<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
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
</TABLE>
Maxtor Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[MAXTOR LOGO]
MAXTOR CORPORATION
510 COTTONWOOD DRIVE
MILPITAS, CALIFORNIA 95035
July 14, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Maxtor Corporation ("Maxtor" or the "Company") to be held at 10:00 a.m. on
Wednesday, August 11, 1999, in the Palo Alto Room of the Sheraton San Jose
Hotel, located at 1801 Barber Lane, Milpitas, California 95035.
The Annual Meeting will begin with a discussion and voting on the matters
set forth in the accompanying Notice of Annual Meeting and Proxy Statement and
on other business properly brought before the meeting, followed by a report on
the Company's financial and operating performance.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE IN
ORDER THAT AS MANY SHARES AS POSSIBLE MAY BE REPRESENTED AT THE MEETING.
The vote of every stockholder is important and your cooperation in promptly
returning your executed Proxy will be appreciated. Each Proxy is revocable and
will not affect your right to vote in person in the event that you decide to
attend the meeting.
Sincerely,
C. S. PARK SIGNATURE
C. S. Park
Chairman of the Board
<PAGE> 3
[MAXTOR LOGO]
MAXTOR CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 11, 1999
The Annual Meeting of Stockholders of Maxtor Corporation ("Maxtor" or the
"Company") will be held in the Palo Alto Room of the Sheraton San Jose Hotel,
located at 1801 Barber Lane, Milpitas, California 95035, on Wednesday, August
11, 1999 at 10:00 a.m., local time, for the following purposes:
1. To elect two Class I Directors to hold office until the 2002 Annual
Meeting of Stockholders and until their successors are elected and have
qualified.
2. To approve the Company's 1996 Stock Option Plan, as amended, for the
purposes of Section 162(m) of the Internal Revenue Code and to (i)
increase by 3,676,367 the aggregate number of shares of Common Stock
authorized for issuance under such plan, (ii) increase the size of
certain options granted to non-employee directors and (iii) provide for
the grant of restricted stock.
3. To approve the Company's 1998 Employee Stock Purchase Plan, as amended
to increase by 700,000 the aggregate number of shares of Common Stock
authorized for issuance under such plan.
4. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for its fiscal year ending January 1, 2000.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which accompanies this Notice.
The Board of Directors has fixed the close of business on July 1, 1999 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
GLENN H. STEVENS SIGNATURE
Glenn H. Stevens
Vice President, General Counsel
and Secretary
Milpitas, California
July 14, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 4
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of Maxtor
Corporation, a Delaware corporation ("Maxtor" or the "Company"), for use at the
Annual Meeting of Stockholders to be held on Wednesday, August 11, 1999, at
10:00 a.m., local time, or at any adjournment thereof. The meeting will be held
in the Palo Alto Room of the Sheraton San Jose Hotel, located at 1801 Barber
Lane, Milpitas, California 95035. The Company's principal executive offices are
located at 510 Cottonwood Drive, Milpitas, California 95035. The Company's
telephone number is (408) 432-1700.
The date of this Proxy Statement is July 14, 1999, the approximate date on
which the Proxy Statement and form of proxy were first sent or given to
stockholders. The Annual Report to Stockholders for the fiscal year ended
December 26, 1998, including financial statements, is included with this Proxy
Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
This solicitation of proxies is made on behalf of the Board of Directors of
Maxtor and the cost thereof will be borne by Maxtor. The Board of Directors may
use the services of the Company's directors, officers and others to solicit
proxies, personally or by telephone and may arrange with brokerage houses and
other custodians, nominees and fiduciaries to forward solicitation materials to
the beneficial owners of the stock held of record by such persons and Maxtor may
reimburse them for the fees and reasonable out-of-pocket expenses incurred in
doing so.
On July 1, 1999, Maxtor had outstanding 102,833,827 shares of Common Stock,
all of which are entitled to vote as a single class with respect to the
proposals presented in this Proxy Statement. Each stockholder of record at the
close of business on July 1, 1999 is entitled to one vote for each share held.
The Company's By-Laws provide that a majority of all shares entitled to vote,
whether present in person or by proxy, will constitute a quorum for the
transaction of business at the meeting.
Any person giving a proxy pursuant to this solicitation may revoke it at
any time before its use by delivering to Maxtor's Corporate Secretary a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person. If an executed proxy is submitted
without any instruction for the voting of such proxy, the proxy will be voted in
favor of the proposals described.
1
<PAGE> 5
MANAGEMENT
Set forth below are the names and ages of the Company's directors,
including the Class I nominees to be elected at the Annual Meeting, the year in
which each became a director of the Company, and a brief description of their
business experience, including principal occupations during the last five years.
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY AGE DIRECTOR SINCE CLASS
---- ---------------------------- --- -------------- -----
<S> <C> <C> <C> <C>
C. S. Chung Director 47 May 1998; term ends 1999. I
Charles Hill Director 63 March 1992; term ends 1999. I
Philip S. Paul* Director 61 March 1998; term ends 1999. I
Thomas L. Chun Director 57 December 1998; term ends 2000. II
Roger W. Johnson Director 64 April 1999; term ends 2000. II
Y. H. Kim Director 57 January 1996; term ends 2000. II
Michael R. Cannon President, Chief Executive Officer 46 July 1996; term ends 2001. III
and Director
Charles F. Christ Director 60 August 1995; term ends 2001. III
Dr. C. S. Park Chairman of the Board 52 February 1994; term ends 2001. III
</TABLE>
- ---------------
* Mr. Paul will not stand for re-election at the Annual Meeting of Stockholders.
The Board of Directors has therefore reduced the size of Class I to two
directors and the total number of authorized directors to eight.
Chang See Chung has been a member of Maxtor's Board of Directors since May
1998. Mr. Chung has served as Senior Vice President of H Electronics America
since May 1998. From 1995 to 1998, he served as Vice President, Strategic
Planning and Corporate Coordination of Symbios. From 1976 to 1995, Mr. Chung
held various management positions with Hyundai Electronics America, Hyundai
Electronics Europe, Hyundai Electronics Industries and Hyundai Heavy Industries.
Mr. Chung was previously the Chief Financial Officer and Treasurer of Hyundai
Electronics America.
Charles Hill has been a member of the Board of Directors since March 1992.
He has been a Senior Research Fellow at the Hoover Institution since 1989. From
1983 to 1984, he served as Chief of Staff of the U.S. State Department and from
1982 to 1989 as Executive Assistant to former U.S. Secretary of State George P.
Shultz. From 1992 to 1996, Mr. Hill was Special Consultant to the Secretary
General of the United Nations. Presently, he is Diplomat-in-Residence and
Lecturer in International Studies at Yale University.
Philip S. Paul has been a member of the Board of Directors since March
1998. Since 1991, he has managed Paul Capital Partners, L.P., a private equity
firm. From 1985 to 1991, Mr. Paul was Chairman and Chief Executive Officer of
Hillman Ventures, Inc., a venture capital firm specializing in technology
investments. From 1982 to 1985, Mr. Paul was President and Chief Executive
Officer of Machine Intelligence Corp., a robotics company.
Thomas Lyman Chun has been a member of the Board of Directors since
December 1998. He has been President and Chief Executive Officer of Talkway,
Inc. since January 1997. From 1985 to 1996, Mr. Chun was a member of the Board
of Advisors of Logitech International S.A. and its predecessors. During 1995 and
1996, he also served Logitech in both consulting and employee roles. From 1991
to 1995, he served as Vice President, Strategy & Business Development and as
Vice President & General Counsel of SyQuest Technology. From 1989 to 1990, he
served as President and Chief Executive Officer of Cooper Software. From 1980 to
1988, he served in various capacities at Tandem Computers, including Vice
President -- Corporate Projects and Vice President -- Legal Affairs. He also was
Chairman of the Corporation for Open Systems from 1986 to 1987.
Roger W. Johnson became a member of the Board of Directors in April 1999.
He has been chief executive officer of the Young Presidents' Organization (YPO,
International) since 1998, and is also currently President of Roger W. Johnson &
Associates. Since 1996, Mr. Johnson has been a member of the board of direcors
of The Needham Funds, Inc., Sypris Solutions, Inc., Insulectro, Carole Little
and the Women's Consumer Network, Washington, D.C. He served as Administrator of
the General Services Administration from 1993 to 1996. Mr. Johnson was Chairman
and Chief Executive Officer of Western Digital Corporation from 1982 to 1993.
2
<PAGE> 6
Y. H. Kim has been a member of the Board of Directors since January 1996.
He has been President and representative Director of Hyundai Electronics
Industries since September 1996. From 1989 to 1996, Mr. Kim was President and
Chief Executive Officer of Hyundai Electronics America. Mr. Kim has been
employed by the Hyundai group since 1971.
Michael R. Cannon has been the Company's President, Chief Executive Officer
and a member of the Board of Directors since July 1996. From 1993 until joining
Maxtor in 1996, Mr. Cannon held several senior management positions with IBM's
Storage Systems division, including Vice President, Mobile and Desktop Business
Unit; Vice President, Product Design; and Vice President, Worldwide Operations.
From 1991 to 1993, he served as Senior Vice President of SyQuest, a removable
disk drive company, and prior to joining SyQuest, he held the position of Vice
President, Southeast Asia Operations, with Imprimis Technology. He is also a
director of MMC Technology, a wholly owned subsidiary of Hyundai Electronics
America.
Charles F. Christ has been a member of the Board of Directors since August
1995. Mr. Christ has served as Chairman of the Board of Directors of MaxOptix
Corporation since October 1998. He was President, Chief Executive Officer and a
member of the Board of Directors of Symbios from 1997 to August 1998. From 1994
to 1997, Mr. Christ was Vice President and General Manager of the Components
Division of Digital Equipment Corporation. From 1989 to 1990, Mr. Christ was a
Senior Partner with the management consulting group of Coopers & Lybrand L.L.P.
From 1986 to 1988, he was President and Chief Executive Officer of Digital Sound
Corporation, a telecommunications voice processing company.
Dr. Chong Sup Park has been Chairman of the Board of Directors since May
1998 and assumed the position of Chairman, President and Chief Executive Officer
of Hyundai Electronics America in September 1996. Dr. Park also has been
Chairman of MMC Technology's Board of Directors since January 1998. From
September 1996 to May 1998, Dr. Park served as Vice Chairman of the Company's
Board of Directors. Dr. Park previously served as the Company's President and
Chief Executive Officer from February 1995 until his appointment as Vice
Chairman. From 1993 until joining the Company in 1995, he was Chairman,
President and Chief Executive Officer of Axil Computer, Inc., a workstation
computer manufacturer and a Hyundai Business Group company, in Santa Clara,
California. Dr. Park is also Corporate Executive Vice President of Hyundai
Electronics Industries and formerly held various other management positions with
Hyundai Electronics Industries, including the position of Senior Vice President,
Semiconductor Sales and Marketing, which he held from 1990 to 1992. From 1985 to
1989, Dr. Park was President and Chief Executive Officer of Hyundai Electronics
America.
The Board of Directors held eight meetings in 1998. Each director attended
at least 75% of the meetings held during his tenure in 1999.
COMMITTEES OF THE BOARD
Charles F. Christ, C. S. Chung, Roger W. Johnson and Philip S. Paul are
members of the Compensation Committee. Roger W. Johnson joined the Compensation
Committee in April 1999. Charles Hill and C. S. Park also served as members of
the Compensation Committee until the appointment of their respective successors
in May 1998. The Compensation Committee held six meetings in 1998. The
Compensation Committee is responsible for determining the compensation of the
Company's executive officers.
Charles F. Christ, Thomas L. Chun, Charles Hill and Philip S. Paul are
members of the Audit Committee. C. S. Park also served as a member of the Audit
Committee until the appointment of Philip S. Paul as his successor on the
Committee in May 1998. The Audit Committee held seven meetings in 1998. The
responsibilities of the Audit Committee include reviewing the scope of the
audit, approving audit fees and reviewing the adequacy and effectiveness of
internal accounting and financial controls.
Michael R. Cannon, Charles Hill and C. S. Park are members of the
Nominating Committee. The Nominating Committee held two meetings in 1999. The
principal function of the Nominating Committee is to identify candidates for
election to the Board of Directors. The Committee has the primary responsibility
for evaluating and for selecting or recommending to the Board of Directors
candidates for Board membership. Except as otherwise provided in the stockholder
agreement among the Company and the Hyundai Affiliates
3
<PAGE> 7
with respect to the special rights of Hyundai to nominate a certain number of
directors, the Committee will consider nominees recommended by the stockholders
of the Company, provided the notice requirements set forth in the Company's
By-Laws have been met. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- STOCKHOLDER AGREEMENT" for a description of the obligations of
the Company and the Nominating Committee with respect to the nomination or
designee of Hyundai Electronics America.
Thomas L. Chun, Charles Hill, Roger W. Johnson and Philip S. Paul are
members of on the Affiliated Transactions Committee. The Affiliated Transactions
Committee held three meetings in 1998. The Committee is responsible for
reviewing all material transactions regarding contractual, corporate or business
relations by and between the Company and any related or affiliated entity of
Hyundai Electronics Industries or Hyundai Electronics America.
Each director attended at least 80% of the Committee meetings for the
Committees on which he served during 1998.
COMPENSATION OF DIRECTORS
Until May 1998, members of the Company's Board of Directors who were not
employees of Maxtor ("Outside Directors") received the following compensation:
(i) an annual retainer of $22,000; (ii) $1,000 per year for service as a
committee chairperson; (iii) $1,500 for attendance at each quarterly meeting of
the Board of Directors; (iv) reimbursement of travel and expenses for such
meetings; and (v) a one-time initial grant of a non-qualified stock option to
purchase 20,000 shares of the Company's Common Stock pursuant to the Company's
1996 Stock Option Plan.
In April 1998, the Company amended its 1996 Stock Option Plan and granted
to each Outside Director an additional option for 10% of the option shares
already held by such director.
Beginning in May 1998, each Outside Director received: (i) an annual
retainer of $22,000; (ii) $1,000 per year for service as a committee
chairperson; (iii) $1,500 for attendance at each quarterly meeting of the Board
of Directors; (iv) $1,000 for attendance at each, if any, special meeting of the
Board of Directors; (v) $1,000 for attendance at each meeting of a committee of
the Board of Directors not held on the same day as a scheduled board meeting;
(vi) reimbursement of travel and expenses for such meetings; (vii) a one-time
initial grant of a non-qualified stock option to purchase 20,000 shares of the
Company's Common Stock pursuant to the Company's 1996 Stock Option Plan; and
(viii) for so long as an Outside Director served continuously as a member of the
Board of Directors, an additional grant of a non-qualified stock option to
purchase 5,000 shares of the Company's Common Stock each time that such Outside
Director was reelected. In November 1998, the Company further amended its 1996
Stock Option Plan to increase the one time initial grant of a non-qualified
stock option to each Outside Director from 20,000 to 30,000 shares and to also
grant a nonqualified stock option for an additional 10,000 shares to each
incumbent Outside Director who received the original 20,000 share option.
On December 1, 1998, the compensation of Outside Directors was amended so
that each Outside Director receives the following compensation: (i) an annual
retainer of $30,000; (ii) $1,000 per year for service as a committee
chairperson; (iii) $2,000 for attendance at each quarterly meeting of the Board
of Directors; (iv) $2,000 for attendance at each, if any, special meeting of the
Board of Directors; (v) $1,000 for attendance at each meeting of a committee of
the Board of Directors not held on the same day as a scheduled meeting of the
Board of Directors; (vi) reimbursement of travel and expenses for such meetings;
(vii) upon initial election or appointment after December 1, 1998, a one-time
initial grant of a non-qualified stock option to purchase 30,000 shares of the
Company's Common Stock pursuant to the Company's 1996 Stock Option Plan; and for
so long as the Outside Director continuously remains a member of the Board of
Directors, an additional grant of a non-qualified stock option pursuant to the
Company's 1996 Stock Option Plan to purchase 10,000 shares of the Company's
Common Stock every three years on the anniversary date of the initial award.
4
<PAGE> 8
Outside Directors who participate by teleconference in Board or committee
meetings receive 50% of the above stated compensation for such meeting. An
Outside Director may elect to defer payment of all or a portion of the annual
retainer and meeting fees payable to him to postpone taxation on such amounts.
STOCK OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of Maxtor Common Stock as of April 30, 1999: (i) by each person who is
known by the Company to beneficially own more than 5% of Maxtor's Common Stock;
(ii) by each of the individuals listed in the Summary Compensation Table and by
each of the Company's directors; and (iii) by all Maxtor executive officers and
directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OR IDENTITY OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED STOCK OUTSTANDING
--------------------------------------- ------------------ -----------------
<S> <C> <C>
Hyundai Electronics America ("HEA")(2)...................... 40,829,850(3) 39.7%
3101 North First Street
San Jose, CA 95134
VGH Partners LLC(4)......................................... 9,402,300 9.1%
260 Franklin Street
Boston, MA 02110
Dr. Chong Sup Park(5)(6).................................... 17,875 *
Michael R. Cannon(5)(7)..................................... 371,402 *
Charles F. Christ(5)........................................ 17,875 *
Thomas L. Chun.............................................. -- --
Chang See Chung(5)(6)....................................... 5,000 *
Charles Hill(5)............................................. 17,875 *
Y.H. Kim(5)(6).............................................. 17,875 *
Roger W. Johnson............................................ -- --
Philip S. Paul(5)........................................... 6,250 *
Dr. Victor B. Jipson(5)(8).................................. 66,655 *
William F. Roach(5)(9)...................................... 86,093 *
Paul J. Tufano(5)(10)....................................... 58,280 *
K.H. Teh(5)(11)............................................. 39,312 *
All executives officers and directors as a group (17
persons)(5)(6)(12)........................................ 831,237 *
</TABLE>
- ---------------
* Less than one percent (1%)
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on 102,846,423 shares outstanding as of April
30, 1999. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission. All shares of Maxtor Common
Stock subject to currently exercisable options or options exercisable
within 60 days after April 30, 1999 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the number of shares beneficially owned and the percentage of
ownership of such person, but are not deemed to be outstanding and to be
beneficially owned for the purpose of computing the percentage of ownership
of any other person. Except as indicated in the footnotes to the table and
subject to applicable community property laws, based on information
provided by the persons named in the table, such persons have sole voting
and investment power with respect to all shares of Maxtor Common Stock
shown as beneficially owned by them.
(2) Pursuant to the Stockholders Agreement (defined below), HEA has certain
rights to nominate directors and to maintain at least a 30% ownership
interest in the Company through the year 2000, and has agreed to certain
limitations on the acquisition of Maxtor Common Stock and proxy
solicitations. In accordance with the Stockholders Agreement, HEA is
obligated to vote in favor of the nominees for
5
<PAGE> 9
Class I directors to be elected at the Annual Meeting. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- STOCKHOLDER AGREEMENT."
(3) In a public offering completed on February 9, 1999, DECS Trust IV, a
Delaware business trust (the "Trust"), sold 12,500,000 DECS. DECS are
securities that represent all of the beneficial interest in the Trust,
which owns U.S. Treasury Securities and a prepaid forward contract (the
"Contract") with HEA for the purchase of up to 12,500,000 shares of Maxtor
common stock owned by HEA. On or about February 15, 2002, or upon earlier
liquidation of the Trust in certain circumstances, the Trust will
distribute the shares of Maxtor common stock owned by HEA subject to the
Contract to holders of the DECS. Pursuant to the terms of the Contract, HEA
has granted the Trust a security interest in 12,500,000 shares of Maxtor
common stock. However, unless and until HEA distributes the shares of
Maxtor common stock to the Trust, HEA will retain beneficial ownership of
such shares. The Contract provides that HEA may deliver fewer shares or
choose to settle its obligations under the DECS in cash.
(4) Based solely upon publicly available documents filed with the Securities
and Exchange Commission.
(5) All shares subject to options granted under the 1996 Stock Option Plan that
are exercisable within 60 days after April 30, 1999.
(6) Excludes 40,829,850 shares of Maxtor Common Stock beneficially owned by
HEA. Each such individual disclaims beneficial ownership of such shares.
(7) Excludes 100,000 shares of Maxtor Common Stock granted to Mr. Cannon on
June 26, 1998 pursuant to the 1998 Restricted Stock Plan. See "EMPLOYMENT
CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS -- CHANGE-IN-CONTROL ARRANGEMENTS -- 1998 RESTRICTED STOCK
PLAN."
(8) Excludes 35,000 shares of Maxtor Common Stock granted to Dr. Jipson on June
26, 1998 pursuant to the 1998 Restricted Stock Plan. See "EMPLOYMENT
CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS -- CHANGE-IN-CONTROL ARRANGEMENTS -- 1998 RESTRICTED STOCK
PLAN."
(9) Excludes 35,000 shares of Common Stock granted to Mr. Roach on June 26,
1998 pursuant to the 1998 Restricted Stock Plan. See "EMPLOYMENT CONTRACTS
AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS -- CHANGE-IN-CONTROL ARRANGEMENTS -- 1998 RESTRICTED STOCK
PLAN."
(10) Excludes 35,000 shares of Common Stock granted to Mr. Tufano on June 26,
1998 pursuant to the 1998 Restricted Stock Plan. See "EMPLOYMENT CONTRACTS
AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS -- CHANGE-IN-CONTROL ARRANGEMENTS -- 1998 RESTRICTED STOCK
PLAN."
(11) Excludes 15,000 shares of Common Stock granted to Mr. Teh on June 26, 1998
pursuant to the 1998 Restricted Stock Plan. See "EMPLOYMENT CONTRACTS AND
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS -- CHANGE-IN-CONTROL ARRANGEMENTS -- 1998 RESTRICTED STOCK
PLAN."
(12) Excludes 295,000 shares of Common Stock granted to executive officers on
June 26, 1998, pursuant to the 1998 Restricted Stock Plan. See "EMPLOYMENT
CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS -- CHANGE-IN-CONTROL ARRANGEMENTS -- 1998 RESTRICTED STOCK
PLAN."
6
<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth the compensation paid by Maxtor during the
fiscal years ended December 28, 1996, December 27, 1997 and December 26, 1998 to
the Company's Chief Executive Officer and the four other most highly paid
executive officers to whom the Company paid more than $100,000 for services
rendered to Maxtor in the fiscal year ended December 26, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- -----------------------
FISCAL OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND YEAR COMPENSATION STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION ENDED(1) SALARY($) BONUS($) ($)(2) (#) OPTIONS(#) ($)(3)
------------------ -------- --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael R.
Cannon(4).......... 12/26/98 500,000 375,000(5) -- 100,000 1,145,000 --
President and Chief 12/27/97 500,000 750,000(5) -- -- -- --
Executive Officer 12/28/96 240,387 250,000(5) -- -- 450,000 --
William F.
Roach(6)........... 12/26/98 350,000 262,500 116,667(7) 35,000 247,500(8) --
Senior VP, 12/27/97 339,242 -- 116,667(7) -- 125,000 --
Worldwide 12/28/96 -- -- -- -- -- --
Sales and Marketing
Dr. Victor B.
Jipson............. 12/26/98 286,000 195,000(9) -- 35,000 327,500(8) 4,800
Senior VP, 12/27/97 258,846 50,000(10) -- -- -- 4,800
Engineering 12/28/96 176,924 107,500(10) -- -- 50,000 3,173
Paul J. Tufano(11)... 12/26/98 286,000 172,500(12)(13) -- 35,000 327,500(8) 4,800
Senior VP, Finance 12/27/97 229,986 50,000(12) -- -- -- 4,800
and Chief Financial 12/28/96 92,879 50,000(12) -- -- 50,000 2,322
Officer
K.H. Teh(14)......... 12/26/98 249,102 189,135(15) -- 35,000 245,000(8) 25,532(16)
VP, Worldwide 12/27/97 173,487 64,478(15) -- -- 50,000 9,472(16)
Manufacturing 12/28/96 -- -- -- -- -- --
</TABLE>
- ---------------
(1) Because the Company changed its fiscal year end, the fiscal period ended
December 28, 1996 is only nine months.
(2) Unless otherwise noted, such other annual compensation did not exceed the
lesser of (i) $50,000 or (ii) 10% of such executive officer's salary and
bonus combined.
(3) The amounts shown in this column represent the Company's annual
contribution to the Maxtor Savings Retirement Plan, a 401(k) plan, in which
all U.S. employees are eligible to participate, except as otherwise noted.
(4) Mr. Cannon joined the Company as President and Chief Executive Officer in
July 1996.
(5) Represents bonuses paid in accordance with Maxtor's offer letter to Mr.
Cannon.
(6) Mr. Roach joined the Company as Senior Vice President, Worldwide Sales and
Marketing in January 1997.
(7) Represents a portion of a $350,000 loan to be forgiven over a three year
period in accordance with Maxtor's offer letter to Mr. Roach.
(8) Includes an option to purchase an aggregate of 35,000 shares of Maxtor
Common Stock granted on July 30, 1998, replacing an option to purchase
35,000 shares of Maxtor Common Stock granted on June 26, 1998. The option
granted on June 26, 1998 was canceled in connection with the repricing.
(9) Includes deferred payments under the HEA Executive Deferred Compensation
Plan of $48,750.
(10) Represents bonus paid in connection with Maxtor's hiring of Dr. Jipson.
(11) Mr. Tufano joined the Company as Vice President, Finance and Chief
Financial Officer in August 1996. He was promoted to Senior Vice President,
Finance and Chief Financial Officer in November 1998.
7
<PAGE> 11
(12) Represents bonus paid in accordance with Maxtor's offer letter to Mr.
Tufano.
(13) Includes deferred payments under the HEA Deferred Compensation Plan of
$129,375.
(14) Mr. Teh joined the Company as Vice President, Worldwide Manufacturing in
May 1997.
(15) Includes $50,000 paid in connection with Maxtor's hiring of Mr. Teh.
(16) Represents amounts contributed to Maxtor Peripherals (S) Pte Ltd retirement
program.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
granted in fiscal 1998 to each of the executive officers named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
NUMBER OF OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Cannon........ 45,000 0.8% $ 6.00 2/25/08 $ 169,802 $ 430,310
100,000 1.7 6.00 1/13/08 377,337 956,245
1,000,000 17.1 13.19 11/11/08 8,293,548 21,017,479
William F. Roach......... 12,500 0.2 6.00 2/25/08 47,167 119,531
35,000(3) -- 9.50 -- -- --
35,000(4) 0.6 7.00 7/30/08 154,079 390,467
200,000 3.4 13.19 11/11/08 1,658,710 4,203,496
Dr. Victor B. Jipson..... 5,000 0.1 6.00 2/25/08 18,867 47,812
37,500 0.6 6.00 2/25/08 141,501 358,592
35,000(3) -- 9.50 -- -- --
35,000(4) 0.6 7.00 7/30/08 154,079 390,467
250,000 4.3 13.19 11/11/08 2,073,387 5,254,370
Paul J. Tufano........... 5,000 0.1 6.00 2/25/08 18,867 47,812
37,500 0.6 6.00 2/25/08 141,501 358,592
35,000(3) -- 9.50 -- -- --
35,000(4) 0.6 7.00 7/30/08 154,079 390,467
250,000 4.3 13.19 11/11/08 2,073,387 5,254,370
K.H. Teh................. 5,000 0.1 6.00 2/25/08 18,867 47,812
5,000 0.1 6.00 2/25/08 18,867 47,812
35,000(3) -- 9.50 -- -- --
35,000(4) 0.6 7.00 7/30/08 154,079 390,467
200,000 3.4 13.19 11/11/08 1,658,710 4,203,496
</TABLE>
- ---------------
(1) These options vest over a four-year period during which 25% vests on the
first anniversary date of the vest date and 6.25% vests each quarter
thereafter. The vesting schedule for new participants begins February 1,
1996 or on the hiring date, whichever is later. Maxtor's Board of Directors
retains discretion to modify the terms, including the price of outstanding
options. See "EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS."
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% annual rates of stock price appreciation from the date of grant
to the end of the option term are provided in accordance with rules of the
Commission and do not represent the Company's estimate or projection of the
future price of Maxtor Common Stock. Actual gains, if any, on stock option
exercises are dependent on the future performance of Maxtor Common Stock,
overall market any actual appreciation in the price of Maxtor Common Stock
from the date of grant to the present.
(3) Reflects an option that was cancelled in connection with a repricing on July
30, 1998.
(4) Reflects an option that was granted on July 30, 1998 to replace a canceled
repriced option.
No options were exercised by persons named in the prior table during fiscal
1998.
8
<PAGE> 12
FISCAL 1998 YEAR-END VALUES OF UNEXERCISED OPTIONS
The following table sets forth information regarding the year-end value of
stock options granted to each of the executive officers named in the Summary
Compensation Table for fiscal 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 26, IN-THE-MONEY OPTIONS
1998(1) AT DECEMBER 26, 1998(2)
------------------------ -------------------------
NAME VESTED(#) UNVESTED# VESTED($) UNVESTED($)
---- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Michael R. Cannon........................... 278,437 1,316,563 $2,194,084 $1,480,500
William F. Roach............................ 60,155 312,345 474,021 988,779
Dr. Victor B. Jipson........................ 37,812 339,688 297,959 413,925
Paul J. Tufano.............................. 30,937 346,563 243,784 413,925
K. H. Teh................................... 20,625 274,375 162,525 379,300
</TABLE>
- ---------------
(1) These options vest over a four-year period during which 25% vests on the
first anniversary date of the vest date and 6.25% vests each quarter
thereafter. The vesting schedule for new participants begins February 1,
1996 or on the hiring date, whichever is later.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 26, 1998 ($13.88, the
closing price reported by the NASDAQ National Market on December 24, 1998)
and the exercise price of such option.
9
<PAGE> 13
TEN-YEAR OPTION REPRICINGS
The following table provides the specified information concerning all
repricings of options to purchase the Company's Common Stock held by any
executive officer of the Company during the ten completed fiscal years preceding
the date of this Proxy.
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL OPTION
NUMBER OF MARKET PRICE TERM
SECURITIES OF STOCK AT EXERCISE PRICE REMAINING
UNDERLYING TIME OF AT TIME OF NEW AT DATE OF
OPTIONS REPRICED REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE OR AMENDED AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
---- ------- ---------------- ------------ ----------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS:
Dr. Victor B. Jipson...... 7/30/98 35,000 7.00 9.50 7.00 119 Months(6)
Senior VP, Engineering
William F. Roach.......... 7/30/98 35,000 7.00 9.50 7.00 119 Months(6)
Senior VP, Worldwide
Sales and Marketing
Paul J. Tufano............ 7/30/98 35,000 7.00 9.50 7.00 119 Months(6)
Senior VP, Finance and
Chief Financial Officer
K. H. Teh................. 7/30/98 35,000 7.00 9.50 7.00 119 Months(6)
VP, Worldwide
Manufacturing
David L. Beaver........... 7/30/98 15,000 7.00 9.50 7.00 117 Months(6)
VP, Materials 7/30/98 10,000 7.00 9.50 7.00 119 Months(6)
Phillip C. Duncan......... 7/30/98 15,000 7.00 9.50 7.00 119 Months(6)
VP, Human Resources
Misha Rozenberg........... 7/30/98 10,000 7.00 9.50 7.00 115 Months(6)
VP, Quality 7/30/98 15,000 7.00 9.50 7.00 119 Months(6)
Glenn H. Stevens.......... 7/30/98 15,000 7.00 9.50 7.00 119 Months(6)
VP, General Counsel
and Secretary
FORMER EXECUTIVE OFFICERS:
John T. Hagerman(1)....... 7/30/98 10,000 7.00 9.50 7.00 119 Months(6)
VP, Strategic
Initiatives
Walter D. Amaral(2)....... 5/10/93 80,000 6.625 10.3125 6.625 107 Months(6)
VP, Finance & Chief 5/10/93 7,500 6.625 14.625 6.625 111 Months(6)
Financial Officer
Kenneth A. Clark(3)....... 5/10/93 60,000 6.625 10.3125 6.625 107 Months(6)
VP, General Counsel &
Secretary
Gary Galusha(4)........... 9/24/90 10,000 5.75 10.9375 5.75 58 Months(7)
VP, Worldwide Sales
William M. Hake(5)........ 9/24/90 8,000 5.75 10.9375 5.75 58 Months(7)
VP, Product Management
</TABLE>
- ---------------
(1) Mr. Hagerman was an executive officer of the Company during fiscal 1997 and
1998.
(2) Mr. Amaral was an executive officer during fiscal 1993, 1994 and a portion
of fiscal 1996. His employment with the Company terminated in April 1995.
(3) Mr. Clark was an executive officer of the Company during fiscal 1992, 1993
and a portion of fiscal 1994. His employment with the Company terminated in
August 1993.
(4) Mr. Galusha was an executive officer of the Company during fiscal 1991,
1992, 1993, 1994, 1995 and a portion of fiscal 1996. His employment with the
Company terminated in June 1996.
(5) Mr. Hake was an executive officer of the Company during fiscal 1992, 1993,
1994, 1995 and 1996. His employment with the Company terminated in December
1996.
(6) Repriced options continue to vest as originally granted; optionees did not
forfeit any vesting accrued on their canceled options.
(7) Repriced options vested over a four-year period beginning on September 24,
1990, the date of the repricing, at a rate of 3/48 effective three months
after the repricing, 1/48 per month thereafter for each full month of the
optionee's continuous employment with the Company. Optionees forfeited any
vested accrued on their canceled options.
10
<PAGE> 14
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENTS
In July 1996, Maxtor entered into a letter agreement with Mr. Cannon, the
Company's President and Chief Executive Officer, that provided for (i) base
compensation of $500,000 per year; (ii) payment of a sign-on bonus of
$1,000,000, payable in four equal quarterly installments beginning on the last
day of December 1996; (iii) an annual bonus opportunity of approximately
$250,000; (iv) an option to purchase 450,000 shares of Maxtor Common Stock which
vests over four years; and (v) the payment to Mr. Cannon of one year's base
salary plus any portion of the sign-on bonus remaining unpaid if his employment
is terminated without cause.
Effective June 23, 1999, the Compensation Committee of the Board of
Directors approved an agreement between Mr. Cannon and the Company intended to
supplement the existing arrangements between Mr. Cannon and the Company. The
agreement provides for (i) a $5,000,000 loan from the Company to Mr. Cannon
which is secured by a promissory note bearing interest at the rate of 4.98% from
the loan date until maturity; (ii) if Mr. Cannon remains continuously employed
by the Company for a three-year period ending June 22, 2002, forgiveness by the
Company of the outstanding loan balance (unpaid principal and accrued interest)
due on June 22, 2002; and (iii) if Mr. Cannon's employment with the Company is
terminated prior to June 22, 2002 either by the Company without cause or due to
a change of control, as defined thereunder, forgiveness of the outstanding loan
balance due on the effective date of such termination.
In July 1996, Maxtor entered into a letter agreement with Mr. Tufano, the
Company's Senior Vice President, Finance and Chief Financial Officer, that
provided for (i) base compensation of $230,000 per year; (ii) payment of a
sign-on bonus of $100,000, payable in two equal installments in July 1996 and
January 1997; (iii) an annual bonus opportunity of approximately $115,000; (iv)
an option to purchase 50,000 shares of Maxtor Common Stock which vests over four
years; and (v) payment to Mr. Tufano of nine months' base salary plus any
portion of the sign-on bonus remaining unpaid if his employment is terminated
without cause.
In January 1997, Maxtor entered into a letter agreement with Mr. Roach, the
Company's Senior Vice President, Worldwide Sales and Marketing that provided for
(i) base compensation of $350,000 per year; (ii) a $350,000 loan, with one-third
to be forgiven on each of the first three anniversary dates of his employment,
provided that he is a Maxtor employee on each such date; (iii) a one-time annual
bonus between approximately $175,000 and $350,000; and (iv) an option to
purchase 125,000 shares of Maxtor Common Stock which vests over four years. In
addition, Maxtor shall forgive the $350,000 loan in full if Mr. Roach's
employment is terminated for any reason other than willful misconduct of a
culpable nature. If Mr. Roach voluntarily terminates his employment with Maxtor,
he will be required to immediately repay the loan amount, reduced pro rata for
the period of his employment relative to the term of the loan.
In March 1997, the Company entered into a letter agreement with Mr. Teh,
Maxtor's Vice President, Worldwide Manufacturing that provided for (i) base
compensation of S$396,000 (Singapore dollars) per year; (ii) a sign-on bonus of
$100,000 (U.S. dollars), payable in two installments in March 1997 and March
1998; (iii) an annual wage supplement of one month's base salary payable in
December provided that Mr. Teh has completed twelve months of continued
employment; (iv) an annual bonus opportunity of approximately S$198,000
(Singapore dollars); (v) an option to purchase 50,000 shares of Maxtor Common
Stock which vests over four years; (vi) a car and payment of certain operating
expenses; and (vii) the payment to Mr. Teh of nine months' base salary if his
employment is terminated without cause.
In June 1998, Maxtor entered into a letter agreement with Dr. Jipson, the
Company's Senior Vice President, Engineering, which provides that for the
payment to Dr. Jipson of nine months' base salary if his employment is
terminated without cause.
CHANGE-IN-CONTROL ARRANGEMENTS
1998 Restricted Stock Plan. Maxtor's 1998 Restricted Stock Plan (the
"Restricted Stock Plan") provides for the award of shares of Maxtor Common Stock
to employees. Maxtor's Board of Directors has the authority to amend or
terminate the Restricted Stock Plan. The Restricted Stock Plan's maximum share
11
<PAGE> 15
reserve is 390,000 shares of Maxtor Common Stock. In June 1998, the Compensation
Committee of the Board of Directors awarded restricted stock grants to executive
officers of the Company as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Michael R. Cannon........................................... 100,000
Victor B. Jipson............................................ 35,000
William F. Roach............................................ 35,000
Paul J. Tufano.............................................. 35,000
K. H. Teh................................................... 35,000
-------
Total............................................. 240,000
</TABLE>
Also in June 1998, the 150,000 shares remaining available under the
Restricted Stock Plan were awarded to certain other officers of Maxtor. The fair
market value of such shares on the date of the grants was determined by the
Compensation Committee to be $9.50. All shares reserved under the Restricted
Stock Plan have been awarded. All unvested shares of restricted stock are
forfeited in the event of termination of employment with the Company. In
general, the restricted stock shares vest and are released from the forfeiture
provision three years from the date of the restricted stock award. If a
participant's employment terminates due to death or disability, he will be
entitled to his pro rata share of vesting based on the number of months of
service from the grant date. Under the terms of a change of control agreement,
vesting of the Restricted Stock Plan shares is subject to acceleration upon
certain terminations of employment which occur within 12 months after the
occurrence of a change of control, as defined in the Restricted Stock Plan.
1996 Stock Option Plan. Pursuant to the 1996 Option Plan (the "Option
Plan"), in the event of a transfer of control, as defined therein, the Board of
Directors has the power but is not obligated to accelerate the vesting of
outstanding options. If the acquiring corporation in a transfer of control does
not assume, or substitute new options for, outstanding options, all shares
subject to outstanding options will become fully vested and exercisable prior to
the transfer of control.
Change of Control Agreements. Effective May 29, 1998, the Compensation
Committee of the Board of Directors approved Change of Control Agreements
pursuant to which certain of the Company's executives may receive severance
benefits in the event of a termination of employment under certain circumstances
involving a Change of Control of Maxtor. For this purpose, a "Change of Control"
is defined generally as acquisition by any person of a beneficial ownership of
50% or more of Maxtor voting stock, certain mergers or other business
combinations involving Maxtor, the sale of more than 50% of the Company's
assets, liquidation of Maxtor or change in the majority of the incumbent members
of the Board of Directors (except for changes in the Board of Directors
composition approved by a majority of the directors), or the sale by HEA of more
than 50% of its stock in Maxtor to a hard disk drive manufacturer, provided that
the number of shares sold represents at least 10% of the outstanding stock in a
single transaction at the time of such sale. Initial public offerings are
excluded from the definition of Change of Control.
Subject to the terms and conditions set forth in the Change of Control
Agreements, severance benefits become payable in the event that, within 12
months following a Change of Control, the executive is terminated by Maxtor
without cause, or resigns following a reduction in such employee's compensation,
responsibility level, or relocation of more than 100 miles. In such event, the
eligible employee is entitled to receive a lump sum cash payment equal to his or
her annual salary plus target incentive for the severance period. The severance
period is 24 months for the Chief Executive Officer and 12 months for other
executives. In addition, the Change of Control Agreements provide for
accelerated vesting of the executive's unvested stock options and/or restricted
stock. For the Chief Executive Officer, all unvested stock options and
restricted stock shall become 100% vested and other executives will have their
option vesting accelerated by an additional two years, and their restricted
stock shall be vested 50% or pro rata based upon the number of months from the
restricted award date, whichever is greater. The executive also will be entitled
to continued coverage under the Company's medical plan for the severance period.
If any part of the benefits under the Change of Control Agreement is determined
by Maxtor's accountants to be an excess parachute payment under Section 280G of
the Internal Revenue Code, at the executive's option, the payment will be
reduced to the minimum extent necessary to have no excess parachute payment.
12
<PAGE> 16
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of
non-employee members of the Company's Board of Directors. The members of the
Compensation Committee are Messrs. Christ, Chung, Johnson and Paul. The
Compensation Committee is responsible for setting and administering the policies
governing annual compensation of the Company's executive officers. The
Compensation Committee reviews the performance and compensation levels for
executive officers and is responsible for administering the Company's Option
Plan and Restricted Stock Plan, including approving stock option grants and
restricted stock grants to the Company's executive officers.
The market for executive talent in the disk drive industry, and in the
computer industry generally, is highly competitive. The goals of the Company's
executive compensation policies are to attract, retain and reward executive
officers who contribute to the Company's success, to align executive
compensation with the Company's performance and to motivate executive officers
to achieve the Company's business objectives. During 1998, the Compensation
Committee used salary, bonus compensation, option grants and restricted stock
grants to attain these goals. The Committee reviews compensation surveys
prepared by management of the Company and by Watson Wyatt Worldwide ("Watson
Wyatt"), an independent consulting firm engaged by the Company to compare the
Company's compensation package with that of similarly-sized high technology
companies. In 1998, the Compensation Committee consulted with Watson Wyatt
regarding the key components of the Company's executive compensation package. In
preparing the performance graph set forth in the section entitled "COMPARISON OF
STOCKHOLDER RETURN," the Company has selected the Hambrecht & Quist
Technology -- Computer Hardware Index as its published industry index; however,
the companies included in the Company's salary surveys are not necessarily those
included in this index, because companies in the index may not compete with the
Company for executive talent, and companies which do compete for executive
officers may not be publicly traded. Base salaries of executive officers are
reviewed annually by the Compensation Committee and adjustments are made based
on (i) salary recommendations from the President and Chief Executive Officer,
(ii) individual performance of executive officers for the previous fiscal year,
(iii) financial results of the Company for the previous year and (iv) reports to
the Compensation Committee from Watson Wyatt concerning competitive salaries,
scope of responsibilities of the officer position and levels paid by
similarly-sized high technology companies. The Compensation Committee seeks to
compensate the executive officers at the median range of compensation levels
paid by similarly-sized high technology companies.
The Compensation Committee approved the 1998 Incentive Plan (the "Incentive
Plan") to formally link cash bonuses for executive officers to the Company's
operating performance. Pursuant to the Company's Incentive Plan, the amount of
bonuses paid is dependent upon the Company's achievement of predetermined
financial performance targets. In 1998, the financial performance goals set by
the Compensation Committee were based on net income targets. The Compensation
Committee believes that this type of bonus program, in which bonuses are based
on the Company's attaining established financial targets, properly align the
interests of the Company's executive officers with the interests of
stockholders. The Compensation Committee establishes for each executive officer
an amount that may be awarded to such executive officer if the corporate
performance goal is met (a "Target Award"). Each executive officer's Target
Award is an amount equal to such percentage of the base salary paid to such
executive officer as the Compensation Committee determines. In 1998, the
corporate performance goal of net income was exceeded, and accordingly, bonuses
awarded to executive officers were at the high end of the ranges provided under
the Incentive Plan.
The Committee strongly believes that equity ownership by executive officers
provides incentives to build stockholder value and aligns the interests of
executive officers with those of the stockholders. The Committee provides such
incentives through stock option grants and restricted stock grants. The size of
an option grant to an executive officer has generally been determined with
reference to similarly-sized high technology companies, the achievements,
responsibilities and expected future contributions of the executive officer, as
well as recruitment and retention considerations. In 1998, the Compensation
Committee approved stock option grants to certain of the executive officers
consistent with these criteria. See "STOCK OPTION GRANTS IN LAST FISCAL YEAR."
In June 1998, the Compensation Committee awarded restricted stock grants to
13
<PAGE> 17
certain executive officers and other officers of the Company under the
Restricted Stock Plan. The Compensation Committee consulted with Watson Wyatt in
establishing the terms of the Restricted Stock Plan, including the size of the
individual grants, and believes that the 1998 grants were designed to provide
participants with strong incentives to remain with the Company and increase the
value of the Company's Common Stock. See "EXECUTIVE COMPENSATION AND OTHER
MATTERS" and "EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS -- CHANGE-IN-CONTROL ARRANGEMENTS -- CHANGE OF
CONTROL AGREEMENTS." Effective May 29, 1998, the Compensation Committee approved
change of control agreements pursuant to which certain executive officers may
receive severance benefits in the event of a change of control. See "EMPLOYMENT
CONTRACTS AND TERMINATION OF EMPLOYMENT AN CHANGE-IN-CONTROL
ARRANGEMENTS -- CHANGE OF CONTROL AGREEMENTS." The Compensation Committee
believes that these change of control agreements will provide an incentive to
key management to remain with the Company during the uncertainty of a possible
acquisition and continue to enhance stockholder value.
Mr. Cannon's compensation as President and Chief Executive Officer in 1998,
including his salary and bonus, was established pursuant to a July 1996 letter
agreement, the terms of which were set by arm's length bargaining and which had
been approved by the Compensation Committee in 1996. The Compensation Committee
determined in approving the Incentive Plan that Mr. Cannon and certain other
officers and key employees should be eligible for the highest target bonus, in
view of their responsibilities and expected performance. The Compensation
Committee reviewed Mr. Cannon's equity compensation several times during 1998
and made adjustments as it determined these were appropriate to continue to
retain and motivate Mr. Cannon. The Compensation Committee approved option
grants of 100,000 shares and 45,000 shares, respectively in January and February
1998, and a restricted stock grant of 100,000 shares in July 1998. In November
1998, the Compensation Committee reviewed Mr. Cannon's performance which had
significantly contributed to the Company's initial public offering, and
concluded that an option grant to Mr. Cannon of 1,000,000 shares was appropriate
to retain and motivate Mr. Cannon. The size of the option grants and restricted
stock grant were determined, in each case, based on the responsibilities and
expected future contributions of Mr. Cannon, as well as the equity compensation
of CEOs at similarly situated companies and the retention value of the grant.
The Company has considered the provisions of Section 162(m) of the Internal
Revenue Code and related Treasury Department regulations which restrict
deductibility of executive compensation paid to the Company's chief executive
officer and each of the four other most highly compensated executive officers
holding office at the end of any year to the extent such compensation exceeds
$1,000,000 for any of such officers in any year and does not qualify for an
exception under the statute or regulations. Income from options granted under
the Option Plan would generally qualify for an exemption from these restrictions
if the Company's stockholders approve Proposal No. 2 "APPROVAL OF THE 1996 STOCK
OPTION PLAN, AS AMENDED." In the future, the Committee will continue to evaluate
the advisability of qualifying its executive compensation for deductibility of
such compensation. The Committee's policy is to qualify its executive
compensation for deductibility under applicable tax laws as practicable.
COMPENSATION COMMITTEE
Philip S. Paul
Charles F. Christ
C. S. Chung
Roger W. Johnson
14
<PAGE> 18
REPORT OF THE COMPENSATION COMMITTEE ON REPRICING OF OPTIONS
On July 30, 1998, the Compensation Committee considered the options held by
the Company's employees, including executive officers, and the fact that a
substantial number of stock options granted pursuant to the Option Plan had
exercise prices above the expected initial public offering price for the
Company's Common Stock. On July 30, 1998, the Compensation Committee approved a
repricing of options held by all optionees who held options with an exercise
price greater than $7.00 (the low point of the range for the initial public
offering as filed with the Securities and Exchange Commission on July 30, 1998)
(the "Underwater Options"). The Company's initial public offering was completed
at a price of $7.00 on August 7, 1998.
In considering the repricing, the Compensation Committee reviewed the fair
market value of the Company's common stock, based on the expected initial public
offering price, and expected trading prices following the offering. The
Compensation Committee considered the impact of the lower fair market value on
the incentive afforded by the Underwater Options and determined that such
options were significantly less likely to serve their purposes of retaining and
motivating employees whose contributions are important to the Company's future
success. The Compensation Committee also determined that, unless adjustment was
made, longer term employees holding Underwater Options would perceive a
substantial inequity in comparison to more recently hired employees granted
options with exercise prices set at the then lower market price of the Company's
Common Stock, and the morale of such longer term employees would suffer as a
consequence. The Compensation Committee believed that the future success of the
Company would depend in large part on its ability to retain and motivate its
highly skilled employees for whom competition in the marketplace is intense, and
the loss of such employees could have a significant adverse impact on the
Company's business. The Compensation Committee believed that providing equity
incentives to employees of the Company to further increase the Company's
performance and the value of the Company for its stockholders was both important
and cost effective. The Compensation Committee considered other alternatives,
such as granting new options selectively to then employed key employees, but
determined that the size of the additional options that would be required to
offset the decline in the market price of the Company's Common Stock would
result in significant dilution to the public stockholders.
Considering these factors, the Compensation Committee determined that it
was in the best interests of the Company and its stockholders to restore the
incentives for employees and executive officers holding Underwater Options to
remain with the Company by adopting a stock option exchange program whereby
eligible employees holding Underwater Options could elect to cancel such options
and receive in exchange new options pursuant to the 1996 Plan having an exercise
price of $7.00. Each new option (a "New Option") gives the optionee the right to
purchase the number of shares of the Company's Common Stock that were subject to
and unexercised under the optionee's Underwater Option immediately prior to its
cancellation. Each New Option maintains the same vesting schedule as the option
it replaced. The term of each New Option is ten years, commencing on the grant
date of the Underwater Option, unless earlier terminated in accordance with the
provisions of the option agreement evidencing such New Option. Options for a
total of 437,763 shares with exercise prices ranging from $8.00 per share to
$9.50 per share were exchanged for options for an equal number of shares at an
exercise price of $7.00 per share.
COMPENSATION COMMITTEE
Philip S. Paul, Chairman
Charles F. Christ
C. S. Chung
Roger W. Johnson
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<PAGE> 19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP BETWEEN MAXTOR AND HYUNDAI
In 1994, Hyundai Electronics Industries ("HEI") and certain of its
affiliates purchased 40% of Maxtor's outstanding Common Stock for $150.0 million
in cash. In early 1996, HEA acquired all of the remaining shares of Maxtor's
publicly-held Common Stock in a tender offer and merger for $215.0 million in
cash and also acquired all of Maxtor's Common Stock held by HEI and its
affiliates. Immediately following Maxtor's February 1999 offering, HEA owned
approximately 40% of Maxtor's outstanding Common Stock.
HEI, HEA and Maxtor have entered into certain agreements described below
governing certain relationships between the parties. Because HEA controlled
Maxtor at the time these agreements were negotiated, these agreements did not
result from "arms' length" negotiations. In addition, many of the agreements
relate to matters that inherently arise only between a company and its parent or
affiliated companies, and so are not susceptible to comparison to similar
agreements negotiated at arms' length. These agreements resulted from
negotiations between Maxtor's management representatives and representatives of
HEA and HEI, with the participation of each parties' respective legal counsel
and other advisors. The agreements were intended, when taken together, to
reflect reasonable trade offs and benefits for all parties. In negotiating these
agreements, the parties sought to take into account, to the extent available,
terms of arms' length agreements and the terms that already had been negotiated
between HEI (and its affiliates) and Maxtor at the time of HEI's initial
investment in Maxtor. The Company might have received more favorable terms from
an unaffiliated party in some or all of the agreements, although the Company
believe some of the agreements may have more favorable terms than those
available from unaffiliated parties.
Conflicts of interest may arise from time to time in the future between
Maxtor and HEA or its affiliates in a number of areas relating to their past and
ongoing relationships, including potential competitive business activities,
corporate opportunities, tax matters, intellectual property matters, indemnity
agreements, registration rights, sales or distributions by HEA of all or any
portion of its ownership interest in Maxtor or HEA's attempt to assert control
over the management and affairs of Maxtor. The Company may not be able to
resolve any potential conflict and if the conflict is resolved, the Company
might have had a more favorable resolution if the Company were dealing with an
unaffiliated party.
Maxtor's Board of Directors has established an Affiliated Transactions
Committee, and adopted resolutions requiring this Affiliated Transactions
Committee to review any material transactions between Maxtor on the one hand,
and HEA or its affiliates on the other. Maxtor also has certain provisions in
Maxtor's Amended and Restated Certificate of Incorporation concerning the
conduct of certain affairs of Maxtor as they may involve HEA and its affiliates
on the one hand and Maxtor on the other.
HEA could decide to sell or otherwise dispose of all or a portion of its
holdings of Maxtor's Common Stock at some future date subject to certain
agreements between HEA and the underwriters of Maxtor's February 1999 public
offering. Holders of Maxtor's Common Stock other than HEA might not be allowed
to participate in any transaction involving a transfer of a controlling interest
in Maxtor by HEA. Such a transaction could adversely affect the trading price of
Maxtor's Common Stock or the interests of the holders of Maxtor's Common Stock
who do not participate in such transaction.
The documents summarized below are filed with the Securities and Exchange
Commission as exhibits to Maxtor's registration statement in connection with its
July 1998 public offering, and the full text of such documents should be read
for a complete description of their terms.
IBM LICENSE AND LICENSE FEES
HEI has licenses to certain IBM patents under a license agreement with IBM
and HEI sublicensed Maxtor under this agreement prior to Maxtor's July 1998
public offering. IBM agreed to provide a royalty-free license to an entity that
ceased to be a majority-owned subsidiary of HEI, as long as a request was timely
made and certain other conditions were met. After Maxtor's July 1998 public
offering, the Company ceased to be a majority-owned subsidiary of HEA, which is
a majority-owned subsidiary of HEI. Accordingly, HEA and
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<PAGE> 20
Maxtor requested a license agreement for Maxtor from IBM, and Maxtor and IBM
have entered into a license agreement licensing certain patents, effective from
the date the Company ceased to be a majority-owned subsidiary of HEA. HEI is
required under the IBM license agreement to pay IBM a license fee, payable in
annual installments through 2007. Although the license agreement between IBM and
Maxtor is royalty-free, under the sublicense agreement between HEI and us, the
Company agreed to pay IBM a portion of the license fee otherwise due from HEI
under the license agreement between HEI and IBM, when such amounts are due from
HEI to IBM.
CERTAIN INTELLECTUAL PROPERTY INDEMNIFICATION AND PATENT CROSS LICENSE BETWEEN
HEI AND MAXTOR
HEI agreed to indemnify the Company for any losses from third party claims
arising after the Company ceased to be a majority-owned subsidiary of HEA, if
those claims would have been covered under patent license agreements between HEI
or its affiliates other than Maxtor and such third party, and which were in
existence at the time Maxtor was a majority-owned subsidiary of HEA. The Company
ceased to be a majority-owned subsidiary of HEA on the date of the closing of
Maxtor's July 1998 public offering. These indemnifications survive through July
2001, and the maximum dollar amount for which HEI is liable under the
indemnification provisions is $25.0 million. In addition, HEI and Maxtor have
granted each other royalty-free patent licenses covering patents owned, or
licensable without the payment of royalties or other consideration to third
parties, by each party through August 31, 2003 relating to certain fields of
use. Maxtor and HEI also have agreed to indemnify each other for losses from the
other party's action or inaction under the license agreement between HEI and IBM
including any nonpayment of license fees. Maxtor's maximum liability under this
indemnity agreement is the total amount of money due to IBM under the sublicense
agreement and actual interest costs and/or exchange rate losses incurred by HEI.
STOCKHOLDER AGREEMENT
HEA, HEI and Maxtor are parties to a stockholder agreement (the
"Stockholder Agreement"). The stockholder agreement does not bind any Hyundai
entity other than HEA, HEI, their successors and entities controlled by either
of them ("Hyundai Affiliates"), Maxtor and/or entities controlled by Maxtor. HEA
currently owns approximately 40% of Maxtor's Common Stock. The number of shares
of Common Stock owned by HEA includes shares subject to the DECS. HEA will
retain beneficial ownership and retain the right to vote and to receive
dividends with respect to such shares unless such shares are delivered pursuant
to the DECS. Delivery of such shares is expected on or about February 15, 2002
unless HEA exercises its right to deliver cash in lieu of such shares (in which
case HEA will retain beneficial ownership of such shares) or unless DECS Trust
IV is liquidated, and such shares are delivered on an earlier date.
Registration Rights. Under the terms of the Stockholder Agreement, if the
Company proposes to register any of its securities under the Securities Act of
1933, either for its own account or the account of other stockholders exercising
registration rights, HEA and its transferees are entitled to notice of such
registration and are entitled to include shares of such Common Stock therein.
However, the underwriters of any offering have the right to limit the number of
shares included in such registration. In addition, HEA and certain transferees
may require us, on not more than five occasions, to file a registration
statement under the Securities Act of 1933 with respect to minimum specified
amounts and value of shares held by HEA or such transferees. The Company is
required to use reasonable commercial efforts to effect such registration,
subject to certain conditions and limitations. Registration of such shares under
the Securities Act of 1933 would result in such shares becoming freely tradable
and could have an adverse effect on the market price for Maxtor's Common Stock.
On January 19, 1999, HEA entered into an agreement with the Company
supplementing and modifying the terms of HEA's registration rights relating to
Maxtor's February 1999 public offering and the DECS offering, to allocate
expenses for such offerings, to provide for indemnification to the Company
relating to the DECS offering, to agree to the allocation of the over-allotment
option, if exercised, and certain other matters.
Rights Regarding Maxtor's Board of Directors. When the Hyundai Affiliates
beneficially own less than a majority, but at least 30% of Maxtor's outstanding
voting stock, as is currently the case, HEA has the right to designate for
nomination one director in each of the three classes of Maxtor's Board of
Directors. Such
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<PAGE> 21
designee must be reasonably satisfactory to the Nominating Committee of the
Board of Directors. The remaining directors are to be nominated by the
Nominating Committee, subject to the approval of a majority of Maxtor's
directors who are not employed by or serving as paid consultants for HEA, Maxtor
or either of their affiliates. The Nominating Committee has complied with these
requirement with respect to the election of the directors hereunder. HEA has the
right to designate for nomination one director in each of two classes at any
time when the Hyundai Affiliates beneficially own less than 30% but at least 20%
of Maxtor's outstanding voting stock, and one director if the Hyundai Affiliates
beneficially own less than 20% but at least 10% of Maxtor's outstanding voting
stock. Again, each designee must be reasonably satisfactory to the Nominating
Committee. If a vacancy occurs with respect to a director which HEA had the
right to designate initially, and HEA has the right at such time to designate a
director for nomination in such director's class, HEA is entitled to designate a
director to fill the vacancy. If the Company nominates or elects those persons
designated by HEA, the Hyundai Affiliates are required to vote their shares of
voting stock in favor of all directors nominated in accordance with the
stockholder agreement. HEA's right to designate directors for nomination
terminates when the Hyundai Affiliates beneficially own less than 10% of the
outstanding voting stock.
Three of Maxtor's nine directors are employees of HEA or HEI.
Prohibition on Certain Proxy Solicitations. The Hyundai Affiliates are not
permitted to make any solicitation of proxies either with regard to the election
of directors or other proposals, except in response to a solicitation of proxies
by a person other than Maxtor's management in an election contest or otherwise.
This prohibition on proxy solicitation terminates when the Hyundai Affiliates
beneficially own less than 20% of the outstanding voting stock.
Standstill and Right to Maintain Ownership; Substantial Stock
Ownership. Hyundai Affiliates are not permitted to acquire additional shares of
Maxtor's voting stock except for two reasons. First, Hyundai Affiliates may
purchase voting stock if a third party makes a tender offer or exchange offer
for at least 40% of Maxtor's voting stock or accumulates more than 20% of
Maxtor's voting stock, unless these actions by the third party have been
approved by a majority of Maxtor's directors who are not employees of any
Hyundai entity or Maxtor. Second, Hyundai Affiliates may purchase voting stock
through December 31, 2000, if as a result of an issuance of Common Stock or
other equity securities by Maxtor, Hyundai Affiliates will own in the aggregate
less than 30% of Maxtor's outstanding voting stock, plus one share (the "Minimum
Ownership") following such issuance. In the second case, HEA is permitted to
purchase shares of Maxtor's Common Stock in the open market, subject to Maxtor's
trading window policies, only to the extent necessary to maintain the Minimum
Ownership. Unless such purchases are made or HEA otherwise directs, the Company
will automatically sell HEA the number of shares of Common Stock necessary to
allow Hyundai Affiliates in the aggregate to maintain the Minimum Ownership, at
fair market value as determined under the stockholder agreement. The prohibition
on Hyundai Affiliates' acquisition of Maxtor's voting stock terminates on the
earlier of December 31, 2001 or such time as the Hyundai Affiliates beneficially
own less than 20% of Maxtor's outstanding voting stock.
So long as HEA owns a substantial percentage of Maxtor's voting stock, it
may be able to influence corporate policy decisions and determine the outcome of
any matters submitted to Maxtor's stockholders. A favorable vote of two-thirds
of Maxtor's outstanding voting stock is required to approve certain types of
amendments to Maxtor's Amended and Restated Certificate of Incorporation and
stockholder-proposed amendments to Maxtor's Amended and Restated Bylaws.
Consequently, HEA will be able to block such amendments so long as it owns at
least one-third of Maxtor's Common Stock, and will make approval of any such
amendment more difficult to achieve if it disapproves of such amendment even if
its ownership drops below one-third.
Agreement Not to Compete. HEA and HEI also have agreed not to compete with
the Company in the design, development, manufacture, marketing or sale of hard
disk drives through July 2003. Despite this agreement, Hyundai Affiliates are
permitted to make investments of up to 3% of the outstanding stock of a publicly
traded corporation.
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<PAGE> 22
TRANSACTIONS WITH HEA
In December 1995, HEA loaned the Company $100 million, which was due on
April 10, 1996 and accrued interest at LIBOR plus 0.65%, with interest payable
at maturity. This $100 million loan was replaced in April 1996 with a one year
$100 million revolving line of credit bearing interest at HEA's cost of funds
plus 0.10%, with interest payable quarterly. In July 1996, the Company borrowed
an additional $35 million from HEA due in August 1996, bearing interest at LIBOR
plus 0.70% with interest payable at maturity; this loan was repaid at maturity.
In April 1997, HEA renewed the revolving line of credit and increased the
borrowing limit to $150 million. HEA increased the borrowing limit on this line
of credit to $185 million in June 1997, and to $270 million in August 1997. In
December 1997, $200 million of this outstanding indebtedness was cancelled in
exchange for 29,850,746 shares of Maxtor's preferred stock, the borrowing limit
was reduced to $150 million, and the Company repaid an additional $5 million in
principal. In January 1998, the Company repaid an additional $10 million in
principal. In April 1998, this revolving line of credit was renewed with a
borrowing limit of $100 million. On July 31, 1998, the Company replaced this
revolving line with a three-year subordinated term note in the same principal
amount which bore interest, payable semi-annually, at LIBOR plus 2.0%. As of
December 26, 1998, this note had an outstanding balance of $55.0 million. The
Company prepaid this note in full (including accrued interest) with the proceeds
of the February 1999 stock offering.
HEA currently is an unconditional guarantor of Maxtor's facilities lease in
Milpitas, California. The aggregate rent under the lease is currently $6.7
million per annum.
TRANSACTIONS WITH HEI
In August 1995, HEI guaranteed a $100 million 364-day revolving credit
facility of ours that expired in August 1996. In January 1996, HEI guaranteed a
$13.8 million one year loan to Maxtor Singapore, which was renewed in January
1997 for an additional year and repaid at maturity in January 1998. In August
1996, HEI guaranteed an $86 million 364-day revolving credit facility and a $129
million three year revolving credit facility. In October 1996, the $86 million
364-day revolving credit facility was increased by $10 million and HEI
guaranteed the additional amount. In addition, in October 1996, HEI guaranteed a
separate $10 million one year revolving credit facility which was repaid by the
Company in January 1998. In December 1996, HEI guaranteed two additional credit
facilities, one of which was a three month $20 million uncommitted line that the
Company repaid at maturity in March 1997 and the other of which was a $10
million one year facility which was repaid at maturity in December 1997. In
August 1997, the Company repaid $65 million of the $96 million 364-day revolving
credit facility and extended the balance of $31 million for an additional 364
days, continuing HEI's guarantee. In October 1997, HEI guaranteed an additional
$10 million one year revolving credit facility.
HEI served as guarantor for Maxtor's borrowings under various revolving
bank credit facilities from August 1995 through June 1998. At March 28, 1998,
Maxtor's aggregate indebtedness guaranteed by HEI under such facilities was
$170.0 million. Due to the economic conditions in Korea and significant recent
devaluations of the Korean won versus the U.S. dollar, HEI's reported financial
condition as of year-end 1997 was not in compliance with certain financial
covenants applicable to HEI as guarantor under such revolving credit facilities,
and such non-compliance constituted a default by the Company under such
revolving credit facilities and also a default (through a cross-default clause)
under an uncommitted credit facility. The default under the revolving credit
facilities was waived by the lending banks in June 1998 in exchange for another
Hyundai affiliate, Hyundai Heavy Industries, becoming the guarantor under such
facilities in place of HEI and an increase in pricing to reflect borrowing rates
based on Hyundai Heavy Industries' current credit rating. Indebtedness of $200
million under the revolving credit facilities, guaranteed by Hyundai Heavy
Industries was paid with the proceeds of Maxtor's July 1998 public offering.
On March 30, 1996, the Company entered into an accounts receivable
securitization program with Citicorp Securities, Inc. Under this program, the
Company could sell Maxtor's qualified trade accounts receivable up to $100
million on a non-recourse basis. As of December 27, 1997, $79.8 million of
advances related to sales of accounts receivable were included in accrued and
other liabilities. In connection with this program, HEI entered into a
performance undertaking under which HEI agreed to cause the Company to
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<PAGE> 23
collect receivables and to perform Maxtor's obligations in the event of Maxtor's
failure to perform under the program. HEI also indemnified the purchasers from
any expenses incurred in enforcing their rights under the program. This asset
securitization program was subject to certain conditions, among which was a
condition that all of HEI's long-term public senior debt securities achieve a
specified rating. This condition was not met in February 1998, and the Company
obtained waivers of this condition through April 8, 1998.
On April 8, 1998, the Company entered into a new asset securitization
program (the "Second Program") arranged by Citicorp Securities to replace
Maxtor's then existing program. Under the Second Program, the Company could sell
Maxtor's trade accounts receivable through a special purpose vehicle with a
purchase limit of $100 million on a non-recourse basis, subject to increase to
$150 million, upon the fulfillment of the conditions. On April 8, 1998, the
receivables then securitized under the existing program, in the amount of
approximately $100 million, were transferred to Citicorp's Corporate Receivables
Corporation under the Second Program. Hyundai Heavy Industries entered into a
new performance undertaking similar to that under the former program. On July
31, 1998, the Company replaced the Second Program with an asset securitization
program with Fleet National Bank under which the Company sell Maxtor's eligible
trade accounts receivable on a non-recourse basis through a special purpose
entity. This asset securitization program does not require any support from HEI
or any of its affiliates.
The Company also has purchased DRAM chips from HEI. Maxtor's total DRAM
chip purchases from HEI in fiscal 1998 totaled approximately $8.6 million. The
Company currently is negotiating a long-term SDRAM supply agreement with HEI.
HEI and its affiliates purchased $39.5 million and $6.2 million of disk
drive products from the Company during fiscal years 1997 and 1998, respectively.
TRANSACTION WITH INTERNATIONAL MANUFACTURING SERVICES
In 1996, the Company sold a majority interest in International
Manufacturing Services to certain members of International Manufacturing
Services management and other investors for $25 million in cash and $20 million
in notes and retained a 23.5% ownership interest in International Manufacturing
Services. In October 1997, International Manufacturing Services completed an
initial public offering and repaid in full the note and its related interest,
which aggregated $21.8 million. The Company has agreed to indemnify the
investors and International Manufacturing Services up to $17.5 million for
certain breaches of representations, provided that tax and environmental
representations are not subject to the liability limit.
On December 30, 1998, International Manufacturing Services and Celestica
Inc. completed a strategic combination. As a result of this strategic
combination, Maxtor received 0.4 Celestica Subordinated Voting Shares for each
of its shares of International Manufacturing Services Common Stock, or a total
of approximately 1,194,000 Celestica Subordinated Voting Shares (representing
less than 2% of the total number of outstanding shares of Celestica capital
stock).
The Company outsources most of its printed circuit board assembly to
International Manufacturing Services; International Manufacturing Services
supplies the Company with printed circuit boards, sub-assemblies and fully
integrated products under a manufacturing services agreement. The Company made
purchases from International Manufacturing Services in the years ended December
27, 1997 and December 26, 1998 of $115.3 million and $118.6 million,
respectively. During this period, two former officers of Maxtor, Robert Behlman
(formerly Maxtor's Vice President of Manufacturing) and Nathan Kawaye (formerly
Maxtor's Vice President and Chief Financial Officer), held positions as
President and Chief Executive Officer and Vice President and Chief Financial
Officer, respectively, at International Manufacturing Services. Mr. Tufano
served as a director of International Manufacturing Services through December
30, 1998.
TRANSACTION WITH HYUNDAI INFORMATION TECHNOLOGY
Maxtor has implemented the SAP System. Maxtor's rights to this new
information system are governed by a license agreement between Hyundai
Information Technology and SAP. Maxtor has obtained a direct
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<PAGE> 24
license with SAP the terms of which are the same as those in the license
agreement between Hyundai Information Technology and SAP.
TRANSACTION WITH MMC TECHNOLOGY
HEA formed a division in May 1996 to supply the Company with hard disk
media. This division of HEA was incorporated as MMC Technology in December 1997
and is currently a wholly-owned subsidiary of HEA. Michael Cannon, Maxtor's
President and Chief Executive Officer, is a director of MMC Technology. During
the quarter ended December 27, 1997, the quarter in which the Company first
began to purchase media from MMC Technology, and the year ended December 26,
1998, MMC Technology supplied media to Maxtor with an aggregate purchase price
of $13.2 million and $146.8 million, respectively. In August 1998, the Company
entered into an agreement with MMC Technology with respect to pricing of future
purchases that provided for pricing discounts in return for a purchase volume
commitment based on a percentage of Maxtor's total media purchases through
September 30, 2001. The pricing discounts range from 2% to 4% off of competitive
prices.
On May 18, 1998, the Company entered into an agreement with MMC Technology
relating to options to purchase shares of Maxtor's Common Stock granted by the
Company to MMC Technology employees. Under the agreement, MMC Technology agreed
to reimburse the Company for financial statement expenses relating to such
options.
OTHER RELATED PARTY TRANSACTIONS
The Company has entered into employment agreements and change of control
agreements with certain of Maxtor's officers and have made a loan to one
officer. Additionally, Maxtor has entered into indemnification agreements with
each of its directors and executive officers. Such indemnification agreements
require the Company to indemnify such individuals to the fullest extent
permitted by law.
All material transactions between Maxtor and its executive officers,
directors, principal stockholders and other affiliates are subject to review and
approval by the Affiliated Transactions Committee or by a committee comprised
solely of Maxtor's independent and disinterested directors.
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COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's Common Stock with the cumulative
total returns of The NASDAQ Stock Market -- U.S. Index and the Hambrecht & Quist
Technology -- Computer Hardware Index for the period commencing on July 31,
1998, the date of the Company's initial public offering, and ending December 26,
1998. (*)
COMPARISON OF CUMULATIVE TOTAL RETURN FROM JULY 31, 1998 THROUGH DECEMBER 26,
1998;
MAXTOR CORPORATION, THE NASDAQ STOCK MARKET -- U.S. INDEX AND
HAMBRECHT & QUIST TECHNOLOGY -- COMPUTER HARDWARE INDEX
<TABLE>
<CAPTION>
H&Q TECHNOLOGY INDEX - NASDAQ STOCK MARKET -
MAXTOR COMPUTER HARDWARE SECTOR U.S. INDEX
------ ------------------------ ---------------------
<S> <C> <C> <C>
July-98 100 100 100
Aug-98 97 85 80
Sep-98 125 104 91
Oct-98 152 114 95
Nov-98 197 124 105
Dec-98 200 143 119
</TABLE>
- ---------------
(*) The stock performance graph assumes $100 was invested on July 31, 1998 in
the Company's Common Stock and each index. No cash dividends have been
declared on the Company's Common Stock. Stockholder returns over the
indicated period should not be considered indicative of future stockholder
returns.
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<PAGE> 26
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, with one
class elected at each Annual Meeting of Stockholders for a three-year term.
The Company, and HEA and HEI (together the "Hyundai Affiliates"), are
parties to a stockholder agreement which provides that while the Hyundai
Affiliates beneficially own less than a majority, but at least 30% of the
Company's outstanding voting stock, HEA has the right to designate for
nomination one director in each of the three classes of the Company's Board of
Directors. Such designees must be reasonably satisfactory to the nominating
committee of the Board of Directors. The remaining directors are nominated by
the nominating committee, subject to the approval of a majority of the directors
who are not employed by or serving as paid consultants for HEA, Maxtor or either
of their affiliates. HEA has the right to designate for nomination one director
in each of two classes at any time when the Hyundai Affiliates beneficially own
less than 30% but at least 20% of the Company's outstanding voting stock, and
one director if the Hyundai Affiliates beneficially own less than 20% but at
least 10% of the Company's outstanding voting stock. In each case, the HEA
designee must be reasonably satisfactory to the nominating committee. If a
vacancy occurs with respect to a director which HEA had the right to designate
initially, and HEA has the right at such time to designate a director for
nomination in such director's class, HEA is entitled to designate a director to
fill the vacancy. If the Company nominates for election those persons designated
by HEA, the Hyundai Affiliates are required to vote their shares of voting stock
in favor of all directors nominated in accordance with the stockholder
agreement. HEA's right to designate directors for nomination terminates when the
Hyundai Affiliates beneficially own less than 10% of the Company's outstanding
voting stock. See "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS"
and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Charles Hill and C.S. Chung, two of the Class I directors of Maxtor's three
classes of directors, have been nominated for reelection, in accordance with the
provisions described above, to serve a term of three years and until their
successors have been elected and qualified. Mr. Philip S. Paul, also a Class I
director, whose term expires at the 1999 Annual Meeting of Stockholders, has
advised the Company that he will not stand for re-election. The Board has
therefore reduced the size of Class I to two directors and the total number of
authorized directors to eight, each of the foregoing actions shall become
effective upon the Annual Meeting.
It is intended that the proxy in the form enclosed will be voted, unless
otherwise indicated, for the election of the nominees for election to Class I.
If either nominee should for any reason be unable or unwilling to serve, the
proxies will be voted for the election of such other person(s) for the office of
director as the Board may recommend in the place of such nominee.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
If a quorum is present and voting, the two nominees for Class I director
receiving the highest number of votes will be elected as Class I directors.
Abstentions and shares held by brokers that are present but not voted because
the brokers were prohibited from exercising discretionary authority (i.e.,
"broker non-votes") will be counted as present for purposes of determining if a
quorum is present.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR ALL NOMINEES"
WITH RESPECT TO PROPOSAL NUMBER 1.
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PROPOSAL NUMBER 2
APPROVAL OF THE
1996 STOCK OPTION PLAN, AS AMENDED
At the Annual Meeting, the stockholders will be asked to approve the
Company's 1996 Stock Option Plan, as amended (the "Amended Option Plan"), to
meet the requirements of Section 162(m) of the Internal Revenue Code (the
"Code") and to (i) increase by 3,676,367 the aggregate number of shares of
Common Stock authorized for issuance under the plan, (ii) increase the size of
certain options granted to non-employee directors and (iii) provide for the
grant of restricted stock.
To enable the Company to deduct in full for federal income tax purposes the
compensation recognized by certain executive officers in connection with options
granted under the Amended Option Plan, the plan is designed to qualify such
compensation as "performance-based compensation" under Section 162(m) of the
Code. In compliance with the requirements of Section 162(m), the Amended Option
Plan limits the number of shares for which options may be granted to any
employee. Under this limitation (the "Grant Limit"), no employee may be granted
options for more than 1,200,000 shares in any fiscal year. The Grant Limit is
subject to appropriate adjustment in the event of certain changes in the
Company's capital structure, as described below. By approving this proposal, the
stockholders will be approving for the purposes of Section 162(m), among other
things, the eligibility requirements for participation in the Amended Option
Plan and the Grant Limit.
As previously approved by the stockholders, the 1996 Stock Option Plan
currently authorizes the issuance of a maximum 13,799,318 shares of Common
Stock. The Board of Directors believes that long-term equity incentives are
important factors in attracting and retaining qualified employees, consultants
and directors, and in June 1999, it amended the 1996 Stock Option Plan, subject
to stockholder approval, to increase the maximum number of shares issuable
thereunder by 3,676,367 shares, to a total of 17,475,685 shares. In addition,
the Board believes that the flexibility to grant shares of restricted stock is
an important component of the Company's equity incentive programs. While the
Company has a 1998 Restricted Stock Plan (the "Restricted Plan") under which
restricted stock grants may be made to eligible employees, there remain no
shares available for grant under that plan. The Board believes that it is
preferable to amend the 1996 Stock Option Plan to permit the grant of shares of
restricted stock rather than to increase the number of shares authorized under
the Restricted Plan in order to provide the Company with more flexibility and to
minimize the costs of administering the Company's stock plans. Finally, to
enable the Company to continue to successfully attract, retain and reward highly
qualified individuals to serve as members of its Board of Directors, the Board
has amended the 1996 Stock Option Plan to increase the size of the automatic,
non-discretionary awards of stock options made to non-employee directors under
the plan. The stockholders are being asked to approve (i) an increase from
20,000 shares to 30,000 shares in the size of the one-time initial option
granted to any non-employee director initially elected or appointed to the Board
on or after December 1, 1998 and (ii) an increase from 5,000 shares to 10,000
shares in the size of an option granted automatically every three years to each
continuing non-employee director on the anniversary of his or her initial option
grant.
Because competition for highly qualified individuals in the Company's
industry is intense, the Board of Directors believes that to successfully
attract and retain the best candidates, the Company must continue to offer a
competitive equity incentive program. It expects that the Amended Option Plan
will be an important factor in meeting these aims and in motivating its
participants to contribute to the Company's success. Accordingly, the Board
believes that approval of this proposal is in the best interests of the Company
and its stockholders.
SUMMARY OF THE PROVISIONS OF THE AMENDED OPTION PLAN
The following summary of the Amended Option Plan is qualified in its
entirety by the specific language of the Amended Option Plan, a copy of which is
available to any stockholder upon request.
General. The Amended Option Plan currently provides for the grant of
incentive stock options, as defined in Section 422 of the Code ("ISOs"), and
nonstatutory stock options. As amended, the Amended Option Plan will also permit
the grant of shares of restricted stock. As of April 30, 1999, there were
outstanding options under the 1996 Stock Option Plan to purchase an aggregate of
9,181,778 shares of Common Stock, at a weighted average exercise price of $8.59
per share. As of April 30, 1999, options to
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<PAGE> 28
purchase 394,514 shares of Common Stock granted pursuant to the 1996 Stock
Option Plan had been exercised and 4,221,889 shares remained available for the
future grant of stock options under the plan (without taking the proposed
increase into account).
Shares Subject to the Amended Option Plan. A maximum of 17,475,685 shares
of the Company's authorized but unissued or reacquired Common Stock may be
issued pursuant to the Amended Option Plan. Of these, no more than 10,000,000
shares may be issued pursuant to ISOs (the "ISO Limit"). Further, in order to
qualify compensation recognized by certain executive officers in connection with
options granted under the Amended Option Plan as "performance-based
compensation" under Section 162(m) of the Code, the Amended Option Plan includes
the Grant Limit, under which the maximum number of shares for which options may
be granted to any employee in any fiscal year of the Company is limited to
1,200,000. The Grant Limit does not apply to restricted stock awards.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments will be made to the
shares subject to the Amended Option Plan, the Grant Limit, the ISO Limit, the
Outside Director Options discussed below, and to outstanding awards. To the
extent any outstanding option under the Amended Option Plan expires or
terminates prior to exercise in full or if the Company reacquires shares issued
pursuant to the Amended Option Plan, the shares for which that option is not
exercised or the reacquired shares are returned to the Amended Option Plan and
will again be available for issuance under the plan.
Administration. The Amended Option Plan is administered by the Board of
Directors or a duly appointed committee of the Board, which, in the case of
options intended to qualify for the performance-based compensation exemption
under Section 162(m) of the Code, must be comprised solely of two or more
"outside directors" within the meaning of Section 162(m). (For purposes of this
summary, the term "Board" refers to either the Board of Directors or any such
committee.) Subject to the provisions of the Amended Option Plan, the Board
determines the persons to whom options or shares of restricted stock
(collectively, "awards") are to be granted, the number of shares to be covered
by each award, whether an option is to be an ISO or a nonstatutory stock option,
the terms of vesting and exercisability of each award, including the effect
thereon of an individual's termination of service, the type of consideration to
be paid to the Company upon exercise of an option, the duration of each option,
and all other terms and conditions of the options. The Amended Option Plan also
provides that, except where prohibited by applicable law, the Company will
indemnify any director, officer or employee against all reasonable expenses,
including attorneys' fees, incurred in connection with any legal action arising
from that person's action or failure to act in administering the Amended Option
Plan. The Board will interpret the Amended Option Plan, and all determinations
of the Board will be final and binding on all persons having an interest in the
Amended Option Plan or any award under the plan.
Eligibility. Generally, all employees, directors and consultants of the
Company or of any present or future parent or subsidiary corporations of the
Company are eligible to participate in the Amended Option Plan. In addition, the
Amended Option Plan permits the grant of awards to prospective employees and
consultants in connection with written offers of employment or engagement. As of
April 30, 1999, the Company had approximately 6,300 employees, including nine
executive officers, one of whom is also a member of the Board of Directors. Any
person eligible under the Option Plan may be granted a nonstatutory stock option
or restricted stock award. However, only employees may be granted ISOs.
The Amended Option Plan also provides for the automatic grant of
nonstatutory stock options ("Outside Director Options") to members of the Board
who are not employees of the Company ("Outside Directors"). Each Outside
Director (other than a director who became an Outside Director as a result of
his or her termination of employment) first elected or appointed to the Board on
or after December 1, 1998 will receive on the date he or she becomes an Outside
Director an option to purchase 30,000 shares of Common Stock (an "Initial
Grant"). On November 11, 1998, each Outside Director who previously received an
Initial Grant of 20,000 shares under the 1996 Stock Option Plan prior to the
amendments which are the subject of this proposal received a special one-time
grant of an option to purchase 10,000 shares. In addition, for so long as an
Outside Director remains a member of the Board, he or she will receive on each
third anniversary of the date of his or her Initial Grant an option to purchase
10,000 shares of Common Stock.
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<PAGE> 29
Terms and Conditions of Options. Each option granted under the Amended
Option Plan is evidenced by a written agreement between the Company and the
optionee specifying the number of shares subject to the option and the other
terms and conditions of the option, consistent with the requirements of the
Amended Option Plan. The exercise price per share under an ISO must be no less
than the fair market value of a share of the Company's Common Stock on the date
of grant and under a nonstatutory stock option must be no less than 85% of the
fair market value of a share of the Common Stock on the date of grant. The
exercise price per share under each Outside Director Option is the closing price
of a share of the Company's Common Stock as quoted on the Nasdaq National Market
on the date of grant. The exercise price of any ISO granted to a person who at
the time of grant owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company (a "10% Stockholder") must be at least 110% of the
fair market value of a share of the Company's Common Stock on the date of grant.
The fair market value of the Company's Common Stock is based on the trading
price of its shares on the Nasdaq National Market. On July 1, 1999, the closing
price of a share of Common Stock as quoted on the Nasdaq National Market was
$5.19.
Generally, the exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of the Company's Common Stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or a loan with respect to some or all of
the shares of Common Stock being acquired upon the exercise of the option, by
means of a promissory note, by any lawful method approved by the board or by any
combination of these. The Board may nevertheless restrict the forms of payment
permitted in connection with any option grant.
The Board will specify when options granted under the Amended Option Plan
will become exercisable and vested. Shares subject to options generally vest and
become exercisable in installments, subject to the optionee's continued
employment or service. The maximum term of ISOs granted under the Amended Option
Plan is ten years, except that an ISO granted to a 10% Stockholder may not have
a term longer than five years. The Amended Option Plan authorizes the board to
grant nonstatutory stock options having a term in excess of ten years. Outside
Director Options vest and become exercisable in installments of 25% on the first
anniversary of the date of grant and 6.25% for each additional full calendar
quarter of service and have a term of 10 years. Options are nontransferable by
the optionee other than by will or by the laws of descent and distribution and
are exercisable during the optionee's lifetime only by the optionee.
Terms and Conditions of Restricted Stock Awards. As amended, the Board may
also grant to eligible persons shares of Common Stock without requiring monetary
payment. Each restricted stock award will be evidenced by a written restricted
stock grant agreement between the Company and the recipient specifying the
number of shares awarded and the other terms and conditions of the grant. The
agreement will generally provide for the forfeiture of shares in the event the
participant's employment or service with the Company is terminated for any
reason prior to the vesting of such shares. Typically, shares of restricted
stock will become vested and nonforfeitable in one or more installments over a
number of years. A participant may not transfer shares of restricted stock until
they have become vested.
Transfer of Control. The Amended Option Plan defines a "transfer of
control" as any of the following events where the stockholders of the Company
immediately before the event do not retain immediately after the event, in
substantially the same proportions as their ownership of shares of the Company's
voting stock immediately before the event, direct or indirect beneficial
ownership of more than 50% of the total combined voting power of the stock of
the Company, its successor or the corporation to which the assets of the Company
were transferred: (i) a sale or exchange by the stockholders in a single or
series of related transactions of more than 50% of the Company's voting stock;
(ii) a merger or consolidation in which the Company is a party; (iii) the sale,
exchange or transfer of all or substantially all of the assets of the Company;
or (iv) a liquidation or dissolution of the Company. If a transfer of control
occurs, the surviving, continuing, successor or purchasing corporation or parent
corporation thereof may either assume the Company's rights and obligations under
the outstanding options or substitute substantially equivalent options for such
corporation's stock. If the options outstanding under the Amended Option Plan
are not assumed or substituted for, then the outstanding options will become
immediately exercisable and vested in full as of the date ten days prior to the
transfer of control. To the extent that the options outstanding under the
Amended Option Plan are not assumed, substituted for, or exercised prior to the
transfer of control, they will terminate.
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<PAGE> 30
Termination or Amendment. The Amended Option Plan will continue in effect
until the earlier of its termination by the Board or the date on which all
shares available for issuance under the plan have been issued and all
restrictions on such shares under the terms of the plan and the agreements
evidencing awards granted under the plan have lapsed. However, unless the
Amended Option Plan is sooner terminated, no ISOs may be granted under the plan
after May 1, 2006. The Board may terminate or amend the Amended Option Plan at
any time, but, without stockholder approval, the board may not adopt an
amendment to the Amended Option Plan which would increase the maximum aggregate
number of shares of Common Stock that may be issued under the plan, change the
class of persons eligible to receive ISOs, or effect any other change that would
require stockholder approval under any applicable law, regulation or rule. No
termination or amendment may adversely affect an outstanding option without the
consent of the optionee, unless required to preserve the option's status as an
ISO or necessary to comply with any applicable law.
CERTAIN FEDERAL TAX CONSEQUENCES
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to options
granted under the Amended Option Plan and does not attempt to describe all
possible federal or other tax consequences of such participation or tax
consequences based on particular circumstances.
ISOs. An optionee recognizes no taxable income for regular income tax
purposes as the result of the grant or exercise of an ISO qualifying under
Section 422 of the Code. Optionees who do not dispose of their shares for two
years following the date the option was granted or within one year following the
exercise of the option will normally recognize a long-term capital gain or loss
equal to the difference, if any, between the sale price and the purchase price
of the shares. If an optionee satisfies such holding periods upon a sale of the
shares, the Company will not be entitled to any deduction for federal income tax
purposes. If an optionee disposes of shares within two years after the date of
grant or within one year after the date of exercise, referred to as a
disqualifying disposition, the difference between the fair market value of the
shares on the exercise date and the option exercise price, not to exceed the
gain realized on the sale if the disposition is a transaction with respect to
which a loss, if sustained, would be recognized, will be taxed as ordinary
income at the time of disposition. Any gain in excess of that amount will be a
capital gain. If a loss is recognized, there will be no ordinary income, and
such loss will be a capital loss. A capital gain or loss will be long-term if
the optionee's holding period is more than 1 year. Generally, for federal income
tax purposes, the Company should be able to deduct any ordinary income
recognized by the optionee upon the disqualifying disposition of the shares,
except to the extent the deduction is limited by applicable provisions of the
Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the exercise date of an ISO is an adjustment in computing the
optionee's alternative minimum taxable income and may be subject to an
alternative minimum tax which is paid if the tax exceeds the regular tax for the
year. Special rules may apply with respect to certain subsequent sales of the
shares in a disqualifying disposition, certain basis adjustments for purposes of
computing the alternative minimum taxable income on a subsequent sale of the
shares and certain tax credits which may arise with respect to optionees subject
to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated or qualifying as ISOs
will be nonstatutory stock options. Nonstatutory stock options have no special
tax status. An optionee generally recognizes no taxable income as the result of
the grant of such an option. Upon exercise of a nonstatutory stock option, the
optionee normally recognizes ordinary income in an amount equal to the
difference between the option exercise price and the fair market value of the
shares on the exercise date. If the optionee is an employee, the ordinary income
generally is subject to withholding of income and employment taxes. Upon the
sale of stock acquired by the exercise of a nonstatutory stock option, any gain
or loss, based on the difference between the sale price and the fair market
value on the exercise date, will be taxed as capital gain or loss. A capital
gain or loss will be long-term if the optionee's holding period is more than 1
year. No tax deduction is available to the Company with respect to the grant of
a nonstatutory option or the sale of the stock acquired pursuant to that grant.
The Company generally should be entitled to a deduction equal to the amount of
ordinary income recognized by
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<PAGE> 31
the optionee as a result of the exercise of a nonstatutory option, except to the
extent the deduction is limited by applicable provisions of the Code or the
regulations thereunder.
AMENDED PLAN BENEFITS
The Amended Option Plan is administered by the Board of Directors, which
generally determines the amount and timing of option grants under the Amended
Option Plan. Accordingly, with the exception of Outside Director Options, future
grants under the Amended Option Plan will be made at the discretion of the Board
and are not yet determinable. Similarly, the exercise price of future options
cannot be determined at this time because such exercise prices are typically
based upon the fair market value of the Company's Common Stock on the date of
grant.
The following table sets forth the Outside Director Options that will be
granted during the current fiscal year to all current directors who are not
executive officers, as a group, provided that all such persons remain
non-employee directors and the Amended Option Plan is approved by the Company's
stockholders. In addition, the table sets forth awards of restricted stock
granted effective June 23, 1999 by the Compensation Committee of the Board of
Directors to executive officers and key employees of the Company, subject to
approval of the Amended Option Plan by the Company's stockholders.
<TABLE>
<CAPTION>
DOLLAR NO. OF SHARES OF NO. OF SHARES UNDER
NAME AND PRINCIPAL POSITION VALUE($)(1) OF RESTRICTED STOCK OUTSIDE DIRECTOR OPTIONS
--------------------------- ----------- ------------------- ------------------------
<S> <C> <C> <C>
Michael R. Cannon............................. 4.78 500,000
President and Chief Executive Officer
William F. Roach.............................. 4.78 150,000
Senior VP, Worldwide Sales and Marketing
Victor B. Jipson.............................. 4.78 150,000
Senior VP, Engineering
Paul J. Tufano................................ 4.78 150,000
Senior VP, Finance and Chief Financial
Officer
K. H. Teh..................................... 4.78 125,000
VP, Worldwide Manufacturing
All executive officers as a group (Nine
Persons)(2)................................. 4.78 1,375,000
All current directors who are not executive
officers as a group(2)...................... -- 40,000
All Non-Executive Officer employees as a
group....................................... 4.78 305,000
</TABLE>
- ---------------
(1) The dollar value of the restricted stock is based on the closing price
reported by the NASDAQ National Market on June 23, 1999.
(2) The exercise price per share of Outside Directors Options is the closing
price of a share of the Company's Common Stock as quoted on the Nasdaq
National Market on the date of grant and cannot be determined at this time.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and voting at the Annual Meeting of Stockholders, at which a quorum
representing a majority of all outstanding shares of Common Stock of the Company
is present and voting, is required for approval of this proposal. Abstentions
and broker non-votes will each be counted present for purposes of determining
the presence of a quorum. Neither abstentions nor broker non-votes, on the other
hand, will have any effect on the outcome of the vote.
The Board of Directors believes that approval of the Amended Option Plan is
in the best interests of the Company and its stockholders. THEREFORE, FOR THE
REASONS STATED ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE 1996 STOCK OPTION PLAN, AS AMENDED.
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<PAGE> 32
PROPOSAL NO. 3
APPROVAL OF THE
1998 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
At the Annual Meeting, the stockholders will be asked to approve the
Company's 1998 Employee Stock Purchase Plan, as amended (the "Amended Purchase
Plan") to increase by 700,000 the aggregate number of shares of the Company's
Common Stock authorized for issuance under the plan. Currently, the 1998 Stock
Employee Purchase Plan authorizes the issuance of a maximum of 1,700,000 shares
of the Company's Common Stock. Because the availability to officers and other
employees of an opportunity to purchase shares at a discount from market price
is important to attracting and retaining qualified officers and employees
essential to the success of the Company, the Board of Directors amended the 1998
Employee Stock Purchase Plan, subject to stockholder approval, to increase the
maximum number of shares issuable under the Purchase Plan by 700,000 shares to
an aggregate total of 2,400,000 shares. The Board of Directors believes that
approval of this proposal is in the best interests of the Company and its
stockholders.
SUMMARY OF THE PROVISIONS OF THE AMENDED PURCHASE PLAN
The following summary of the Amended Purchase Plan is qualified in its
entirety by the specific language of the Amended Purchase Plan, a copy of which
is available to any stockholder upon request.
In May 1998, the Board of Directors adopted, and in July 1998 the
stockholders approved, the 1998 Employee Stock Purchase Plan. An aggregate of
3,400,000 shares of the Company's Common Stock was initially reserved for
issuance under the plan, subject to adjustment in the event of a stock split,
stock dividend or other similar change in the Common Stock or the capital
structure of the Company. Also in May 1998, the Board approved a one-for-two
reverse split of the Company's outstanding Common Stock, which became effective
upon the Company's filing of an amended and restated certificate of
incorporation in Delaware on July 24, 1998, thus reducing the number of shares
then reserved for issuance under the 1998 Employee Stock Purchase Plan to
1,700,000 shares.
The purpose of the Amended Purchase Plan is to provide employees of the
Company who participate in the plan with an opportunity to purchase Common Stock
of the Company through payroll deductions. The Amended Purchase Plan is intended
to qualify as an "employee stock purchase plan" under the provisions of Section
423 of the Code. Employees of the Company and its designated subsidiaries are
eligible to participate in the Amended Purchase Plan. Directors who are not
employees are not eligible to participate. In May 1999, subject to stockholder
approval, the Board of Directors approved an amendment to the 1998 Employee Sock
Purchase Plan increasing the number of shares available for issuance thereunder
from 1,700,000 shares to 2,400,000 shares. As of April 30, 1999, a total of
529,245 shares of Common Stock had been sold pursuant to the plan at a weighted
average price of $5.95 per share, with 1,170,755 shares remaining available for
future issuance under the plan (without taking the proposed increase into
account).
Any person who is employed by the Company (or any subsidiary designated by
the Board of Directors) for at least 20 hours per week and more than five months
in a calendar year is eligible to participate in the Amended Purchase Plan,
provided that the employee is employed on the first day of a Purchase Period (as
defined below) and subject to certain limitations imposed by Section 423(b) of
the Code. Eligible employees become participants in the Amended Purchase Plan by
delivering to the Company a subscription agreement authorizing payroll
deductions prior to the commencement of the applicable Purchase Period.
Under the Amended Purchase Plan, an option is granted to each participant
at the commencement of each six-month period (a "Purchase Period"), during which
deductions are made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the plan. A new six-month
Purchase Period commences each February 15 and August 15. Purchases of stock are
made on the last day of each six-month Purchase Period. However, no employee
will be permitted to subscribe for shares under the Amended Purchase Plan if,
immediately after the grant of the option, the employee would own 5% or more of
the voting power or value of all classes of stock of the Company or of a parent
or of any of its subsidiaries (including stock which may be purchased under the
plan or pursuant to any other options). Further, no employee will be granted an
option which would permit the employee to buy pursuant to the Amended Purchase
Plan more than $25,000 worth of stock (determined at the fair market value of
the shares at the time the option is granted) in any calendar year.
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<PAGE> 33
Participants may not make direct cash payments to their Amended Purchase
Plan accounts. However, a participant may change the rate of his or her payroll
deduction for the remainder of a Purchase Period by delivering an appropriate
notice to the Company. The adjusted rate will become effective with the first
practicable payroll period following the date on which the Company receives the
notice and will remain in effect for the remainder of the Purchase Period,
unless the participant elects to withdraw from participation in the Purchase
Period. A participant may increase (to the 10% maximum allowed by the Amended
Purchase Plan) or decrease his or her rate of payroll deduction for a subsequent
Purchase Period by filing a new payroll deduction authorization with the Company
prior to the start of that Purchase Period. The new rate will become effective
on the first day of the Purchase Period provided the new authorization was
received by the Company on or before the subscription date established by the
Company. The new authorization will remain in effect for that Purchase Period
and each subsequent Purchase Period until amended or cancelled.
The price per share at which shares of Common Stock are purchased pursuant
to the Amended Purchase Plan for any Purchase Period is the lesser of (a) 85% of
the fair market value of Common Stock on the date of the grant of the option
(the commencement of the Purchase Period) or (b) 85% of the fair market value of
Common Stock on the date of exercise of the option (the last business day of an
Purchase Period). The fair market value of the Common Stock for either date is
the closing price for the Common Stock on the last day of the Purchase Period or
the last trading day prior to the purchase date for the Purchase Period. On July
1, 1999, the closing price of a share of Common Stock as quoted on the Nasdaq
National Market was $5.19. On the last business day of each Purchase Period,
amounts credited to the accounts of participants who have neither been
terminated from the employ of the Company (or designated subsidiary) nor
withdrawn from the Purchase Plan for such Purchase Period are used to purchase
shares of Common Stock. Only amounts credited to the accounts of participants
may be applied to the purchase of shares of Common Stock under the Amended
Purchase Plan. The Board of Directors or a committee thereof may establish a
maximum number of shares of Common Stock which any employee may purchase under
the Amended Purchase Plan during a Purchase Period. The number of shares of
Common Stock which may be purchased is subject to adjustment in the event of a
stock split, stock dividend or other similar change in the Common Stock or the
capital structure of the Company. If, for any Purchase Period, the number of
shares of Common Stock available for the Purchase Period is insufficient, the
Company will make a pro rata allocation of the remaining shares in as uniform a
manner as shall be practicable and as the Company determines to be equitable.
The Company makes no cash contributions to the Amended Purchase Plan, but
bears the expenses of administration. The Amended Purchase Plan is administered
by the Compensation Committee, which has the authority to determine the terms
and conditions under which shares are to be offered and corresponding options
are to be granted under the plan for any Purchase Period during the term of the
plan, and to resolve all questions immediately relating to the administration of
the plan. The Amended Purchase Plan will terminate on the date preceding the
tenth anniversary of its date of adoption, unless earlier terminated by the
Board of Directors.
A participant's interest in a given Purchase Period may be terminated in
whole or in part by signing and delivering to the Company a notice of partial or
full withdrawal from the Amended Purchase Plan. Such withdrawal may be elected
at any time prior to the end of the applicable six-month Purchase Period. Any
total withdrawal by the participant of accumulated payroll deductions for a
given Purchase Period automatically terminates the participant's interest in
that Purchase Period. The failure to remain in the continuous employ of the
Company (or a designated subsidiary) for at least 20 hours per week and more
than five months in a calendar year during a Purchase Period will be deemed to
be a withdrawal from that Purchase Period.
No rights or accumulated payroll deductions of a participant under the
Amended Purchase Plan may be pledged, assigned or transferred for any reason. A
Purchase Right may not be transferred in any manner other than by will or the
laws of descent and distribution.
CERTAIN FEDERAL TAX CONSEQUENCES
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to
participation in the Amended Purchase Plan and does not attempt to describe all
possible federal or other tax consequences of such participation or tax
consequences based on particular circumstances.
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<PAGE> 34
Amounts deducted from a participant's pay under the Amended Purchase Plan
are part of the employee's regular compensation and remain subject to federal,
state and local income and employment withholding taxes. A participant will not
recognize any additional income at the time the participant elects to
participate in the Amended Purchase Plan or purchases Common Stock under the
plan.
If a participant disposes of Common Stock purchased pursuant to the Amended
Purchase Plan within two years after the first day of the Purchase Period or
within one year after the purchase of Common Stock (the "Minimum Holding
Period"), the participant will recognize, for federal tax purposes, ordinary
compensation income at the time of disposition of the Common Stock in an amount
equal to the excess of the fair market value of the Common Stock on the day the
Common Stock was purchased over the purchase price paid. This amount may be
subject to withholding for taxes. In addition, a participant generally will
recognize a capital gain or loss in an amount equal to the difference between
the amount realized upon the disposition of the Common Stock and the
participant's basis in the Common Stock (that is, the purchase price plus the
amount taxed as compensation income).
If a participant disposes of Common Stock purchased pursuant to the Amended
Purchase Plan at any time after the Minimum Holding Period, the participant will
recognize, for federal tax purposes, ordinary compensation income at the time of
such disposition in an amount equal to the lesser of (a) the excess (or zero if
there is no excess) of the fair market value of the Common Stock at the time of
such disposition over the amount paid for the Common Stock, or (b) 15% of the
fair market value of the Common Stock on the first day of the Purchase Period.
In addition, the participant generally will recognize a capital gain or loss in
an amount equal to the difference between the amount realized upon the
disposition of the Common Stock and the participant's basis in the stock (that
is, the purchase price plus the amount, if any, taxed as compensation income).
Although the amounts deducted from a participant's pay under the Amended
Purchase Plan generally are tax-deductible business expenses of the Company, the
Company generally will not be allowed any additional deduction by reason of a
participant's purchase of Common Stock under the plan. However, if a participant
disposes of Common Stock purchased pursuant to the Amended Purchase Plan within
the Minimum Holding Period, the Company should be entitled to a deduction in an
amount equal to the compensation income recognized by the participant (subject
to the requirements of reasonableness and perhaps, in the future, the
satisfaction of a withholding obligation). If a participant disposes of Common
Stock purchased under the Amended Purchase Plan after the Minimum Holding
Period, the Company will not receive any deduction for federal income tax
purposes with respect to the Common Stock.
AMENDED PLAN BENEFITS
Because benefits under the Amended Purchase Plan will depend on employees'
elections to participate and the fair market value of the Company's Common Stock
at various future dates, it is not possible to determine the benefits that will
be received by executive officers and other employees if the Amended Purchase
Plan is approved by the stockholders. Non-employee directors are not eligible to
participate in the Amended Purchase Plan.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and voting at the Annual Meeting of Stockholders, at which a quorum
representing a majority of all outstanding shares of Common Stock of the Company
is present and voting, is required for approval of this proposal. Abstentions
and broker non-votes will each be counted present for purposes of determining
the presence of a quorum. Neither abstentions nor broker non-votes, on the other
hand, will have any effect on the outcome of the vote.
The Board of Directors believes that the availability the Amended Purchase
Plan is important to attracting and retaining qualified officers and employees
essential to the success of the Company, and that stock ownership is important
to providing such persons with incentive to perform in the best interests of the
Company and its stockholders. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE 1998 EMPLOYEE STOCK PURCHASE
PLAN, AS AMENDED.
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PROPOSAL NO. 4
APPOINTMENT OF INDEPENDENT AUDITORS
The Company's Board of Directors has selected PricewaterhouseCoopers LLP as
the Company's independent accountants for its current fiscal year ending January
1, 2000. PricewaterhouseCoopers LLP is the successor by merger in July 1998 to
Coopers & Lybrand LLP which had acted in such capacity since July 1996. A
representative of PricewaterhouseCoopers LLP will be present at the Annual
Meeting, will be given the opportunity to make a statement if the representative
so desires and will be available to respond to appropriate questions. In the
event ratification by the stockholders of the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants is not
obtained by the affirmative vote of a majority of the stockholders in attendance
or represented by Proxy at the Annual Meeting, the Board of Directors will
reconsider such appointment. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THIS PROPOSAL.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders of the Company (i) must be received by Maxtor at its
offices at 510 Cottonwood Drive, Milpitas, California 95035 not later than March
8, 2000; and (ii) must satisfy the conditions established by the Securities and
Exchange Commission for stockholder proposals to be included in Maxtor's Proxy
Statement for that meeting and the other requirements contained in the Company's
By-Laws.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth herein. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of Proxy to vote the Proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors
Glenn H. Stevens
GLENN H. STEVENS SIGNATURE
Vice President, General Counsel
and Secretary
July 14, 1999
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[MAP]
[MAXTOR LOGO]
<PAGE> 37
EXHIBIT 1
APPROVAL OF THE 1996 STOCK OPTION PLAN, AS AMENDED
(PROPOSAL NO. 2)
In the event Proposal No. 2 of the Proxy Statement for the 1999 Annual
Meeting of Stockholders is approved by the requisite vote of the stockholders at
the Annual Meeting, the 1996 Stock Option Plan shall read in its entirety as
follows:
MAXTOR CORPORATION
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
(FOURTH AMENDMENT AND RESTATEMENT APPROVED ON JUNE 23, 1999)
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN
(a) ESTABLISHMENT. The Maxtor Corporation 1996 Stock Option Plan was
initially established effective as of May 1, 1996 (the "EFFECTIVE DATE"), and
was previously amended and restated in its entirety as the Maxtor Corporation
Amended and Restated 1996 Stock Option Plan (the "INITIAL PLAN"). The Initial
Plan is hereby amended and restated in its entirety effective as of June 23,
1999 (the "PLAN").
(b) PURPOSE. The purpose of the Plan is to promote the long-term
interests of the Participating Company Group and its stockholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by providing such persons with an additional
incentive to promote the financial success of the Participating Company Group.
(c) TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board of Directors or the date on which all of
the shares of Stock available for issuance under the Plan have been issued and
all restrictions on such shares under the terms of the Plan and the agreements
evidencing Awards granted under the Plan have lapsed. However, all ISOs shall be
granted, if at all, within ten (10) years from the Effective Date.
2. DEFINITIONS
Unless otherwise required by the context, the following terms when used
in the Plan shall have the meanings set forth in this Section 2:
(a) "AWARD": An award of an Option or a Restricted Share under the
Plan.
(b) "BOARD OF DIRECTORS": The Board of Directors of the Company. If
one or more Committees have been appointed by the Board of Directors to
administer the Plan, "Board of Directors" also means such Committee(s).
(c) "CODE": The Internal Revenue Code of 1986, as amended from time
to time.
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(d) "COMMITTEE": The Compensation Committee or other committee of
the Board of Directors duly appointed to administer the Plan and having such
powers as shall be specified by the Board of Directors. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board of Directors granted herein, including, without limitation,
the power to amend or terminate the Plan at any time, subject to the terms of
the Plan and any applicable limitations imposed by law.
(e) "COMPANY": Maxtor Corporation, a Delaware corporation, or any
successor thereto.
(f) "CONSULTANT": Any person, including an advisor, engaged by a
Participating Company to render services other than as an Employee or a
Director.
(g) "DIRECTOR": A member of the Board of Directors or of the board
of directors of any other Participating Company.
(h) "EMPLOYEE": Any person treated as an employee (including an
officer or a Director who is also treated as an employee) in the records of a
Participating Company; provided, however, that neither service as a Director nor
payment of a director's fee shall be sufficient to constitute employment for
purposes of the Plan.
(i) "EXCHANGE ACT": The Securities Exchange Act of 1934, as amended.
(j) "EXERCISE PRICE": The price per share at which the shares of
Stock subject to an Option may be purchased upon exercise of such Option.
(k) "FAIR MARKET VALUE": As applied to a specific date, the fair
market value of a share of Stock on such date as determined in good faith by the
Board of Directors in the following manner:
(i) The average of the high and low prices of the Stock (or
the mean of the closing bid and asked prices of the Stock if the Stock is so
reported instead) as reported on the New York Stock Exchange or such other
national or regional securities exchange or market system constituting the
primary market for the Stock, on the most recent trading day to the date in
question, or if there are no reported sales on such date, on the last preceding
date on which sales were reported; or
(ii) In the absence of the foregoing, the Fair Market Value
shall be determined by the Board of Directors in its absolute discretion based
on an appraisal of the Stock and after giving consideration to the book value,
the revenues, and the earnings prospects of the Company in light of market
conditions generally.
The Fair Market Value determined under one of the preceding paragraphs shall be
final, binding and conclusive on all parties for the purposes of this Plan.
(l) "ISO": An Option intended to be and which qualifies as an
"incentive stock option", as defined in Section 422 of the Code or any statutory
provision that may replace such Section.
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(m) "NQSO": An Option not intended or qualified to be an ISO.
(n) "OPTION": Any ISO or NQSO granted under the Plan.
(o) "OPTION AGREEMENT": A written option agreement between the
Company and the Participant evidencing an Option in such form as approved by the
Board of Directors pursuant to the Plan.
(p) "OUTSIDE DIRECTOR": Any Director of the Company who is not an
Employee.
(q) "OUTSIDE DIRECTOR OPTION": An Option granted to an Outside
Director pursuant to Section 3(b). Outside Director Options shall be NQSOs.
(r) "PARENT CORPORATION": Any present or future "parent corporation"
of the Company, as defined in Section 424(e) of the Code.
(s) "PARTICIPANT": A person who has been granted one or more Awards
under the Plan which remain outstanding or who owns shares of Stock as a result
of the exercise of an Option.
(t) "PARTICIPATING COMPANY": The Company or any Parent Corporation
or Subsidiary Corporation.
(u) "PARTICIPATING COMPANY GROUP": At any point in time, all
corporations collectively which are then Participating Companies.
(V) "RESTRICTED SHARE": A share of Stock awarded under Section 7 of
the Plan.
(w) "RULE 16B-3": Rule 16b-3 under the Exchange Act, as amended from
time to time, or any successor rule or regulation.
(x) "SEC": Securities and Exchange Commission.
(y) "SECURITIES ACT": The Securities Act of 1933, as amended.
(z) "STOCK GRANT AGREEMENT": A written agreement between the Company
and the Participant evidencing an award of Restricted Shares in such form as
approved by the Board of Directors pursuant to the Plan.
(aa) "STOCK": The common stock of the Company, as adjusted from time
to time under Section 4(b).
(bb) "SUBSIDIARY CORPORATION": Any present or future "subsidiary
corporation" of the Company or the Parent Corporation, as defined in Section
424(f) of the Code.
(cc) "TEN PERCENT OWNER": A Participant who, at the time an Award is
granted to the Participant, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of a Participating
Company within the meaning of Section 422(b)(6) of the Code.
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<PAGE> 40
3. PARTICIPATION
(a) PERSONS ELIGIBLE FOR AWARDS. Awards may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence
and with respect to the grant of Options only, "Employees" shall include
prospective Employees to whom Options are granted in connection with written
offers of employment with the Participating Company Group, and "Consultants"
shall include prospective Consultants to whom Options are granted in connection
with written offers of engagement with the Participating Company Group. Eligible
persons may be granted more than one (1) Award.
(b) OUTSIDE DIRECTORS. In addition to any Award which may be granted
to an Outside Director pursuant to Section 3(a), each Outside Director shall be
granted one or more Options in accordance with this Section 3(b).
(i) AUTOMATIC GRANT. Subject to the execution by the Outside
Director of an appropriate Option Agreement, Outside Director Options shall be
granted automatically and without further action of the Board of Directors, as
follows:
(1) INITIAL GRANT.
(A) Prior to December 1, 1998. Each person
who (i) is an Outside Director on the Effective Date, or (ii) first becomes an
Outside Director after the Effective Date and prior to December 1, 1998, shall
be granted an Outside Director Option for twenty thousand (20,000) shares of
Stock on the Effective Date or the date he or she first becomes an Outside
Director; provided, however, that any Director of the Company who previously did
not qualify as an Outside Director shall not receive an Outside Director Option
pursuant to this Section 3(b)(i)(1)(A) in the event that such Director
subsequently becomes an Outside Director as a result of the termination of his
or her status as an Employee.
(B) On or After December 1, 1998. Each
person who first becomes an Outside Director on or after December 1, 1998, shall
be granted an Outside Director Option for thirty thousand (30,000) shares of
Stock on the date he or she first becomes an Outside Director; provided,
however, that any Director of the Company who previously did not qualify as an
Outside Director shall not receive an Outside Director Option pursuant to this
Section 3(b)(i)(1)(B) in the event that such Director subsequently becomes an
Outside Director as a result of the termination of his or her status as an
Employee.
(2) ANNIVERSARY GRANT. On and after May 29, 1998,
each Outside Director shall be granted an Outside Director Option for ten
thousand (10,000) shares of Stock upon the third anniversary of the date on
which he or she received an Outside Director Option under Section 3(b)(i)(1) and
upon each successive third anniversary of such date thereafter. Outside Director
Options shall be granted pursuant to this Section 3(b)(i)(2) only to a person
who, at the time of grant, is an Outside Director.
(ii) SPECIAL GRANT. On November 11, 1998, each person serving
as an Outside Director on such date who had previously received an Outside
Director Option pursuant to Section 3(b)(i)(1) was granted an NQSO for ten
thousand (10,000) shares.
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<PAGE> 41
(iii) RIGHT TO DECLINE OUTSIDE DIRECTOR OPTIONS.
Notwithstanding the foregoing, any person may elect not to receive an Outside
Director Option by delivering written notice of such election to the Board of
Directors no later than the day prior to the date such Outside Director Option
would otherwise be granted. A person so declining an Outside Director Option
shall receive no payment or other consideration in lieu of such declined Outside
Director Option. A person who has declined an Outside Director Option may revoke
such election by delivering written notice of such revocation to the Board of
Directors no later than the day prior to the date such Outside Director Option
would be granted pursuant to Section 3(b).
(iv) EXERCISE PRICE OF OUTSIDE DIRECTOR OPTIONS. The exercise
price per share of Stock subject to an Outside Director Option shall be the Fair
Market Value of a share of Stock on the date the Outside Director Option is
granted.
(v) EXERCISABILITY OF OUTSIDE DIRECTOR OPTIONS. Except as
otherwise provided in the Plan or in the Option Agreement and provided that the
Outside Director's service with the Participating Company Group has not
terminated prior to the relevant vesting date, each Outside Option shall vest
and become exercisable in installments of 25% on the first anniversary of the
date of grant and 6.25% for each additional full calendar quarter of the Outside
Director's service. Each Outside Director Option shall terminate and cease to be
exercisable on the date ten (10) years after the date of grant of the Outside
Director Option unless earlier terminated pursuant to the terms of the Plan or
the Option Agreement.
(c) GRANT RESTRICTIONS. Any person who is not an Employee of the
Company or a Parent Corporation or Subsidiary Corporation of the Company on the
effective date of the grant of an Award to such person may be granted only an
NQSO or Restricted Shares. An ISO granted to a prospective Employee upon the
condition that such person become an Employee shall be deemed granted on the
date such person commences service with a Participating Company, with an
Exercise Price determined as of such date in accordance with Section 5(a). An
Outside Director Option may be granted only to a person who, at the time of
grant, is an Outside Director.
(d) FAIR MARKET VALUE LIMITATION. To the extent that the aggregate
Fair Market Value of stock with respect to which options designated as ISOs are
exercisable by a Participant for the first time during any calendar year (under
all stock option plans of the Participating Company Group, including the Plan)
exceeds One Hundred Thousand Dollars ($100,000), the portion of such options
which exceeds such amount shall be treated as NQSOs. For purposes of this
Section, options designated as ISOs shall be taken into account in the order in
which they were granted, and the Fair Market Value of stock shall be determined
as of the time the option with respect to such stock is granted. If the Code is
amended to provide for a different limitation from that set forth in this
Section, such different limitation shall be deemed incorporated herein effective
as of the date and with respect to such Options as required or permitted by such
amendment to the Code. If an Option is treated as an ISO in part and as an NQSO
in part by reason of the limitation set forth in this Section, the Participant
may designate which portion of such Option the Participant is exercising and may
request that separate certificates representing each such portion be issued upon
the exercise of the Option. In the absence of such designation, the Participant
shall be deemed to have exercised the ISO portion of the Option first.
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<PAGE> 42
(e) SECTION 162(m) GRANT LIMIT. Subject to adjustment as provided in
Section 4(b), at any such time as a Participating Company is a "publicly held
corporation" within the meaning of Section 162(m) of the Code, no Employee shall
be granted one or more Options within any fiscal year of the Company which in
the aggregate are for the purchase of more than one million two hundred thousand
(1,200,000) shares (the "SECTION 162(m) GRANT LIMIT").
4. SHARES SUBJECT TO PLAN
(a) MAXIMUM SHARES. Subject to adjustment by the operation of
Section 4(b) hereof, the maximum aggregate number of shares of Stock that may be
issued under the Plan shall be Seventeen Million Four Hundred Seventy-Five
Thousand Six Hundred Eighty-Five (17,475,685). Notwithstanding the foregoing,
except as adjusted pursuant to Section 4.2, in no event shall more than Ten
Million (10,000,000) shares of Stock be cumulatively available for issuance
pursuant to the exercise of ISOs (the "ISO SHARE ISSUANCE LIMIT"). If an
outstanding Option for any reason expires or is terminated or canceled or shares
of Stock acquired pursuant to an Award are reacquired by the Company, the shares
of Stock allocable to the unexercised portion of such Option, or such reacquired
shares of Stock, shall again be available for issuance under the Plan.
(b) ADJUSTMENT OF SHARES AND PRICE. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate equitable adjustments shall be made in the number and class of
shares subject to the Plan and to any outstanding Awards, in the number and
class of shares subject to future Outside Director Options granted pursuant to
Section 3(b), in the Section 162(m) Grant Limit and the ISO Share Issuance
Limit, and in the Exercise Price per share of any outstanding Options.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 4(b) shall be rounded up or down to the nearest whole
number, as determined by the Board of Directors, and in no event may the
Exercise Price of any Option be decreased to an amount less than the par value,
if any, of the stock subject to the Option. The adjustments determined by the
Board of Directors pursuant to this Section 4(b) shall be final, binding and
conclusive.
5. GENERAL TERMS AND CONDITIONS OF OPTIONS
(a) GENERAL. The Board of Directors shall have full and complete
authority and discretion, except as expressly limited by the Plan, to grant
Options and to provide the terms and conditions (which need not be identical
among Participants) thereof. The terms and conditions governing any Option, as
determined by the Board of Directors, shall be set forth in an Option Agreement
consistent with this Plan. In particular, the Board of Directors shall prescribe
the following terms and conditions:
(i) The number of shares of Stock subject to, and the
expiration date(s) of, any Option;
(ii) The vesting schedule of any Option;
(iii) The manner, time and rate (cumulative or otherwise) of
exercise of such Option;
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<PAGE> 43
(iv) Whether such Option is to be issued as an ISO or NQSO;
and
(v) The restrictions, if any, to be placed upon such Option
or upon shares which may be issued upon exercise of such Option.
(b) EXERCISE PRICE. Except as provided in Section 3(b) with respect
to Outside Director Options, the Exercise Price for each Option shall be
established in the sole discretion of the Board of Directors; provided, however,
that (a) the Exercise Price for an ISO shall be not less than the Fair Market
Value of a share of Stock on the effective date of grant of the Option, (b) the
Exercise Price for an NQSO shall be not less than eighty-five percent (85%) of
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, and (c) no ISO granted to a Ten Percent Owner shall have an Exercise
Price less than one hundred ten percent (110%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option. Notwithstanding the
foregoing, an Option (whether an ISO or an NQSO) may be granted with an Exercise
Price lower than the minimum exercise price set forth above if such Option is
granted pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 424(a) of the Code.
(c) EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board of
Directors and set forth in the Option Agreement evidencing such Option;
provided, however, that (i) no ISO shall be exercisable after the expiration of
ten (10) years after the effective date of grant of such Option, (ii) no ISO
granted to a Ten Percent Owner shall be exercisable after the expiration of five
(5) years after the effective date of grant of such Option, and (iii) no Option
granted to a prospective Employee or prospective Consultant may become
exercisable prior to the date on which such person commences service with a
Participating Company.
6. EXERCISE OF OPTIONS
(a) PAYMENT OF OPTION EXERCISE PRICE. Except as otherwise provided
below, payment of the Exercise Price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of shares of Stock owned by the
Participant having a Fair Market Value not less than the Exercise Price, (iii)
by the assignment of the proceeds of a sale or loan with respect to some or all
of the shares being acquired upon the exercise of the Option (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a "CASHLESS EXERCISE"), (iv) by such other consideration as may be
approved by the Board of Directors from time to time to the extent permitted by
applicable law, or (v) by any combination thereof. The Board of Directors may at
any time or from time to time, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the Exercise Price or
which otherwise restrict one or more forms of consideration.
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(i) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board of Directors, an Option may not be
exercised by tender to the Company of shares of Stock unless such shares either
have been owned by the Participant for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
(b) RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a
stockholder with respect to any shares of Stock issuable on exercise of any
Option until the date of the issuance of a stock certificate to the Participant
for shares of Stock. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 4(b) hereof.
7. RESTRICTED SHARES.
(a) GENERAL. The Board of Directors shall have full and complete
authority and discretion, except as expressly limited by the Plan, to grant
Restricted Shares and to provide the terms and conditions (which need not be
identical among Participants) thereof. The terms and conditions governing any
grant of Restricted Shares, as determined by the Board of Directors, shall be
set forth in a Stock Grant Agreement consistent with this Plan.
(b) PAYMENT FOR AWARDS. Restricted Shares may be awarded under the
Plan without requiring monetary payment from the Participant. The Board of
Directors may also provide that payment may be required to receive a grant of
Restricted Shares, with the form of payment set forth in the Stock Grant
Agreement. Methods of such payment may include (without limitation), cash, cash
equivalents, or full recourse promissory notes.
(c) VESTING CONDITIONS. Each award of Restricted Shares may or may
not be subject to vesting. Vesting shall occur, in full or in installments, upon
the satisfaction of the conditions specified in the Stock Grant Agreement. A
Stock Grant Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
(d) VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Company's other stockholders. A Stock Grant Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.
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8. TRANSFER OF CONTROL OF THE COMPANY
(a) DEFINITIONS.
(i) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(a) the direct or indirect sale or exchange in a single or series of
related transactions by the stockholders of the Company of more than fifty
percent (50%) of the voting stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all of
the assets of the Company; or
(d) a liquidation or dissolution of the Company.
(ii) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board of Directors shall have the right to
determine whether multiple sales or exchanges of the voting stock of the Company
or multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
(b) EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. In the event the
Acquiring Corporation elects not to assume or substitute for outstanding Options
in connection with a Transfer of Control, any unexercisable or unvested portion
of the outstanding Options shall be immediately exercisable and vested in full
as of the date ten (10) days prior to the date of the Transfer of Control. The
exercise or vesting of any Option that was permissible solely by reason of this
Section shall be conditioned upon the consummation of the Transfer of Control.
Except as otherwise provided herein, any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
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9. REPURCHASE OPTIONS
Shares issued under the Plan may be subject to a right of first refusal,
one or more repurchase options, or other conditions and restrictions as
determined by the Board of Directors in its sole discretion at the time the
Award is granted. The Company shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to
one or more persons as may be selected by the Company. Upon request by the
Company, each Participant shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.
10. RESTRICTIONS ON TRANSFERS; GOVERNMENT REGULATIONS
(a) OPTIONS NOT TRANSFERABLE. During the lifetime of the
Participant, an Option shall be exercisable only by the Participant or the
Participant's guardian or legal representative. No Option may be assigned,
encumbered, or transferred, except, in the event of the death of a Participant,
by will or the laws of descent and distribution.
(b) GOVERNMENT REGULATIONS. This Plan, the granting of Awards under
this Plan and the issuance or transfer of Stock (and/or the payment of money)
pursuant thereto are subject to all applicable foreign, federal and state laws,
rules and regulations and to such approvals by any regulatory or governmental
agency (including without limitation "no action" positions of the SEC) which
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Without limiting the generality of the foregoing, no
Awards may be granted under this Plan, and no Stock shall be issued by the
Company, nor cash payments made by the Company, pursuant to or in connection
with any such Award, unless and until, in each such case, all legal requirements
applicable to the issuance or payment have, in the opinion of counsel to the
Company, been complied with. In connection with any stock issuance or transfer,
the person acquiring the shares shall, if requested by the Company, give
assurances satisfactory to counsel to the Company in respect of such matters as
the Company may deem desirable to assure compliance with all applicable legal
requirements. The granting of Awards under this Plan and the issuance of Stock
pursuant thereto are subject to compliance with all applicable foreign, federal,
and/or state laws or regulations with respect to such securities. No Option may
be exercised by a Participant if the issuance of Stock pursuant to such Option
upon such exercise would constitute a violation of any applicable foreign,
federal, or state securities law, rule or regulation or other applicable law or
regulation. The inability of the Company to obtain from any regulatory body
having the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to any Award
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained.
11. TAX WITHHOLDING
The Company shall have the right to withhold from amounts due
Participants, or to collect from Participants directly, the amount which the
Company deems necessary to satisfy any taxes required by law to be withheld at
any time by reason of participation in the Plan, and the obligations of the
Company under the Plan shall be conditional on payment of such taxes. The
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<PAGE> 47
Participant may, prior to the due date of any taxes, pay such amounts to the
Company in cash, or with the consent of the Board of Directors, in Stock (which
shall be valued at its Fair Market Value on the date of payment). The Company
shall have no obligation to any Participant to determine either (i) the
existence of any tax or (ii) the correct amount of any tax. Without limiting the
generality of the foregoing, in any case where it determines that a tax is or
will be required to be withheld in connection with the issuance, transfer or
vesting of Stock issued under this Plan, the Company may, pursuant to such rules
as the Board of Directors may establish, reduce the number of shares of Stock so
issued or transferred by such number of Stock as the Company may deem
appropriate in its sole discretion to accomplish such withholding or make such
other arrangements as it deems satisfactory. Notwithstanding any other provision
of this Plan, the Board of Directors may impose such conditions on the payment
of any withholding obligation as may be required to satisfy applicable
regulatory requirements, including, without limitation, Rule 16b-3. The Company
shall have no obligation to deliver shares of Stock, release shares of Stock
from an escrow established pursuant to an Option Agreement or Stock Grant
Agreement or make any payment pursuant to the Plan until the Participating
Company Group's tax withholding obligations have been satisfied by the
Participant.
12. ADMINISTRATION OF PLAN
(a) ADMINISTRATION BY THE BOARD OF DIRECTORS. The Plan shall be
administered by the Board of Directors. All decisions and determinations of the
Board of Directors shall be final, conclusive and binding upon all Participants
and upon all other persons claiming any rights under the Plan with respect to
any Options.
(b) BOARD OF DIRECTORS AUTHORITY. In amplification of the Board of
Directors' powers and duties, but not by way of limitation, the Board of
Directors shall have full authority and power to:
(i) Construe and interpret the provisions of the Plan and
make rules and regulations for the administration of the Plan not inconsistent
with the Plan;
(ii) Decide all questions of eligibility for Plan
participation and for the grant of Awards;
(iii) Adopt forms of agreements and other documents consistent
with the Plan;
(iv) Engage agents to perform legal, accounting and other
such professional services as it may deem proper for administering the Plan; and
(v) Take such other actions as may be reasonably required or
appropriate to administer the Plan or to carry out the Board of Directors
activities contemplated by other sections of this Plan.
(c) ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to any
person whose transactions in Stock are subject to Section 16 of the Exchange
Act, at any time that any class of equity security of the Company is registered
pursuant to Section 12 of the Exchange Act, the Plan shall be administered in
compliance with the requirements of Rule 16b-3, if any.
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<PAGE> 48
(d) COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating
Company is a "publicly held corporation" within the meaning of Section 162(m) of
the Code, the Board of Directors may establish a Committee of "outside
directors" within the meaning of Section 162(m) of the Code to approve the grant
of any Award which might reasonably be anticipated to result in the payment of
employee remuneration that would otherwise exceed the limit on employee
remuneration deductible for income tax purposes pursuant to Section 162(m) of
the Code.
(e) INDEMNIFICATION. In addition to such other rights of
indemnification as they may have, members of the Board of Directors and any
officers or employees of the Participating Company Group to whom authority to
act on behalf of the Board of Directors is delegated shall be indemnified by the
Company against the reasonable expenses, including court costs and reasonable
attorneys' fees, actually incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Award granted hereunder, and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except where such
indemnification is expressly prohibited by applicable law.
13. STOCKHOLDER APPROVAL
The Plan or any increase in the maximum number of shares of Stock
issuable thereunder as provided in Section 4(a) (the "MAXIMUM SHARES") shall be
approved by the stockholders of the Company within twelve (12) months of the
date of adoption thereof by the Board of Directors. Options granted prior to
stockholder approval of the Plan or in excess of the Maximum Shares previously
approved by the stockholders shall become exercisable no earlier than the date
of stockholder approval of the Plan or such increase in the Maximum Shares, as
the case may be. No Restricted Shares may be issued if such issuance would be in
excess of the Maximum Shares previously approved by the stockholders.
14. AMENDMENT AND TERMINATION
The Board of Directors may terminate or amend the Plan at any time.
However, subject to changes in the law or other legal requirements that would
permit otherwise, without the approval of the Company's stockholders, there
shall be (a) no increase in the maximum aggregate number of shares of Stock that
may be issued under the Plan (except by operation of the provisions of Section
4(b)), (b) no change in the class of persons eligible to receive ISOs, and (c)
no other amendment of the Plan which would require approval of the Company's
stockholders under any applicable law, regulation or rule. In any event, no
termination or amendment of the Plan may adversely affect any then outstanding
Award or any unexercised portion of an Award, without the consent of the
Participant, unless such termination or amendment is required to enable an
Option designated as an ISO to qualify as an ISO or is necessary to comply with
any applicable law or government regulation.
15. MISCELLANEOUS
(a) EMPLOYMENT OR SERVICE. Neither the establishment of the Plan nor
any amendments thereto, nor the granting of any Award under the Plan, shall be
construed as in any
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<PAGE> 49
way modifying or affecting, or evidencing any intention or understanding with
respect to, the terms of the employment or service of any Participant with the
Participating Company Group. Nothing in the Plan or any agreement evidencing an
Award shall confer upon a Participant any right to continued employment or
service with the Participating Company Group or interfere in any way with any
right of the Participating Company Group to terminate the Participant's
employment or service at any time. No person shall have a right to be granted
Awards or, having been selected as a Participant for one Award, to be so
selected again.
(b) PROVISION OF INFORMATION. Each Participant shall be given access
to information concerning the Company equivalent to that information generally
made available to the Company's common stockholders.
(c) NO ADVICE. The Company shall not be responsible for providing
any Participant with legal, business or tax advice. Any legal or tax liabilities
incurred by a Participant as a result of Participant's participation in the Plan
shall be the sole responsibility of the Participant. Participants should consult
their own attorneys and tax advisors with respect to any questions regarding
participation in the Plan.
(d) WRITTEN NOTICE. As used herein, any notices required hereunder
shall be in writing and shall be given on the forms, if any, provided or
specified by the Board of Directors. Written notice shall be effective upon
actual receipt by the person to whom such notice is to be given; provided,
however, that in the case of notices to Participants and their heirs, legatees
and legal representatives, notice shall be effective upon delivery if delivered
personally or three (3) business days after mailing, registered first class
postage prepaid to the last known address of the person to whom notice is given.
Written notice shall be given to the Board of Directors and the Company at the
following address or such other address as may be specified from time to time:
Maxtor Corporation
510 Cottonwood Drive
Milpitas, California 95035
Attn: Secretary
(e) APPLICABLE LAW, SEVERABILITY. The Plan shall be governed by and
construed in all respects in accordance with the laws of the State of
California. If any provisions of the Plan shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
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<PAGE> 50
[MAXTOR LOGO]
MAXTOR CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Glenn H. Stevens and Carlotta G.
Barr-Smith, and each of them, with full power of substitution to represent the
undersigned and to vote all the shares of Common Stock of Maxtor Corporation
("Maxtor" or the "Company") which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Company to be held in the Palo Alto Room
of the Sheraton San Jose Hotel, located at 1801 Barber Lane, Milpitas,
California 95305, on Wednesday, August 11, 1999, at 10:00 a.m., local time, and
at any adjournment thereof, (1) as hereinafter specified upon the proposals
listed on the reverse side and as more particularly described in the Proxy
Statement of the Company dated July 14, 1999 (the "Proxy Statement"), receipt of
which is hereby acknowledged, and (2) in their discretion, upon such other
matters as may properly come before the meeting. The undersigned also hereby
acknowledges receipt of the Company's 1999 Annual Report to Stockholders.
(Continued and to be dated and signed on the reverse side.)
MAXTOR CORPORATION
P. O. BOX 11073
NEW YORK, N.Y. 10203-0073
A vote FOR the following proposals is recommended by the Board of
Directors:
1. Election of Directors: C.S. Chung Charles Hill
[ ] FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY TO
VOTE FOR ALL NOMINEES
LISTED BELOW
INSTRUCTIONS:
[ ] To withhold authority for any individual nominee, mark
the exceptions box and write the nominee's name in the
space provided below.
* Exceptions
--------------------------------------------------
2. To approve the Maxtor Corporation 1996 Stock Option Plan, as
amended.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the Maxtor Corporation 1998 Employee Stock Purchase
Plan, as amended.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 51
5. With discretionary authority, upon such other matters as may
properly come before the meeting. At this time, the persons
making this solicitation know of no other matters to be
presented at the meeting.
The shares represented hereby shall be voted as
specified. If no specification is made, such
shares shall be voted FOR proposals 1 through 5.
Please sign your name exactly as it appears on
the stock certificate representing your shares.
If signing for estate, trusts or corporations,
title or capacity should be stated. If shares
are held jointly, both should sign.
DATED: _________________________________________
(Be sure to date Proxy)
________________________________________________
(Signature of Stockholder)
________________________________________________
(Signature of Stockholder)
Votes must be indicated (x) in Black or Blue
Ink.
(Please sign, date and return this proxy in the enclosed postage prepaid
envelope.)
