESPP at a time when the
fair market value of a share of common stock is higher than it was on the
enrollment date, then the Board of Directors may at its discretion set the
purchase price for the added shares at the lesser of 85% of the fair market
value of a share of common stock on the date such shares are authorized or 85%
of the fair market value of shares on the applicable purchase date within the
offering period. The fair market value of the common stock on a given date is
determined by the Board of Directors based upon the closing sales price as
reported by the New York Stock Exchange on such date.
9
<PAGE> 12
Payment of Purchase Price; Payroll Deductions
ESPP shares are purchased with funds that are accumulated through payroll
deductions during the offering period. The deductions may not exceed 10% of a
participant's eligible compensation, which is defined in the ESPP to include the
regular straight time salary as of each payday during the offering period,
exclusive of any payments for overtime, bonuses, commissions or incentive
compensation. A participant may decrease the rate of payroll deductions at any
time in whole percentage point increments, and such decreases are immediately
effective. Increases in the rate of payroll deductions may be made only at the
start of a purchase period.
All payroll deductions are credited to the participant's account under the
ESPP; no interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose and such payroll deductions need not be segregated.
Purchase of Stock; Exercise of Option
At the beginning of each offering period, each participating employee is in
effect granted an option to purchase shares of common stock. The maximum number
of shares placed under option to a participant in an offering period is
determined by dividing the participant's accumulated payroll deductions during
the purchase period by 85% of the fair market value of the common stock at the
beginning of the offering period or on the applicable purchase date, whichever
is lower. However, the number of shares placed under option may not exceed 200%
of the number of shares determined by dividing 10% of the employee's
compensation to be accumulated over the offering period (determined as of the
enrollment date) by 85% of the fair market value of a share of the Company's
common stock on the enrollment date. Under no circumstances may an employee make
aggregate purchases of stock of the Company and its majority-owned subsidiaries
under the ESPP and any other employee stock purchase plans qualified as such
under Section 423(b) of the Internal Revenue Code in excess of $25,000
(determined using the fair market value of the shares at the time the option is
granted) during any calendar year.
Withdrawal
A participant may terminate his or her participation in the ESPP at any
time by signing and delivering to the Company a notice of withdrawal from the
ESPP. All of the participant's accumulated payroll deductions will be paid to
the participant promptly after receipt of his or her notice of withdrawal and
his or her participation in the current offering period will be automatically
terminated. No resumption of payroll deductions will occur on behalf of such
participant unless such participant re-enrolls in the ESPP by delivering a new
subscription agreement to the Company during the applicable open enrollment
period preceding the commencement of a subsequent offering period. A
participant's withdrawal from the ESPP during an offering period does not have
any effect upon such participant's eligibility to participate in subsequent
offering periods under the ESPP.
Termination of Employment
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the ESPP immediately.
In such event, the payroll deductions credited to the participant's account will
be returned to such participant or, in the case of death, to the person or
persons designated in the subscription agreement. In the case of death of the
participant, the beneficiary may elect to have funds remain in the participant's
account until the next purchase date and the shares purchased with the funds
will be forwarded to the beneficiary. A participant who receives payment in lieu
of notice of termination of employment shall be treated as continuing to be an
employee during the period in which the participant is subject to such payment
in lieu of notice.
Capital Changes
If any change is made in the capitalization of the Company, such as stock
splits or stock dividends, which results in an increase or decrease in the
number of shares of common stock outstanding without receipt of
10
<PAGE> 13
consideration by the Company, appropriate adjustments will be made by the
Company in the number of shares subject to purchase and in the purchase price
per share, subject to any required action by the stockholders of the Company. In
the event of the proposed dissolution or liquidation of the Company, the
offering period then in progress will terminate immediately, unless otherwise
provided by the Board. In the event of the proposed sale of all or substantially
all of the assets of the Company or the merger of the Company with or into
another corporation, each outstanding option shall be assumed or an equivalent
option shall be substituted by the successor corporation, unless the Board
determines, in its discretion, to accelerate the exercisability of all
outstanding options under the ESPP. The Board may also make provisions for
adjusting the number of shares subject to the ESPP and the purchase price per
share if the Company effects one or more reorganizations, recapitalizations,
rights offerings or other increases or reductions of shares of the Company's
outstanding common stock.
Amendment and Termination of the ESPP
The Board of Directors may at any time amend or terminate the ESPP. An
offering period may be terminated by the Board of Directors on any purchase date
if it determines that the termination of the offering period or the ESPP is in
the best interests of the Company and its stockholders. No amendment may be made
to the ESPP without prior approval of the stockholders of the Company where such
approval is necessary to comply with Section 423 of the Internal Revenue Code
(i.e., if such amendment would increase the number of shares reserved under the
ESPP or modify the eligibility requirements).
Without stockholder consent and without regard to whether any participant
rights may be considered to have been "adversely affected," the Board of
Directors shall be entitled to change the offering periods, limit the frequency
and/or number of changes in the amount withheld during an offering period,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, permit payroll withholding in excess of the amount designated
by a participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of common stock for each
participant properly correspond with amounts withheld from the participant's
compensation and establish such other limitations or procedures consistent with
the ESPP as the Board of Directors determines in its sole discretion to be
advisable.
In the event the Board of Directors determines that the ongoing operation
of the ESPP may result in unfavorable financial accounting consequences, the
Board of Directors may, in its discretion, modify or amend the ESPP to reduce or
eliminate such accounting consequences, including, but not limited to, altering
the purchase price for any offering period, including an offering period
underway at the time of the change; shortening any offering period so that
offering period ends on a new purchase date, including an offering period
underway at the time; and allocating shares.
Certain United States Federal Income Tax Information
The ESPP, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Sections 421 and 423 of the Internal
Revenue Code. Under these provisions, no income will be taxable to a participant
at the time of grant of the option or purchase of shares. Upon disposition of
the shares, the participant will generally be subject to tax and the amount of
the tax will depend upon the holding period. If the shares have been held by the
participant for more than two years after the offering date and more than one
year after the purchase date, the lesser of: (a) the excess of the fair market
value of the shares at the time of such disposition over the purchase price, or
(b) the excess of the fair market value of the shares at the time the option was
granted over the purchase price (which purchase price will be computed as of the
grant date) will be treated as ordinary income, and any further gain will be
treated as long-term capital gain. If the shares are disposed of before the
expiration of these holding periods, the excess of the fair market value of the
shares on the purchase date over the purchase price will be treated as ordinary
income, and any further gain or any loss on such disposition will be long-term
or short-term capital gain or loss, depending on the holding period. Different
rules may apply with respect to participants subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended. The Company is not entitled to a
deduction for amounts taxed as ordinary income or
11
<PAGE> 14
capital gain to a participant, except to the extent of ordinary income reported
by participants upon disposition of shares prior to the expiration of the two
holding periods described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the purchase of shares
under the ESPP, is not intended to be complete, and does not discuss the income
tax laws of any municipality, state or foreign country.
PARTICIPATION IN THE ESPP
Participation in the ESPP is voluntary and dependent on each eligible
employee's election to participate and his or her determination as to the level
of payroll deductions. Accordingly, future purchases under the ESPP are not
determinable. Non-employee directors are not eligible to participate in the
ESPP. No purchases have been made under the ESPP since its amendment by the
Board. However, purchases were made under the ESPP prior to such amendment. The
following table sets forth certain information regarding shares purchased under
the ESPP during the last fiscal year and the payroll deductions accumulated at
the end of the last fiscal year in accounts under the ESPP for each of the Named
Executive Officers, for all current executive officers as a group and for all
other employees who participated in the ESPP as a group:
AMENDED PLAN BENEFITS
EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
PAYROLL DEDUCTIONS
NAME OF INDIVIDUAL NUMBER OF SHARES AS OF
OR IDENTITY OF GROUP AND POSITION PURCHASED(#) DOLLAR VALUE($)(1) FISCAL YEAR END
--------------------------------- ---------------- ------------------ ------------------
<S> <C> <C> <C>
Wilfred J. Corrigan....................... 0 N/A N/A
Chairman and Chief Executive Officer
Joseph M. Zelayeta........................ 0 N/A N/A
Executive Vice President, Worldwide
Operations
John P. Daane............................. 6,024 91,173.39 21,250.00
Executive Vice President, Communications
Products Group
R. Douglas Norby.......................... 6,024 91,173.39 21,250.00
Executive Vice President and Chief
Financial Officer
John D'Errico............................. 5,810 90,810.28 21,250.00
Executive Vice President, Storage
Components and Colorado Operations
All current executive officers as a
group................................... 37,498 492,176.27 106,237.92
All other employees as a group............ 3,885,016 62,253,397.87 21,608,467.83
</TABLE>
- ---------------
(1) Market value of shares on date of purchase, minus the purchase price under
the ESPP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDED
AND RESTATED EMPLOYEE STOCK PURCHASE PLAN. THE EFFECT OF AN ABSTENTION IS THE
SAME AS THAT OF A VOTE AGAINST THE AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE
PLAN.
PROPOSAL FOUR
AMENDMENT TO THE 1991 EQUITY INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
GENERAL
The 1991 Equity Incentive Plan ("EIP"), was adopted by the Board of
Directors and approved by the stockholders in May 1991, and a total of 2,000,000
shares of common stock were initially reserved for issuance
12
<PAGE> 15
thereunder. From time to time since May 1991, the Board of Directors and
stockholders have approved amendments to the 1991 EIP to increase the number of
shares reserved for issuance thereunder to an aggregate of 62,500,000 shares
(split adjusted) and to make certain additional amendments.
Giving effect to the two-for-one stock split effective February 4, 2000 but
not to the proposed amendment, as of the Record Date, 16,309,759 shares had been
issued pursuant to the exercise of options granted under the 1991 EIP and
options to purchase 37,182,281 shares were outstanding, leaving only 9,007,960
shares available for future grants under the 1991 EIP.
PROPOSED AMENDMENT TO INCREASE SHARES RESERVED
Stockholder approval is hereby sought for an amendment approved by the
Board of Directors on February 17, 2000, increasing the number of shares of
common stock reserved for issuance under the 1991 EIP by 10,000,000 shares. If
the proposed amendment is approved, the total number of shares of common stock
reserved for issuance under the 1991 EIP will be 72,500,000, on a split-adjusted
basis.
REQUIRED VOTE
The affirmative vote of a majority of the Votes Cast at the annual meeting
will be required to approve PROPOSAL FOUR.
SUMMARY OF THE 1991 EQUITY INCENTIVE PLAN
The essential features of the 1991 EIP are outlined below.
Purpose
The purpose of the 1991 EIP is to enable the Company to provide an
incentive to eligible employees and consultants whose present and potential
contributions are important to the continued success of the Company, to afford
them an opportunity to acquire a proprietary interest in the Company and to
enable the Company to hire and retain the best available talent for the
successful conduct of its business.
The Board of Directors believes that the continued growth of the Company
will depend upon its ability to attract, hire and retain qualified employees.
The 1991 EIP is an important factor in attracting and retaining the high caliber
employees and consultants essential to the success of the Company and in
aligning their long-term interests with those of the stockholders. Competition
for highly qualified individuals in the expanding high technology industry is
intense, particularly in the current environment of very low unemployment among
the limited pool of candidates possessing the specialized skills required in
areas in which the Company competes. Employers with which the Company competes
for such highly qualified individuals, including those companies that anticipate
an initial public offering, frequently offer grants of substantial numbers of
stock options as part of a comprehensive compensation package. Accordingly,
management believes that to successfully attract the best candidates and retain
key employees, the Company must be in a position to offer a competitive stock
option incentive program as an essential component of its compensation packages.
The Board of Directors further believes that stock options serve an
important role in motivating recipients to contribute to the Company's continued
growth and profitability. The proposed amendment to the 1991 EIP is intended to
ensure that there will be a reasonable number of shares available to meet these
needs for the coming year.
Stock Options
The 1991 EIP permits the granting both of stock options that either are
intended to qualify as Incentive Stock Options, or ISOs, and of stock options
that are not intended to so qualify, known as Nonstatutory Stock Options or
NSOs.
The exercise price for each option may not be less than 100% of the fair
market value of a share of common stock on the date such option is granted (or
not less than 110% of such fair market value in the case
13
<PAGE> 16
of grants of ISOs to 10% stockholders). The exercise price of granted options
may not be reduced without stockholder approval. No employee may be granted, in
any fiscal year, options to purchase more than 750,000 shares.
The Board of Directors fixes the term of each option at the time of the
grant, generally at ten years from the date of grant. (In the case of ISOs, the
term may not exceed five years in the case of grants to a 10% stockholder and
ten years for others.) The Board of Directors also determines the vesting
schedule for each option grant, which is generally 25% on each of the first four
anniversaries of the date of grant.
The exercise price of options granted under the 1991 EIP, including
applicable tax withholding, if any, must be paid in full at the time of
exercise. The method of payment is determined by the Board of Directors or its
designated committee administering the 1991 EIP and may consist of cash, check,
promissory note, other shares of common stock, delivery of a properly executed
exercise notice with irrevocable instructions to the optionee's broker to
deliver to the Company the amount of sale proceeds required to pay the exercise
price, any combination of the foregoing methods of payment or such other
consideration and method of payment permitted under the Delaware General
Corporation Law.
If an optionee's employment terminates for any reason, including
retirement, his or her exercisable options may be exercised within the time
period set forth in the option agreement, which is generally 90 days from the
date of termination. If the Board of Directors or its designated committee
determines that an employee was discharged for misconduct (as defined in the
1991 EIP), the employee has no further rights under the options granted to him
or her or under the plan. If an optionee's employment is terminated by reason of
the optionee's death or permanent total disability, the option will be
exercisable for 12 months following the date of death or disability, subject to
the stated term of the option. Options granted to consultants have such terms
and conditions with respect to the effect of termination of the consulting
relationship (including upon the death of the consultant) as the Board of
Directors or its designated committee may determine in each case.
Eligibility
Any employee (including any officer) or consultant of the Company or of its
majority-owned subsidiaries whom the Board of Directors deems to have the
potential to contribute to the future success of the Company is eligible to
receive NSO option grants under the 1991 EIP. Only employees of the Company or
of its subsidiaries are eligible to ISO grants. As of December 31, 1999, the
Company had approximately 6,300 employees and 262 consultants.
Adjustments for Recapitalizations and Reorganizations
In the event of a stock dividend, stock split, combination or similar
event, the number of shares of common stock available for issuance under the
1991 EIP shall be increased or decreased proportionately, and the number of
shares of common stock deliverable upon exercise, and, where applicable, the
exercise price of each option, shall be proportionately adjusted. In the event
of a merger, reorganization, liquidation or similar event, the Board of
Directors may either provide for the assumption or substitution of outstanding
options or provide that the options must be exercised within 30 days. In either
case, the Board of Directors may provide for accelerated vesting of such
options.
Administration
The 1991 EIP is administered by the Board of Directors or by a committee
appointed by the Board of Directors in compliance with Rule 16b-3 promulgated
under the Securities Exchange Act of 1934. If permitted by Rule 16b-3, the 1991
EIP may be administered by different bodies with respect to employees who are
directors, non-director officers, employees who are neither directors nor
officers, and consultants. A member of the Board of Directors who is an eligible
employee is permitted to participate in the 1991 EIP but may not be a member of
a committee appointed to administer it. Members of the Board of Directors
receive no additional compensation for their services in connection with the
administration of the 1991 EIP.
14
<PAGE> 17
Amendment and Termination
The Board of Directors may amend, alter, suspend or discontinue the 1991
EIP at any time, but such amendment, alteration, suspension or discontinuation
may not impair the rights of any participant in the 1991 EIP without the
participant's consent. In addition, no ISO may be granted under the 1991 EIP
after March 8, 2001.
In addition, to the extent necessary and desirable to comply with Section
422A of the Internal Revenue Code of 1986, as amended (or any other applicable
law or regulation), the Company shall obtain stockholder approval of any 1991
EIP amendment, in such a manner and to such a degree as required to comply with
such laws or regulations.
Certain United States Federal Income Tax Information
The following is only a brief summary of the effect of federal income
taxation upon the participant and the Company under the 1991 EIP based upon the
Internal Revenue Code. This summary is not intended to be complete and does not
discuss the income tax laws of any municipality, state or country outside of the
United States. It is advisable that a participant contact his or her own tax
adviser concerning the application of tax laws.
If an option granted under the 1991 EIP is an ISO, the optionee will
recognize no taxable income upon grant or exercise of the ISO unless the
alternative minimum tax rules apply. Upon the resale or exchange of the shares
at least two years after grant of the ISO and one year after exercise by the
optionee, any gain (or loss) will be taxed to the optionee as ordinary income
(or loss) or capital gain (or loss), depending on how long the optionee has held
the stock.
All options that do not qualify as ISOs are taxed as NSOs. An optionee will
not recognize any taxable income at the time he or she is granted an NSO.
However, upon the exercise of an NSO, the optionee will generally recognize
ordinary income for federal income tax purposes measured by the excess, if any,
of the then fair market value of the shares over the exercise price. The
ordinary income recognized upon exercise of an NSO by an optionee who is also an
employee of the Company will be treated as wages for tax purposes and will be
subject to tax withholding out of the current compensation, if any, paid to the
optionee. Upon resale of such shares by the optionee, any difference between the
sale price and fair market value on the date of exercise will be treated as
capital gain (or loss).
The Company will be entitled to a tax deduction in the same amount as the
ordinary income, if any, recognized by the optionee (i) upon exercise of an NSO
and (ii) upon the sale of shares acquired by exercise of an ISO in a
disqualifying disposition. The Company will not be allowed a deduction for
federal income tax purposes as a result of the exercise of an ISO, regardless of
the applicability of the alternative minimum tax.
15
<PAGE> 18
PARTICIPATION IN THE 1991 EQUITY INCENTIVE PLAN
The grant of options under the 1991 Equity Incentive Plan to employees,
including the Named Executive Officers, is subject to the discretion of the
plan's administrator. As of the date of this proxy statement, there has been no
determination by the administrator with respect to future awards under the 1991
Equity Incentive Plan. Accordingly, future awards are not determinable.
Non-employee directors are not eligible to participate in the 1991 Equity
Incentive Plan. The following table sets forth information with respect to the
grant of options to the Named Executive Officers adjusted for the two-for-one
stock split effective February 4, 2000, to all current executive officers as a
group and to all other employees as a group during the last fiscal year:
AMENDED PLAN BENEFITS
1991 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES UNDERLYING EXERCISE PRICE PER
NAME OF INDIVIDUAL OR IDENTITY OF GROUP AND POSITION OPTIONS GRANTED(#) SHARE($/SH.)
---------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Wilfred J. Corrigan........................................ 1,000,000 32.53
Chairman and Chief Executive
Officer
Joseph M. Zelayeta......................................... 300,000 29.44
Executive Vice President,
Worldwide Operations
John P. Daane.............................................. 400,000 29.44
Executive Vice President,
Communications Products Group
R. Douglas Norby........................................... 200,000 29.44
Executive Vice President and
Chief Financial Officer
John D'Errico.............................................. 250,000 29.44
Executive Vice President,
Storage Components and
Colorado Operations
All current executive officers as a group.................. 2,710,000 30.29
All other employees as a group............................. 8,376,840 19.71
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1991
EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER.
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board has selected PricewaterhouseCoopers LLP, independent accountants,
to audit the consolidated financial statements of the Company for its 2000
fiscal year and recommends that the stockholders vote for ratification of such
appointment. If there is a negative vote on such ratification, the Board will
reconsider its selection. PricewaterhouseCoopers LLP (or its predecessor) has
audited the Company's consolidated financial statements since the fiscal year
ended December 31, 1981. Representatives of PricewaterhouseCoopers LLP are
expected to be present at the annual meeting with the opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS FOR THE
2000 FISCAL YEAR.
16
<PAGE> 19
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table shows, as to (i) the Chief Executive Officer, and (ii)
each of the four other most highly compensated executive officers whose salary
plus bonus exceeded $100,000 in 1999 (the "Named Executive Officers"),
information concerning all reportable compensation awarded to, earned by or paid
to each for services to us in all capacities during the fiscal year ended
December 31, 1999, as well as such compensation for each such individual for our
previous two fiscal years (if such person was an executive officer during any
part of such previous fiscal year). The number of option shares has been
adjusted for the two-for-one stock split effective February 4, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
----------------------------- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) (#)(1) ($)(2)
--------------------------- ---- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Wilfred J. Corrigan....................... 1999 $787,897 $1,400,000 1,000,000 $ 7,686
Chairman and Chief Executive 1998 $744,238 $ 375,000 1,000,000 $ 9,450
Officer 1997 $704,231 $ 375,000 600,000 $ 19,911
Joseph M. Zelayeta........................ 1999 $381,086 $ 500,000 300,000 $ 2,982
Executive Vice President, 1998 $360,968 $ 130,000 70,000 $ 3,722
Worldwide Operations 1997 $304,423 $ 170,000 140,000 $ 19,785
John P. Daane............................. 1999 $365,584 $ 500,000 400,000 $ 840
Executive Vice President, 1998 $329,238 $ 150,000 400,000 $ 727
Communications Products Group 1997 $230,000 $ 200,000 200,000 $ 4,884
R. Douglas Norby.......................... 1999 $354,625 $ 400,000 200,000 $ 7,686
Executive Vice President and 1998 $334,623 $ 110,000 150,000 $ 9,450
Chief Financial Officer 1997 $314,615 $ 150,000 60,000 $187,530
John D'Errico(3).......................... 1999 $313,167 $ 400,000 250,000 $ 4,956
Executive Vice President, 1998 $267,507 $ 90,000 120,000 $ 5,255
Storage Components and
Colorado Operations
</TABLE>
- ---------------
(1) The Company has not granted any stock appreciation rights.
(2) "All Other Compensation" for 1999 consists solely of group life insurance.
(3) Mr. D'Errico was named an executive officer of the Company in August 1998.
CHANGE-IN-CONTROL AGREEMENTS
The Company is a party to agreements with Mr. Wilfred J. Corrigan and each
of the other Named Executive Officers to ensure the continued services of
management to the Company in the event of a change in control. In November 1998,
the Company entered into a change of control agreement with Wilfred J. Corrigan,
the Company's Chairman of the Board and Chief Executive Officer. Under the
agreement, benefits are payable only upon a change in control of the Company,
which is deemed to have occurred in the event of (1) the consummation by the
Company of a merger or consolidation of the Company with any other corporation,
other than merger or consolidation that would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent more
than 50% of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation; (2) the approval by the shareholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets; or (3) any
person becoming the beneficial owner, directly or indirectly, of securities of
the Company representing 50% or more of the total voting power represented by
the Company's then outstanding voting securities. Upon a change of control, Mr.
Corrigan will receive a lump sum payment
17
<PAGE> 20
equal to three years' base salary plus 300% of his target bonus for the year in
which the change of control occurs. In addition, the vesting and exercisability
of all unvested options that were granted at least six months prior to the
change of control shall be accelerated automatically and shall be fully vested
and exercisable as of the date of the change of control. The Company shall also
provide Mr. Corrigan with health-care benefits for a period not to exceed two
years following the termination of employment. This agreement shall terminate
five years following the effective date unless a change of control occurs, in
which case the agreement shall terminate upon the date that all obligations of
the parties have been satisfied.
Under the agreements, if the executive officer's employment is terminated
involuntarily at any time within 12 months after a change of control, the
executive officer will receive a lump sum payment equal to the sum of two years'
base salary plus 200% of the executive officer's target bonus for the year in
which the change of control occurs and continued health-care benefits during the
two years following the termination. In addition, the vesting and exercisability
of all options that were granted at least six months prior to the change of
control shall be automatically accelerated and fully vested and exercisable at
the date of the involuntary termination. These agreements shall terminate five
years following their effective dates, unless a change of control occurs, in
which case, the agreements shall terminate upon the date that all obligations of
the parties have been satisfied.
STOCK OPTION GRANTS AND EXERCISES
The following tables set forth information with respect to the stock
options granted to the Named Executive Officers under our stock option plans,
the options exercised by such Named Executive Officers during the fiscal year
ended December 31, 1999 and the options held by the Named Executive Officers at
December 31, 1999.
The Option Grants Table sets forth hypothetical gains or "option spreads"
for the options at the end of their respective ten-year terms, as calculated in
accordance with the rules of the Securities and Exchange Commission. Each gain
is based on an arbitrarily assumed annualized rate of compound appreciation of
the market price of 5% and 10% from the date the option was granted to the end
of the option term and does not represent our projection of future stock price
performance. Actual gains, if any, on option exercises are dependent on the
future performance of our common stock and overall market conditions. The number
of option shares and exercise prices have been adjusted for the February 2000
stock split.
OPTION(1) GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
GRANTED IN EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME FISCAL YEAR(#)(2) FISCAL YEAR(3) ($/SHARE) DATE 5%($) 10%($)
---- -------------------- -------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Wilfred J. Corrigan......... 1,000,000 5.33 $32.531 11/11/2009 $20,458,728 $51,846,434
Joseph M. Zelayeta.......... 300,000 1.60 $29.438 8/13/2009 $ 5,553,926 $14,074,738
John P. Daane............... 400,000 2.13 $29.438 8/13/2009 $ 7,405,234 $18,766,317
R. Douglas Norby............ 200,000 1.07 $29.438 8/13/2009 $ 3,702,617 $ 9,383,159
John D'Errico............... 250,000 1.33 $29.438 8/13/2009 $ 4,628,271 $11,728,948
</TABLE>
- ---------------
(1) The Company has not granted any stock appreciation rights.
(2) All options shown in the table were granted under the 1991 Equity Incentive
Plan. The material terms of the options are: (a) The exercise price of the
options is the fair market value of the common stock as of the date of
grant, split adjusted; (b) The options vest cumulatively in equal 25%
increments on each of the first four anniversaries of the date of grant; (c)
To the extent unexercised, the options lapse after ten years; (d) The
options are non-transferable and are only exercisable during the period of
employment of the optionee (or within three months following termination of
employment), subject to limited exceptions in the cases of certain
terminations, death or permanent disability of the optionee. These options
are subject to acceleration of exercisability in certain events. See
"Change-in-Control Agreements" above.
(3) Based on options granted to all employees in 1999 to purchase an aggregate
of 18,772,090 shares.
18
<PAGE> 21
AGGREGATED OPTION(1) EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE(1) OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END($)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wilfred J. Corrigan.............. -0- $ -0- 3,600,000 2,050,000 $78,254,688 $25,270,313
Joseph M. Zelayeta............... 80,000 $1,957,000 455,500 462,500 $11,220,672 $ 4,844,766
John P. Daane.................... 100,000 $1,615,125 384,000 860,000 $ 8,405,781 $12,221,719
R. Douglas Norby................. 240,000 $3,618,750 328,750 496,250 $ 6,431,562 $ 7,112,812
John D'Errico.................... 110,000 $2,481,806 975,000 377,500 $ 2,030,156 $ 4,027,969
</TABLE>
- ---------------
(1) Value of unexercised options is based on the difference between the fair
market value of Company's common stock of $33.75 per share as of December
31, 1999 (the last day of the last completed fiscal year) and the exercise
price of the unexercised in-the-money options, split adjusted.
OTHER TRANSACTIONS
In 1998, the Company loaned $400,000 to Elias J. Antoun, then an executive
officer, to assist in the purchase of his home on relocation from an assignment
abroad. The term of the loan was five years and it bore interest at an annual
rate of six percent. The note was secured by a deed of trust. The largest
principal amount outstanding under the note in 1999 was $400,000 and there was
no amount outstanding at December 31, 1999, as the outstanding balance on the
loan plus accrued interest was paid in full prior to his resignation in January
2000.
BOARD COMPENSATION COMMITTEE REPORT ON CEO AND OTHER
EXECUTIVE OFFICER COMPENSATION FOR LSI LOGIC CORPORATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee (the "Committee") of the Board of Directors
establishes the overall executive compensation strategies of the Company and
approves compensation elements for the chief executive officer and other
executive officers. The Committee periodically reviews its approach to executive
compensation.
The Committee is comprised of all outside, non-employee members of the
Board of Directors (four), none of whom has any interlocking relationships as
defined by the Securities and Exchange Commission. The Committee has available
to it such external compensation advice and data as the Committee deems
appropriate to obtain.
The compensation philosophy of the Committee is to provide a comprehensive
compensation package for each executive officer that is well suited to support
accomplishment of the Company's business strategies, objectives and initiatives.
For incentive-based compensation, the Committee considers the desirability of
structuring such compensation arrangements so as to qualify for deductibility by
the Company under Section 162(m) of the Internal Revenue Code, as amended. As
the Committee applies this compensation philosophy in determining appropriate
executive compensation levels and other compensation factors, the Committee
reaches its decisions with a view towards the Company's overall financial
performance.
19
<PAGE> 22
EXECUTIVE OFFICER COMPENSATION
The Committee's approach is based upon a belief that a substantial portion
of aggregate annual compensation for executive officers should be contingent
upon the Company's performance and an individual's contribution to the Company's
success. In addition, the Committee strives to align the interests of the
Company's executive officers with the long-term interests of shareholders
through stock option grants that can result in ownership of the Company's Common
Stock. The Committee endeavors to structure each executive officer's overall
compensation package to be consistent with this approach and to enable the
Company to attract, retain and reward individuals who contribute to the success
of the Company.
The Company's compensation program for executive officers is based on the
following guidelines:
- Establishment of base salary levels and participation in generally
available employee benefit programs based on competitive compensation
package practices.
- Utilization of a performance-based, cash incentive plan.
- Inclusion of equity opportunities that create long-term incentives based
upon increases in shareholder return.
The Company had a cash incentive plan during 1999 that provided for bonus
awards to be made to the executive officers (other than the CEO) and other
members of senior management subject to an aggregate budget for all awards under
the plan. The plan established a minimum level of operating income to be
achieved by the Company for the year 1999 before any payments would be made
under the plan. The plan also allowed upward adjustments in awards to be made if
the minimum operating income target was exceeded. In addition, the plan provides
for the CEO to determine individual bonus award amounts pursuant to his judgment
of each participant's personal contributions to the Company's performance for
the year, subject to the approval of the Committee of awards to executive
officers. The Company's operating income for 1999 exceeded the threshold target
established under the plan. Accordingly, awards were made to individual
executive officers consistent with the plan's provisions regarding the Company's
performance and the personal contributions of each executive officer. The total
of all payments under the plan was within the budget approved previously by the
Committee.
During 1999, the Committee approved a budget for increases in the base
salary levels of executive officers, which reflected the compensation guidelines
described previously in this report. Increases in base salary amounts for
individual executive officers were then made pursuant to the chief executive
officer's judgment and discretion in satisfying the Company's compensation
philosophy set forth above. The aggregate of such adjustments was within the
budget that had been approved by the Committee. The general level of
compensation of the Company's executive officers is in the median of ranges of
compensation information sources against which the Company makes competitive
comparisons.
The Company maintains a set of guidelines for use in making recommendations
to the Committee on individual grants to executive officers of options to
purchase Common Stock of the Company. Stock option grants were made to executive
officers during 1999 by reference to the guidelines. These guidelines are
developed by reference to external published surveys and other information that
are believed to fairly reflect the competitive environment in which the Company
operates and that are consistent with the compensation principles set forth
above.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Corrigan has been CEO of the Company since its founding in 1981. His
annual base salary prior to the beginning of fiscal 1999 was $755,000. During
1999, the Committee considered information regarding competitive compensation
practices and levels for chief executive officers, the above described approach
to compensation for executive officers and the Committee's assessment of Mr.
Corrigan's contribution to the Company's performance. Based upon such factors,
the Committee increased Mr. Corrigan's annual base salary to $800,000. The base
salary established by the Committee for Mr. Corrigan falls in the median of the
range of such information used for competitive comparisons.
20
<PAGE> 23
The Committee awarded Mr. Corrigan a cash bonus in the amount of
$1,400,000, in respect to the Company's performance during 1999 and Mr.
Corrigan's contributions as chief executive officer. The foregoing is a
performance-based bonus within the meaning of Section 162(m) of the Internal
Revenue Code and is therefore deductible by the Company. The Committee based its
evaluation of Mr. Corrigan's performance for purposes of determining the amount
of this award pursuant to the operating income objectives that were established
in accordance with terms of the performance-based bonus compensation plan for
the Company's Chief Executive Officer.
Mr. Corrigan was granted an option to purchase 1,000,000 shares of the
Company's Common Stock during 1999. The Committee determined this portion of Mr.
Corrigan's total compensation after consideration of the compensation principles
set forth above. Also, the Committee considered external published survey data
and other information sources that it believes fairly reflect competitive equity
incentive practices for chief executive officers of public traded companies
against which the Company's practices for the CEO should be compared.
The Committee believes Mr. Corrigan has managed the Company well, and has
achieved distinguished results, which is reflected by the Company's key
financial metrics such as revenue, gross margin and operating income and net
income as well as through successful execution of strategic initiatives.
MEMBERS OF THE COMPENSATION COMMITTEE
James H. Keyes
T.Z. Chu
Malcolm R. Currie
Matthew O'Rourke (since May 1999)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are set forth in the preceding
section as well as in Proposal One. There are no members of the Compensation
Committee who were officers or employees of the Company or any of its
subsidiaries during the fiscal year, were formerly officers of the Company, or
had any relationship otherwise requiring disclosure hereunder.
21
<PAGE> 24
PERFORMANCE GRAPH
The stock price performance shown on the graph following is not necessarily
indicative of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG LSI LOGIC CORPORATION*, S&P 500 INDEX
AND THE PHILADELPHIA SEMICONDUCTOR INDEX
<TABLE>
<CAPTION>
PHILADELPHIA SEMICONDUCTOR
LSI LOGIC CORPORATION S & P 500 INDEX INDEX
--------------------- --------------- --------------------------
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 162.23 134.11 143.24
1996 132.51 161.29 171.53
1997 97.21 216.54 188.19
1998 79.88 267.64 250.24
1999 334.37 319.92 502.93
</TABLE>
* During 1997, the Company changed its fiscal year to a straight calendar year
from a 52/53 week fiscal year that ended on the Sunday closest to December 31.
Prior to the change, the Company's last trading day of its fiscal year may
have varied. For consistent presentation and comparison to the industry
indices shown herein, the Company has calculated its stock performance graph
assuming a December 31 year-end.
22
<PAGE> 25
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and persons who own more than ten percent of a registered class of our
equity securities to file reports of security ownership and changes in such
ownership with the Securities and Exchange Commission (the "SEC") and the New
York Stock Exchange. Executive officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file.
Based solely on our review of the copies of such forms received by us and
written representations received from those reporting persons known by us to be
subject to filing requirements, we believe that all required Section 16(a)
reports were timely filed during 1999.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend. Under the Company's bylaws, in order to be
deemed properly presented, notice must be delivered to the Secretary of the
Company at the principal executive offices of the Company no less than 60 days
nor more than 90 days prior to the Annual Meeting, provided, however, if less
than 65 days' notice of the date of the Annual Meeting has been given to
stockholders, notice by the stockholder to be timely must be delivered to the
Company not later than the close of business on the seventh day following the
day on which such notice of the Annual Meeting was mailed. The stockholder's
notice must set forth, as to each proposed matter: (a) a reasonably detailed
description of the business and reason for conducting such business at the
meeting; (b) the name and address as they appear on the Company's books of the
stockholder proposing such business, or the name of the beneficial holder or
other party on whose behalf the proposal is made; (c) the class and number of
shares of the Company owned by the stockholder or beneficial holder or other
party on whose behalf the proposal is made; and (d) any material interest of the
stockholder or beneficial holder or other party on whose behalf the proposal is
made in such business.
THE BOARD OF DIRECTORS
March 24, 2000
23
<PAGE> 26
EXHIBIT 1
LSI LOGIC CORPORATION
1991 EQUITY INCENTIVE PLAN
AMENDED AND RESTATED
1. Purpose of the Plan. The purpose of the LSI Logic Corporation 1991
Equity Incentive Plan (the "Plan") is to enable LSI Logic Corporation (the
"Company") to provide an incentive to eligible employees, including officers,
and consultants whose present and potential contributions are important to the
continued success of the Company, to afford them an opportunity to acquire a
proprietary interest in the Company, and to enable the Company to enlist and
retain in its employ the best available talent for the successful conduct of its
business. It is intended that this purpose will be effected through the granting
of stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Award" means any Option granted.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee or Committees referred to in
Section 5 of the Plan. If at any time no Committee shall be in office, then the
functions of the Committee specified in the Plan shall be exercised by the
Board.
(e) "Common Stock" means the Common Stock, $0.01 par value (as
adjusted from time to time), of the Company.
(f) "Company" means LSI Logic Corporation, a corporation organized
under the laws of the state of Delaware, or any successor corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services for its
benefit and is compensated for such services, provided the term Consultant shall
not include directors who are not compensated for their services or are paid
only a director's fee by the Company.
(h) "Director" means a member of the Board.
<PAGE> 27
(i) "Disability" means a disability, whether temporary or permanent,
partial or total, as defined in Section 22(e)(3) of the Code.
(j) "Employee" means any person, including officers and directors,
employed by the Company or any Subsidiary, provided the term Employee shall not
include non-employee directors and the payment of directors' fees by the Company
shall not be sufficient to constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) if such Common Stock shall then be listed on a national
securities exchange, the closing sales price (or the closing bid, if no sales
were reported) as quoted on the principal national securities exchange on which
the Common Stock is listed or admitted to trading, or
(ii) the closing sales price (or the closing bid, if no sales
were reported) as quoted on the NASDAQ National Market System, or
(iii) if such Common Stock shall not be quoted on such National
Market System nor listed or admitted to trading on a national securities
exchange, then the average of the closing bid and asked prices, as reported by
The Wall Street Journal for the over-the-counter market, or
(iv) if none of the foregoing is applicable, then the Fair Market
Value of a share of Common Stock shall be determined by the Board of Directors
of the Company in its discretion.
(m) "Incentive Stock Option" means an Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
(n) "Nonstatutory Stock Option" means any Option that is not an
Incentive Stock Option.
(o) "Option" means any option to purchase shares of Common Stock
granted pursuant to Section 7 below.
(p) "Optionee" means any holder of an Option.
2
<PAGE> 28
(q) "Outside Director" means a Director who is not an Employee of the
Company.
(r) "Plan" means this 1991 Equity Incentive Plan, as hereinafter
amended from time to time.
(s) "Senior Management Employees" means Employees who are executive
officers or vice presidents of the Company.
(t) "Subsidiary" means a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or by a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or by a Subsidiary.
In addition, the terms "Tax Date" and "Insiders" shall have meanings set
forth in Section 8.
3. Eligible Participants. Any Employee or Consultant of the Company or of
a Subsidiary whom the Committee deems to have the potential to contribute to the
future success of the Company shall be eligible to receive Awards under the
Plan; provided, however, that any Options intended to qualify as Incentive Stock
Options shall be granted only to Employees of the Company or its Subsidiaries.
4. Stock Subject to the Plan. Subject to Sections 9 and 10, the total
number of shares of Common Stock reserved and available for distribution
pursuant to the Plan shall be 72,500,000 shares, subject to stockholder approval
at the 2000 Annual Meeting of Stockholders. Subject to Sections 9 and 10 below,
if any shares of Common Stock that have been optioned under an Option cease to
be subject to such Option Award granted hereunder are forfeited or repurchased
or any such award otherwise terminates without a payment being made to the
participant in the form of Common Stock, such shares shall again be available
for distribution in connection with future Awards under the Plan.
5. Administration.
(a) Procedure. The Plan shall be administered by the Board or a
Committee designated by the Board to administer the Plan, which Committee shall
be constituted to permit the Plan to comply with Rule 16b-3 promulgated under
the Exchange Act, or any successor rule thereto ("Rule 16b-3"). If permitted by
Rule 16b-3, the Plan may be administered by different bodies with respect to
Employees who are
3
<PAGE> 29
Directors, Senior Management Employees, or Employees who are neither directors
nor officers and Consultants.
Once appointed, a Committee shall continue to serve until otherwise
directed by the Board. From time to time the Board may change the size of a
Committee, appoint additional members thereof, remove members (with or without
cause), appoint new members in substitution therefor, fill vacancies, however
caused and remove all members of a Committee and thereafter directly administer
the Plan, all to the extent permitted by Rule 16b-3. As used herein, except in
Sections 10, 12 and 17, reference to Committee shall mean such Committee or the
Board, whichever is then acting with respect to the Plan.
(b) Authority. Subject to the general purposes, terms, and conditions
of the Plan, and to the direction of the Board, the Committee, if there be one,
shall have full power to implement and carry out the Plan including, but not
limited to, the following:
(i) to select the Employees and Consultants of the Company
and/or its Subsidiaries to whom Options may from time to time be granted
hereunder;
(ii) to determine whether and to what extent Options are to be
granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each such Award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions regarding any
Option and/or the shares of Common Stock relating thereto, based in each
case on such factors as the Committee shall determine, in its sole
discretion);
(vi) to determine whether and under what circumstances an Option
may be settled in cash instead of Common Stock;
(vii) to determine the form of payment that will be acceptable
consideration for exercise of an Option granted under the Plan;
4
<PAGE> 30
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an
Award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining the
amount (if any) of any deemed earnings on any deferred amount during any
deferral period);
Shareholder approval shall be required to reduce the exercise price of
any Option. For grants of Incentive Stock Options only, any other material
amendments to the Plan shall require shareholder approval. The Committee shall
have the authority to construe and interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan.
6. Duration of the Plan. The Plan shall remain in effect until terminated
by the Board under the terms of the Plan, provided that in no event may
Incentive Stock Options be granted under the Plan later than March 8, 2001, 10
years from the date the Plan was adopted by the Board.
7. Stock Options. The Committee, in its discretion, may grant Options to
eligible participants and shall determine whether such Options shall be
Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a written Option agreement which shall expressly identify the
Option as an Incentive Stock Option or as a Nonstatutory Stock Option, and shall
be in such form and contain such provisions as the Committee shall from time to
time deem appropriate. Option agreements shall contain the following terms and
conditions:
(a) Option Price; Number of Shares. The Option price, which shall be
approved by the Committee, may not be less than the Fair Market Value of the
Common Stock at the time the Option is granted.
The Option agreement shall specify the number of shares of Common
Stock to which it pertains.
(b) Waiting Period until Option Vesting and Exercise Dates. At the
time an Option is granted, the Committee will determine the terms and conditions
to be satisfied before shares may be purchased, including the dates on which the
right to purchase shares subject to the Option will vest and such shares may
first be purchased. The Committee may specify that an Option may not be
exercised until the completion of the waiting period specified at the time of
grant. (Any such period is referred to herein as the "Initial Vesting Period.")
At the time an Option is granted, the Committee shall fix the period within
which such Option may be exercised, which shall
5
<PAGE> 31
not be less than the Initial Vesting Period, if any, nor, in the case of an
Incentive Stock Option, more than 10 years from the date of grant.
(c) Form of Payment. The consideration to be paid for the shares of
Common Stock to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Committee (and, in the case of an Incentive
Stock Option, shall be determined at the time of grant) and may consist entirely
of (i) cash, (ii) check, (iii) promissory note, (iv) other shares of Common
Stock which (x) either have been owned by the Optionee for more than six months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the shares as to which said Option shall be
exercised, (v) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, (vi)
delivery of an irrevocable subscription agreement for the shares which obligates
the option holder to take and pay for the shares not more than 12 months after
the date of delivery of the subscription agreement, (vii) any combination of the
foregoing methods of payment, or (viii) such other consideration and method of
payment for the issuance of shares to the extent permitted under the Delaware
General Corporation Law.
(d) Effect of Termination of Employment or Death or Disability of
Employee Participants.
(i) Termination of Employment in General. In the event that an
Optionee during his or her lifetime ceases to be an Employee of the Company or
of any Subsidiary for any reason, other than misconduct of the Optionee,
including retirement, any Option, including any unexercised portion thereof,
which was otherwise exercisable on the date of termination of employment, shall
expire in accordance with the following provisions:
(A) Nonstatutory Stock Options shall expire unless
exercised within such time period as is determined by the Committee; which shall
be ninety (90) days from the date the Optionee ceases to be an Employee unless
the Committee has specified another time period prior to the expiration of such
ninety (90) day period; and
(B) Incentive Stock Options shall expire unless exercised
within a period of ninety (90) days from the date on which the Optionee ceased
to be an Employee (or such lesser period as is set out in Option agreement),
6
<PAGE> 32
Notwithstanding the foregoing, the period of exercisability
provided for above, as applicable shall in no event continue after the
expiration of the term of such Option as set forth in the Option agreement.
(ii) Misconduct: If in any case the Committee shall determine
that an Employee or Consultant shall have been discharged due to the Employee's
or Consultant's misconduct (as defined below) such Employee or Consultant, as
the case may be, shall not thereafter have any rights under the Plan or any
Option that shall have been granted to him or her under the Plan. For purposes
of the Plan, "misconduct" means conduct for which the Company's determines to
terminate the employment of an Employee or to terminate any Consultant's
arrangements with the Company that constitutes (i) willful breach or neglect of
duty; (ii) failure or refusal to work or to comply with the Company's rules,
policies, and practices; (iii) dishonesty; (iv) insubordination; (v) being under
the influence of drugs (except to the extent medically prescribed) or alcohol
while on duty or on Company premises; (vi) conduct endangering, or likely to
endanger, the health or safety of another Employee, any other person or the
property of the Company; or (vii) conviction of a felony.
(iii) Termination of Employment due to Disability or Death. In
the event of the death or permanent, total Disability of an Optionee during the
period of employment, that portion of the Option which had become exercisable as
of the date of death or permanent, total Disability shall be exercisable by the
employee or his or her personal representatives, heirs, or legatees within 12
months of the date of death or permanent, total Disability or such time period
as is determined by the Committee (but in the case of an Incentive Stock Option,
in no event no more than 12 months after the date of death or permanent, total
Disability or after the expiration of the term of such Option as set forth in
the Option agreement.) In the event of the death of an Optionee within three
months after termination of employment, that portion of the Option which had
become exercisable as of the date of termination shall be exercisable by his or
her personal representatives, heirs, or legatees within six months of the date
of death or such time period as is determined by the Committee (but in the case
of an Incentive Stock Option, in no event after the expiration of the term of
such Option as set forth in the Option agreement.) In the event that an Optionee
ceases to be an Employee of the Company or of any Subsidiary for any reason,
including death, Disability or retirement, prior to the lapse of the Initial
Vesting Period, if any, his or her Option shall terminate and be null and void
to the extent the requirement for such Initial Vesting Period has not been
satisfied.
(e) Leave of Absence. The employment relationship shall not be
considered interrupted in the case of: (i) sick leave, military leave or any
other leave of absence approved by the Board; provided that any such leave is
for a period of not more than 90 days, unless reemployment upon the expiration
of such leave is
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<PAGE> 33
guaranteed by contract, statute or pursuant to formal policy adopted from time
to time by the Company and issued and promulgated to Employees in writing, or
(ii) in the case of transfer between locations of the Company or between the
Company, its Subsidiaries or its successor. In the case of any Employee on an
approved leave of absence, the Committee may make such provisions respecting
suspension of vesting of the Option while on leave from the employ of the
Company or a Subsidiary as it may deem appropriate, if any, except that in no
event shall an Option be exercised after the expiration of the term set forth in
the Option agreement.
(f) Acceleration of Vesting or Initial Vesting Period. The Committee
may accelerate the earliest date on which outstanding Options (or any
installments thereof) are exercisable.
(g) Special Incentive Stock Option Provisions. In addition to the
foregoing, Options granted to Employees under the Plan which are intended to be
Incentive Stock Options under Section 422 of the Code shall be subject to the
following terms and conditions:
(i) Dollar Limitation. To the extent that the aggregate Fair
Market Value of the shares of Common Stock with respect to which Options
designated as Incentive Stock Options become exercisable for the first time
by any individual during any calendar year (under all plans of the Company)
exceeds $100,000, such Options shall be treated as Nonstatutory Stock
Options. For purposes of the preceding sentence, (i) Options shall be taken
into account in the order in which they were granted and (ii) the Fair
Market Value of the shares shall be determined as of the time the Option
with respect to such shares was granted.
(ii) 10% Stockholder. If any person to whom an Incentive Stock
Option is to be granted pursuant to the provisions of the Plan is, on the
date of grant, the owner of Common Stock (as determined under Section
425(d) of the Code) possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Subsidiary, then the
following special provisions shall be applicable to the Option granted to
such individual:
(A) The Option price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the Fair
Market Value of the Common Stock on the date of grant; and
(B) The Option shall not have a term in excess of five
years from the date of grant.
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<PAGE> 34
Except as modified by the preceding provisions of this Subsection 7(g) and
except as otherwise required by Section 422 of the Code, all of the provisions
of the Plan shall be applicable to the Incentive Stock Options granted
hereunder.
(h) Other Provisions. Each Option granted under the Plan may contain
such other terms, provisions, and conditions not inconsistent with the Plan as
may be determined by the Committee.
(i) Options to Consultants. Except as set forth in Section 7(d)(ii),
Options granted to Consultants shall not be subject to Section 7(d) of the Plan,
but shall have such terms and conditions pertaining to the Initial Vesting
Period (if any), exercise date, and effect of termination of the consulting
relationship as the Committee shall determine in each case. Unless otherwise
stated, termination of the consulting relationship shall be deemed to have
occurred at the completion of the consulting project for which Consultant was
engaged at the time of the grant or termination of the Consulting Agreement, if
earlier.
(j) Buyout Provisions. The Committee may at any time offer to buy out
for a payment in cash or Common Stock, an Option previously granted, based on
such terms and conditions as the Committee shall establish and communicate to
the Optionee at the time that such offer is made.
(k) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall be deemed to contain
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
(l) Limits. The following limitations shall apply to grants of
Options to employees:
(i) No employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 750,000 Shares.
(ii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's
capitalization or organization as described in Sections 9
and 10.
(iii) If an Option grant made under the Plan is canceled in the
same fiscal year of the Company in which it was granted
(other than in connection with a transaction described in
Section 9 or Section 10), the canceled Option grant will be
counted against the
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<PAGE> 35
limit set forth in Section 7(l)(i), above. For this purpose,
if the exercise price of an Option grant is reduced, the
transaction will be treated as a cancellation of the Option
grant and the grant of a new Option.
8. Withholding Taxes; Stock Withholding to Satisfy Withholding Tax
Obligations. Whenever, under the Plan, shares are to be issued in satisfaction
of Options granted hereunder, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy federal,
state, and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. Whenever, under the Plan, payments
are to be made in cash, such payment shall be net of an amount sufficient to
satisfy federal, state, and local withholding tax requirements.
When a participant incurs tax liability in connection with the exercise or
vesting of any Option, which tax liability is subject to tax withholding under
applicable tax laws, and the participant is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the participant may
satisfy the withholding tax obligation by electing to have the Company withhold
from the shares to be issued that number of shares having a Fair Market Value
equal to the amount required to be withheld determined on the date that the
amount of tax to be withheld is to be determined (the "Tax Date").
All elections by participant to have shares withheld for this purpose
shall be made in writing in a form acceptable to the Committee and shall be
subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date;
(ii) once made, the election shall be irrevocable as to the
particular shares as to which the election is made;
(iii) all elections shall be subject to the disapproval of the
Committee; and
(iv) if the participant is an officer or Director of the Company
or other person whose transactions in Common Stock are
subject to Section 16(b) of the Exchange Act (collectively
"Insiders"), the election may not be made during such time
or times, if any, as are restricted by Rule 16b-3 or any
successor provision.
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<PAGE> 36
9. Recapitalization. In the event that dividends are payable in Common
Stock or in the event there are splits, subdivisions, or combinations of shares
of Common Stock, the number of shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number of
shares of Common Stock deliverable in connection with any Option theretofore
granted shall be increased or decreased proportionately, as the case may be,
without change in the aggregate purchase price (where applicable).
10. Reorganization. In case the Company is merged or consolidated with
another corporation and the Company is not the surviving corporation, or in case
the property or stock of the Company is acquired by another corporation, or in
case of separation, reorganization, or liquidation of the Company, then the
Board, or the board of directors of any corporation assuming the obligations of
the Company hereunder, shall, as to outstanding Options either (a) make
appropriate provision for the protection of any such outstanding Options by the
assumption or substitution on an equitable basis of appropriate stock of the
Company or of the merged, consolidated, or otherwise reorganized corporation
which will be issuable in respect to the shares of Common Stock, provided that
in the case of Incentive Stock Options, such assumption or substitution comply
with Section 424 of the Code, or (b) upon written notice to the participant,
provide that the Option must be exercised within 30 days of the date of such
notice or it will be terminated. In any such case, the Board or the Committee
may, in its discretion, advance the lapse of vesting periods, Initial Vesting
Periods, and exercise dates.
11. Employment Relationship. Nothing in the Plan or any Award made
hereunder shall be construed as a contract for employment or consulting for any
period or shall interfere with or limit in any way the right of the Company or
of any Subsidiary to terminate any recipient's employment or consulting
relationship at any time, with or without cause, nor confer upon any recipient
any right to continue in the employ or service of the Company or any Subsidiary.
12. General Restriction. Each Award shall be subject to the requirement
that, if, at any time, the Board shall determine, in its discretion, that the
listing, registration, or qualification of the shares subject to such Award upon
any securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, such Award or the issue or purchase of
shares thereunder, such Award may not be exercised in whole or in part unless
such listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board.
13. Rights as a Stockholder. The holder of an Option shall have no rights
as a stockholder with respect to any shares covered by the Option until the date
of
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<PAGE> 37
exercise. Once an Option is exercised by the holder thereof, the participant
shall have the rights equivalent to those of a stockholder, and shall be a
stockholder when his or her holding is entered upon the records of the duly
authorized transfer agent of the Company. Except as otherwise expressly provided
in the Plan, no adjustment shall be made for dividends or other rights for which
the record date is prior to the date such stock certificate is issued.
14. Nonassignability of Awards. Awards made hereunder shall not be
assignable or transferable by the recipient in accordance with their terms,
except to the extent permitted by the tax and securities laws, including by will
or by the laws of descent and distribution, and as otherwise consistent with the
specific Plan provisions relating thereto.
15. Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board, the submission of the Plan to the stockholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
16. Amendment, Suspension, or Termination of the Plan. The Board may at
any time amend, alter, suspend, or discontinue the Plan, but no amendment,
alteration, suspension, or discontinuation shall be made which would impair the
rights of any participant in the Plan without his or her consent. In addition,
to the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or under Section 423 of the Code (or any other applicable law or
regulation), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
17. Effective Date of the Plan. The Amended and Restated Plan is
effective upon adoption by the Board and shall be subject to stockholder
approval within 12 months of adoption by the Board. Options may be granted and
exercised under the Plan only after there has been compliance with all
applicable federal and state securities laws.
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EXHIBIT 2
LSI LOGIC CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
AMENDED AND RESTATED
The following constitutes the provisions of the Employee Stock Purchase
Plan (the "Plan") of LSI Logic Corporation amended and restated effective March
31, 1999.
1. PURPOSE. The purpose of the Plan is to provide employees of the Company and
its Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company through accumulated payroll deductions. It is the intention of the
Company that the Plan qualify as an "Employee Stock Purchase Plan" under Section
423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan
shall, accordingly, be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company, or to the extent
authorized by the Board, a Committee of the Board.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means LSI Logic Corporation and any Designated Subsidiary of
the Company.
(e) "Compensation" means all regular straight time earnings, exclusive of
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses, commissions and other compensation.
(f) "Designated Subsidiary" means any Subsidiary which has been designated
by the Board from time to time in its sole discretion as eligible to participate
in the Plan.
(g) "Employee" means any individual who is an Employee of the Company for
tax purposes whose customary employment with the Company is at least 20 hours
per week and more than five months in a calendar year. For purposes of the Plan,
the employment relationship will be treated as continuing intact while the
individual is on sick leave or other leave of absence approved in writing by the
Company. Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
It shall not include any independent contractors providing services to the
Company or its Subsidiaries, regardless of the length of such service.
(h) "Enrollment Date" means the first Trading Day of each Offering Period.
<PAGE> 39
(i) "Exercise Date" means the last Trading Day of each Purchase Period.
(j) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(1) If the Common Stock is listed on any established stock exchange
or a national market system, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or system for the last market trading day on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable; or
(3) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(k) "Offering Periods" means a period of approximately 12 months during
which an option granted pursuant to the Plan may be exercised as further
described in Section 4, except that the Offering Period that began October 1,
1998 will end on September 29, 2000. The duration and timing of Offering Periods
may be changed pursuant to Sections 4 and 20 of this Plan.
(l) "Plan" means this Amended and Restated Employee Stock Purchase Plan.
(m) "Purchase Period" means the approximately six-month period commencing
after one Exercise Date and ending with the next Exercise Date, except that the
first Purchase Period of any Offering Period will commence on the Enrollment
Date and end with the next Exercise Date.
(n) "Purchase Price" means 85% of the Fair Market Value of a share of
Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower;
provided, however, that with respect to the Offering Periods commencing on or
after January 1, 1999, unless otherwise directed by the Board, if the Fair
Market Value of a share of Common Stock on the date on which additional shares
of Common Stock (the "New Shares") are authorized for issuance hereunder by the
Company's stockholders (the "Authorization Date") is higher than the Fair Market
Value of a share of Common Stock on the Enrollment Date of any outstanding
Offering Period that commenced prior to the Authorization Date, the Purchase
Price for only New Shares to be issued on any remaining Exercise Date of any
Offering Period in effect on the Authorization Date shall be 85% of the Fair
Market Value of a share of Common Stock on the Authorization Date or on the
Exercise Date, whichever is lower. The Purchase Price may be adjusted by the
Board pursuant to Section 20.
(o) "Reserves" means the number of shares of Common Stock covered by each
option under the Plan which have not yet been exercised and the number of shares
of Common Stock that have been authorized for issuance under the Plan but not
yet placed under option.
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<PAGE> 40
(p) "Subsidiary" means any corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(q) "Trading Day" means a day on which national stock exchanges and the
Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who is employed by the Company on a given Enrollment Date
shall be eligible to participate in the Plan, subject to the requirements of
Section 5(a) and the limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
ownership would be attributed to such Employee pursuant to Section 424(d) of the
Code) would own capital stock and/or hold outstanding options to purchase shares
possessing five percent or more of the total combined voting power or value of
all classes of the capital stock of the Company or of any Subsidiary, or (ii) to
the extent that his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries accrue (i.e., become exercisable) at a rate which exceeds $25,000
worth of stock (determined at the fair market value of the shares at the time
such option is granted) for each calendar year in which such option is
outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive, overlapping
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after May 15 and November 15 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 20 hereof, except as set forth in this Section 4. The first Offering
Period of the Plan as amended and restated shall commence with the first Trading
Day on or after May 15, 1999 and end on the last Trading Day on or before May
14, 2000. The Offering Period which began on October 1, 1998 will end on
September 29, 2000. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval, if such change is announced prior
to the scheduled beginning of the first Offering Period to be affected
thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
provided by the Company and filing it with the Company payroll office prior to
the applicable Enrollment Date, unless a later time for filing the subscription
agreement is set for all eligible Employees with respect to such Offering
Period.
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<PAGE> 41
(b) Payroll deductions for a participant shall commence with the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement, he
or she shall elect to have payroll deductions made on each payday during all
subsequent Offering Periods in an amount not exceeding 10%, or such other rate
as may be determined from time to time by the Board, expressed as a whole
percent, of the Compensation which he or she receives on such payday during said
Offering Period and the aggregate of such deduction during the Offering Period
shall not exceed 10% of the aggregate Compensation during such Offering Period.
(b) All payroll deductions authorized by a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10, or may decrease the rate of his or her payroll
deductions (but not below 1%) effective immediately or may increase (but not
above 10%) the rate of his payroll deductions effective as of the first date of
the next Purchase Period within such Offering Period by completing and filing
with the Company a new subscription agreement authorizing a change in payroll
deduction. The Board may, in its discretion, limit the number of participation
rate changes during any Offering Period. The change in rate shall be effective
as soon as administratively feasible following the Company's receipt of the new
authorization. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) of the Plan, a participant's
payroll deductions may be automatically decreased to zero percent at any time
during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is disposed
of, the participant must make adequate provision for the Company's federal,
state or other tax withholding obligations, if any, which arise on the exercise
of the option or the disposition of the Common Stock. At any time the Company
may, but shall not be obligated to, withhold from the participant's compensation
the amount necessary for the Company to meet applicable withholding obligations,
including any withholding required to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common Stock
by the Employee.
7. GRANT OF OPTION. On each Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each
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<PAGE> 42
Exercise Date during such Offering Period (at the applicable Purchase Price) up
to a number of full shares of the Company's Common Stock determined by dividing
such Employee's payroll deductions accumulated prior to such Exercise Date and
retained in the Employee's account as of the Exercise Date by the applicable
Purchase Price; provided that in no event shall an Employee be permitted to
purchase a number of shares which exceeds 200% of the number of shares
determined by dividing 10% of the Employee's Compensation over the Offering
Period (determined as of the Enrollment Date) by 85% of the fair market value of
a share of the Company's Common Stock on the Enrollment Date (subject to any
adjustment pursuant to Section 19) during each Offering Period, and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 13. The Board may, for future Offering Periods, increase or
decrease, in its absolute discretion, the maximum number of shares of the
Company's Common Stock an Employee may purchase during each Purchase Period of
such Offering Period. Exercise of the option shall occur as provided in Section
8, unless the participant has withdrawn pursuant to Section 10. The option shall
expire on the last day of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Offering Period as provided in
Section 10, his or her option for the purchase of shares will be exercised
automatically on the Exercise Date, and the maximum number of full shares
subject to option will be purchased at the applicable Purchase Price with the
accumulated payroll deductions in his or her account. No fractional shares will
be purchased. Any payroll deductions accumulated in a participant's account that
are not sufficient to purchase a full share will be retained in the
participant's account for the subsequent Purchase Period or Offering Period,
subject to earlier withdrawal by the participant as provided in Section 10 or
unless the Offering Period has been over-subscribed, in which event such amount
shall be refunded to the participant. During his or her lifetime, a
participant's option to purchase shares hereunder is exercisable only by the
participant.
(b) If the Board determines that, on a given Exercise Date, the number of
shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion provide that the Company shall make a pro rata allocation of
the shares of Common Stock available for purchase on such Enrollment Date or
Exercise Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Exercise Date,
and (x) continue all Offering Periods then in effect, or (y) terminate any or
all Offering Periods then in effect pursuant to Section 20. The Company may make
pro rata allocation of the shares available on the Enrollment Date of any
applicable Offering Period pursuant to the preceding sentence, notwithstanding
any authorization of additional shares for issuance under the Plan by the
Company's stockholders subsequent to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Company shall arrange for the shares purchased
upon exercise of his or her option
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<PAGE> 43
to be electronically credited to the participant's brokerage account at the
securities brokerage firms designated by the Company for its direct deposit
program from time to time.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company on
a form provided for such purpose. All of the participant's payroll deductions
credited to his or her account will be paid to the participant as soon as
practicable after receipt of the notice of withdrawal, his or her option for the
current Offering Period will be automatically canceled, and no further payroll
deductions for the purchase of shares will be made during such Offering Period.
If a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period will not have any
effect upon his or her eligibility to participate in a succeeding Offering
Period which begins after the end of the Offering Period from which the
participant withdraws or in any similar plan which may hereafter be adopted by
the Company.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an Employee
for any reason, including retirement or death, he or she will be deemed to have
elected to withdraw from the Plan and the payroll deductions accumulated in his
or her account during the Offering Period but not yet used to exercise the
option will be returned to him or her as soon as practicable after such
termination or, in the case of death, to the person or persons entitled thereto
under Section 15, and his or her option will be automatically terminated. The
preceding sentence notwithstanding, a participant who receives payment in lieu
of notice of termination of employment shall be treated as continuing to be an
Employee for the participant's customary number of hours per week of employment
during the period in which the participant is subject to such payment in lieu of
notice. In the case of death of the participant, the payroll deductions credited
to the participant's account will be paid to the person or persons entitled
thereto under paragraph 15, and such participant's option will be automatically
terminated, except that the beneficiary may elect to have funds remain in the
participant's account until the next Exercise Date in which case the shares
purchased with the funds in the participant's account at the time of death in
accordance with paragraph 8 will be forwarded to the beneficiary.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the Company as
provided in Section 19, the maximum number of shares of the Company's Common
Stock which shall be reserved for sale under the Plan shall be 37,937,740
shares, subject to stockholder approval at the 2000 Annual Meeting of
Stockholders, plus an annual increase to be added as of the first day of each
fiscal year by an amount equal to (x) 1.15% of the shares of the Company's
Common Stock
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<PAGE> 44
issued and outstanding on the last day of the immediately preceding
fiscal year less (y) the number of shares available for future option grants
under the Plan on the last day of the immediately preceding fiscal year, or a
lesser amount determined by the Board, but not to exceed 3,000,000 shares
(subject to any adjustment pursuant to Section 19) in any fiscal year.
(b) The participant will have no interest or voting rights in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a committee
of members of the Board appointed by the Board. The Board or its committee shall
have full and exclusive discretionary authority to construe, interpret and apply
the terms of the Plan, to determine eligibility and to adjudicate all disputed
claims filed under the Plan. Every finding, decision and determination made by
the Board or its committee shall, to the full extent permitted by law, be final
and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive shares and/or cash, if any, from the participant's account under the
Plan in the event of such participant's death at a time when cash or shares are
held for his or her account. If the participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant in the
absence of a valid designation of a beneficiary who is living at the time of
such participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the participant; or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may reasonably designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
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<PAGE> 45
17. USE OF FUNDS. All payroll deductions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts will be maintained for each participant in the
Plan. Statements of account will be given to participating Employees at least
annually, and will set forth the amounts of payroll deductions, the Purchase
Price, the number of shares purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (under Section 7), as well as the
price per share and the number of shares of Common Stock covered by each option
under the Plan that has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Offering Period then in progress will be
shortened by setting a new Exercise Date (the "New Exercise Date"), and shall
terminate immediately prior to the consummation of such proposed dissolution or
liquidation, unless otherwise provided by the Board. The New Exercise Date shall
be before the date of the Company's proposed dissolution or liquidation. The
Company shall notify each participant in writing at least ten business days
prior to the New Exercise Date, that the Exercise Date for the participant's
option has been changed to the New Exercise Date and that the participant's
option shall be exercised automatically on the New Exercise Date, unless prior
to such date the participant has withdrawn from the Offering Period as provided
in Section 10.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by the successor corporation or a
parent or Subsidiary of the successor corporation. If the successor corporation
refuses to assume or substitute for the option, any Purchase Periods then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date") and any Offering Periods then in progress shall end on the New Exercise
Date. The New Exercise Date shall be before the date of the Company's proposed
sale or merger. The Company shall notify each participant in writing prior to
the New Exercise Date, that the Exercise Date for the participant's option has
been changed to the
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<PAGE> 46
New Exercise Date and that the participant's option will be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10.
The Board may, if it so determines in the exercise of its sole discretion, also
make provision for adjusting the Reserves, as well as the price per share of
Common Stock covered by each outstanding option, in the event that the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common Stock, and in
the event of the Company being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19, no such
termination will affect options previously granted, provided that an Offering
Period may be terminated by the Board on any Exercise Date if the Board
determines that the termination of the Offering Period or the Plan is in the
best interests of the Company and its stockholders. Except as provided in
Section 19 and this Section 20, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any participant. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain stockholder approval in such a manner and to
such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation and establish such other limitations or procedures as
the Board determines in its sole discretion advisable which are consistent with
the Plan.
(c) In the event the Board determines that the ongoing operation of the
Plan may result in unfavorable financial accounting consequences, the Board may,
in its discretion and, to the extent necessary or desirable, modify or amend the
Plan to reduce or eliminate such accounting consequence including, but not
limited to:
(i) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that the Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
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<PAGE> 47
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or the
consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the Company
in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof. Notices given by means of the
Company's intranet (Planet) or similar system will be deemed to be written
notices under the Plan.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with respect
to an option unless the exercise of such option and the issuance and delivery of
such shares pursuant thereto shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, if required by applicable
securities laws, the Company may require the participant for whose account the
option is being exercised to represent and warrant at the time of such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of
its adoption by the Board of Directors of the Company or it is approved by the
stockholders. It shall continue in effect for a term of 10 years unless sooner
terminated under Section 20.
24. EMPLOYMENT RELATIONSHIP Nothing in the Plan shall be construed as creating a
contract for employment for any period or shall interfere with or limit in any
way the right of the Company or of any Subsidiary to terminate any participant's
employment relationship at any time, with or without cause, nor confer upon any
participant any right to continue in the employ of the Company or any
Subsidiary.
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<PAGE> 48
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
LSI LOGIC CORPORATION
2000 ANNUAL MEETING OF SHAREHOLDERS
PROXY
The undersigned stockholder of LSI Logic Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and Proxy Statement, each dated March 24, 2000, and
hereby appoints Wilfred J. Corrigan and David E. Sanders, or either of
them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent
the undersigned at the 2000 Annual Meeting of Stockholders of LSI Logic
Corporation to be held on May 4, 2000, at 1:00 p.m., local time, at the
Company's facility located at 4420 Arrowswest Drive, Colorado Springs,
Colorado 80907, and at any adjournment(s) thereof, and to vote all shares
of Common Stock that the undersigned would be entitled to vote if then and
there personally present, on the matters set forth on the reverse side.
SEE REVERSE
SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 49
/X/ Please mark votes as in this example.
THIS PROXY WILL BE VOTED AS DIRECTED OR IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR PROPOSALS 2, 3, 4, AND 5 AS
SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
1. Election of Directors
NOMINEES: Wilfred J. Corrigan; James H. Keyes, Malcolm R. Currie;
T.Z. Chu; R. Douglas Norby, Matthew J. O'Rourke
FOR WITHHELD
/ / / /
MARK HERE FOR
ADDRESS CHANGE
AND NOTE BELOW / /
/ / ---------------------------------------------------
For all nominees except those listed on the line above
Signature: Date:
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FOR AGAINST ABSTAIN
2. Approval of amendment to the Restated / / / / / /
Certificate of Incorporation to increase the
number of authorized shares of common stock
to 1,300,000,000 shares
3. Approval of amendment to the Amended and / / / / / /
Restated Employee Stock Purchase Plan to
increase the number of shares of common
stock reserved for issuance thereunder
by 1,500,000.
4. Approval of amendment to the 1991 Equity / / / / / /
Incentive Plan to increase the number of
shares of Common stock reserved for issuance
thereunder by 10,000,000.
5. To ratify the appointment of / / / / / /
PricewaterhouseCoopers LLP as independent
accountants for its 2000 fiscal year.
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
Signature: Date:
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