AST RESEARCH, INC.
16215 ALTON PARKWAY
IRVINE, CALIFORNIA 92718
December 11, 1995
Dear Stockholders:
Our Annual Meeting of Stockholders will be held on January 25, 1996, at 9:00
a.m., Pacific Standard Time, in the Deauville South Room of The Sutton Place
Hotel, 4500 MacArthur Blvd., Newport Beach, California. I urge you to attend
this meeting to give us an opportunity to meet you personally, to allow us to
introduce to you the key personnel responsible for management of your Company
and to answer any questions you may have.
The formal Notice of Meeting, the Proxy Statement, the proxy card, the Annual
Report to Stockholders on Form 10-K describing the Company's results of
operations for the fiscal year ended July 1, 1995, and the Form 10-Q
describing the Company's results of operations for the quarter ended September
30, 1995, are enclosed.
I hope that you will be able to attend the meeting in person. Whether or not
you plan to attend the meeting, please sign and return the enclosed proxy card
promptly. A prepaid return envelope is provided for this purpose. Your shares
will be voted at the meeting in accordance with your proxy.
If you have shares in more than one name, or if your stock is registered in
more than one way, you may receive more than one copy of the proxy material. If
so, please sign and return each of the proxy cards you receive so that all of
your shares may be voted. I look forward to seeing you at the January 25, 1996
Annual Meeting of Stockholders.
Very truly yours,
AST RESEARCH, INC.
Ian Diery
President and Chief Executive Officer
AST RESEARCH, INC.
16215 ALTON PARKWAY
IRVINE, CALIFORNIA 92718
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of AST Research, Inc. (the "Company") will
be held in the Deauville South Room of The Sutton Place Hotel, 4500 MacArthur
Blvd., Newport Beach, California on Thursday, January 25, 1996, at 9:00 a.m.,
Pacific Standard Time, for the following purposes:
1. The election of ten directors to hold office until the next annual
meeting and until their successors are elected and duly qualified;
2. The approval (recommended by the Board of Directors) of an amendment
to the 1991 Stock Option Plan for Non-Employee Directors to increase
the number of shares of Common Stock reserved for issuance thereunder
by 250,000 shares (see Proposal 2, at pages 18-20 of the attached
Proxy Statement);
3. The approval (recommended by the Board of Directors) of the
appointment of Ernst & Young LLP as independent auditors for the
fiscal year ending December 28, 1996 (see Proposal 3, at page 21 of
the attached Proxy Statement); and
4. The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on Monday, November 27, 1995, is the date of record
("Record Date") for the determination of stockholders entitled to notice of, to
attend and to vote at the Annual Meeting. Stockholders, including those whose
shares are held by a brokerage firm or in "street" name, may be asked to verify
their stockholder status as of the Record Date upon entrance to the Annual
Meeting. Accordingly, stockholders attending the meeting should bring some form
of identification to the meeting evidencing such stockholder status as of the
Record Date. A list of stockholders at the Record Date will be available during
normal business hours for examination by any stockholder for any purpose germane
to the Annual Meeting for a period of ten days prior to January 25, 1996, at the
offices of the Company, 16215 Alton Parkway, Irvine, California 92718.
All stockholders are urged to attend the meeting in person or by proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTPAID ENVELOPE. The
proxy is revocable and will not affect your right to vote in person in the event
you attend the Annual Meeting. You may revoke your proxy at any time before it
is voted. If you receive more than one proxy card because your shares are
registered in different names or at different addresses, please sign and return
each proxy card so that your shares will be represented at the Annual Meeting.
By Order of the Board of Directors
Irvine, California DENNIS R. LEIBEL
December 11, 1995 Secretary
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 25, 1996
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors of
AST Research, Inc. (the "Company") for use in connection with the Annual Meeting
of Stockholders to be held on Thursday, January 25, 1996, at 9:00 a.m., Pacific
Standard Time, and at any and all adjournments or postponements thereof.
The persons named as proxies were designated by the Board of Directors and
are officers and/or directors of the Company. Any proxy may be revoked or
superseded by executing a later proxy or by giving notice of revocation in
writing to the Secretary prior to, or at, the Annual Meeting, or by attending
the Annual Meeting and voting in person. All proxies which are properly
completed, signed and returned to the Company prior to the meeting, and not
revoked, will be voted in accordance with the instruction given in the proxy. If
a choice is not specified in the proxy, the proxy will be voted FOR the election
of the director nominees listed below, FOR the proposal to amend the 1991 Stock
Option Plan for Non-Employee Directors to increase the number of authorized
shares, and FOR the proposal to ratify the appointment of Ernst & Young LLP as
independent auditors for the Company.
This Proxy Statement and the accompanying proxy are being mailed to
stockholders on or about December 11, 1995. The Company has retained the
services of American Stock Transfer & Trust Co. and D.F. King & Co., Inc. to
assist in soliciting proxies from brokers and nominees for the Annual Meeting.
The estimated cost for these services including mailing costs is $45,000 and
will be borne by the Company. It is contemplated that this solicitation will be
primarily by mail. In addition, some of the officers, directors and employees
of the Company may solicit proxies personally, by telephone or fax.
VOTING AT THE MEETING
The shares of Common Stock constitute the only class of securities of the
Company entitled to notice of, to attend and to vote at, the Annual Meeting.
Only stockholders of record at the close of business on November 27, 1995, will
be entitled to vote at the meeting or any adjournment or postponement thereof.
As of November 27, 1995, there were 44,679,400 shares of Common Stock issued and
outstanding, each share being entitled to one vote on each matter to be voted
upon.
Votes at the Annual Meeting, including those cast in person or by proxy, will
be tabulated by the Inspector of Elections appointed by the Board of Directors.
Abstentions and broker non-votes will be counted as present for purposes of
determining the existence of a quorum. Abstentions will be treated as shares
present and entitled to vote for purposes of any matter requiring affirmative
vote of a majority or other proportion of the shares present and entitled to
vote. With respect to shares relating to any proxy as to which a broker non-
vote is indicated on a proposal, those shares will not be considered present and
entitled to vote with respect to any such proposal. Abstentions or non-votes or
other failures to vote will have no such effect in the election of directors,
who will be elected by a plurality of the affirmative votes cast. With respect
to any matter brought before the Annual Meeting requiring the affirmative vote
of a majority or other proportion of the outstanding shares, an abstention or
non-vote will have the same effect as a vote against the matter being voted
upon.
PROPOSAL 1
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company fixes the number of
directors at not less than five nor more than thirteen, with the exact number to
be set by resolution of the Board of Directors. The Board of Directors has set
the authorized number of directors at ten and proposes the election of ten
directors to hold office until the next annual meeting and until their
successors are elected and qualified. Unless authority to vote for directors
has been withheld in the proxy, the persons named in the enclosed proxy intend
to vote at the meeting for the election of the ten nominees presented below.
Persons named as proxies may not vote for the election of any person to the
office of director for which a bona fide nominee is not named in the Proxy
Statement. All nominees have consented to serve as a director for the ensuing
year. Although the Board of Directors does not contemplate that any of the
nominees will be unable to serve, if any nominee withdraws or otherwise becomes
unavailable to serve, the persons named in the enclosed proxy will vote for any
substitute nominee designated by the Board of Directors. The nominees receiving
a plurality of the affirmative votes will be elected.
The names and certain information concerning the persons to be nominated as
directors by the Board of Directors at the Annual Meeting are set forth below.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES NAMED BELOW.
HOON CHOO, 50, was appointed a director in July 1995. Currently, Mr. Choo is
a consultant to Samsung Semiconductors Inc., a U.S. subsidiary of Samsung
Electronics Co., Ltd. ("Samsung"). Most recently, Mr. Choo founded A-Cube
Systems, in Cupertino, California in July 1994 and continues to provide
consulting services to such Company. Prior to A-Cube Systems, Mr. Choo served
as an Executive Vice President of Hyundai Electronics America from September
1986 to April 1994. In addition, Mr. Choo was Director of Computer Engineering
of the Samsung Electronics Computer Division in Korea from December 1981 to
August 1986.
IAN DIERY, 46, was named President and Chief Executive Officer and was
appointed to the Company's Board of Directors in November 1995. Prior to
joining AST, Mr. Diery served at Apple Computer for six years, most recently as
the company's Executive Vice President and General Manager for the Personal
Computer Division. Mr. Diery also served as Executive Vice President, Worldwide
Sales and Marketing at Apple from July 1992 to July 1993, and Senior Vice
President and President of Apple Pacific Division from October 1989 to July
1992. Prior to his tenure at Apple, from August 1978 to August 1989, Mr. Diery
served in various executive roles at Wang Laboratories, Inc., including
Executive Vice President, Worldwide Field Operations, Senior Vice President,
U.S.A. Sales Operations, and Senior Vice President, Europe.
RICHARD J. GOEGLEIN, 61, has served as a director since May 1987. Mr.
Goeglein is founder and principal of Gaming Associates, a casino management
company which develops and operates hotels/casinos at selected locations in the
United States. Mr. Goeglein served as President and Chief Executive Officer of
Dakin, Inc. from April 1990 through September 1991. Since January 1988, Mr.
Goeglein has also been the Chairman of ConServ International, a consulting and
real estate development business. From 1984 to his retirement date of December
31, 1987, Mr. Goeglein was the President and Chief Operating Officer of Holiday
Corporation, the holding company of Holiday Inns, Inc. Mr. Goeglein also served
on the Board of Directors of Holiday Corporation from 1978 to 1988. Mr.
Goeglein currently serves as a director of Boomtown Hotels and Casinos and
Platinum Software Corporation.
KWANG-HO KIM, 55, was appointed a director in July 1995. Since November
1994, Mr. Kim has served as Vice Chairman, President and Chief Executive Officer
of Samsung. Mr. Kim first joined Samsung when Tongyang Broadcasting Co. merged
into the Samsung Group in January 1969. In 1978, Mr. Kim was one of the
founders of the semiconductor business of Samsung, and was named Vice President
in charge of the Research and Development Center for the semiconductor business
at Samsung in March 1987. Throughout his career at Samsung, Mr. Kim has held a
number of positions in research and development, manufacturing, plant and
division management, where he was named President and Chief Executive Officer of
the semiconductor business in March 1990, and named President and Chief
Executive Officer of Samsung in December 1992. Mr. Kim is currently Chairman of
the Korea Semiconductor Industry Association (KSIA).
YOUNG SOO KIM, 61, was appointed a director in July 1995. Since January
1993, Mr. Kim has served as Corporate Vice President of Samsung. He joined
Samsung in August 1987 as Vice President of the semiconductor business and in
June 1989 was named President of the Computer and Systems Business. Before
joining Samsung, Mr. Kim was Vice President of Honeywell in charge of its Solid
State Electronics Division from December 1974 to August 1987.
JACK W. PELTASON, 72, has served as a director since July 1993. Mr. Peltason
has served as President of the University of California from 1992 to 1995,
following an eight year tenure as Chancellor of the University of California,
Irvine, a seven year term as President of the American Council on Education, and
a ten-year term as Chancellor at the University of Illinois at Urbana-Champaign.
Mr. Peltason is currently on the Board of Directors of Irvine Apartment
Communities and serves as a member of the Board of Trustees for the FHP
Foundation, Irvine Health Foundation, and Teachers Insurance and Annuity
Association.
SAFI U. QURESHEY, 44, an AST founder, has served as a director since the
Company's inception and served as President from the Company's inception through
July 1994. In July 1988, Mr. Qureshey was elected Chief Executive Officer and
served as such until November 1995. He served as Co-Chairman of the Board from
1988 through June 1992, and was elected Chairman of the Board in November 1993.
Mr. Qureshey is currently a member of the President's Export Council (PEC).
This premier national committee advises President Clinton on government policies
and programs that affect U.S. trade performance and promotes export expansion.
In addition, Mr. Qureshey has been selected to receive the 1995 UCI Medal, the
University of California, Irvine's highest honor, for his service and commitment
to the university. Mr. Qureshey resigned as Chief Executive Officer effective
November 2, 1995, but remains an employee and Chairman of the Board.
CARMELO J. SANTORO, PH.D., 54, served as Chairman of the Board from June 1992
until November 1993 and has served as a director since September 1990.
Effective November 1993, Dr. Santoro was elected Vice Chairman of the Board and
serves as such through December 1995. Dr. Santoro is Chairman and Chief
Executive Officer of Platinum Software Corporation. Dr. Santoro was President
and Chief Executive Officer of Silicon Systems, Inc. from 1982 through 1991 and
was Chairman from 1984 through 1989, when Silicon Systems, Inc. was acquired by
TDK Corporation of Tokyo, Japan. From 1980 to 1982, Dr. Santoro was Vice
President, Integrated Circuits at the Solid State Division of RCA. In addition
to Platinum Software Corporation, Dr. Santoro is currently a director of Dallas
Semiconductor Corporation, S3, Inc. and Smartflex Systems, Inc.
WON SUK YANG, 51, was appointed a director in July 1995. Since April 1995,
Mr. Yang has served as Senior Executive Managing Director of Samsung. He joined
the Samsung Group through an affiliated company, Cheil Industries, in 1970. He
later was named Director of Finance from April 1979 to March 1983 of Samsung
Petrochemical Co., Ltd. In April 1983, he was named Executive Vice President of
Samsung Semiconductor Inc., a U.S. subsidiary of Samsung. From June 1991 to
December 1992, Mr. Yang was General Manager of the Planning and Administrative
Office of Samsung and in January 1993 was made General Manager of the Corporate
Administrative Office for an affiliated company, Cheil Synthetics Industries.
HEE DONG YOO, 50, was appointed a director in July 1995. Since April 1994,
Mr. Yoo has served as Executive Vice President and General Manager of the
information products business of Samsung. He joined as manager of Samsung
Petrochemicals in July 1974 and later became President of Samsung Tokyo
Headquarters in February 1977. In February 1983, he was made Director of the
Overseas Operations Division of Samsung and later was named Managing Director
of the International Operations Office from March 1987 to January 1991. From
January 1991 to April 1994, Mr. Yoo was President of Samsung Electronics Europe.
Pursuant to the Stockholder Agreement between the Company and Samsung dated
July 31, 1995, Samsung has the right to include in the Company's slate of
nominees to the Board the number of members to the Board that will be one fewer
than a majority of the total number of members. Five of the foregoing ten
nominees have been designated by Samsung. The Stockholder Agreement initially
required Samsung to vote its shares of Common Stock for the Company's entire
slate of nominees. If consummated, the additional support transactions referred
to in the Letter of Intent announced on November 2, 1995 would provide for
Samsung to appoint one additional member of the Board (raising the number of
Samsung-designated members to six of eleven), and the Stockholder Agreement
would be amended to provide, among other matters, that Samsung will no longer be
restricted to voting its shares of Common Stock for the Company's entire slate
of nominees. The Stockholder Agreement would continue to require that the Board
have at least three "Independent Directors" (as defined in the Stockholder
Agreement). There can be no assurance that the Samsung additional support
transactions will be consummated on the previously announced terms, although the
Company expects that arrangements in this regard will be finalized prior to the
end of December 1995.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of November 27, 1995,
with respect to all those known by the Company to be the beneficial owners of
more than 5% of its outstanding Common Stock, each director, the Chief Executive
Officer and the four most highly compensated other executive officers during
fiscal 1995, and all directors and executive officers of the Company as a group.
Unless otherwise noted, each of the stockholders listed owns less than 1% and
has sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by him, subject to community property laws where
applicable, and the information contained in the footnotes to this table. The
Company had 44,679,400 shares outstanding at November 27, 1995.
<TABLE>
NUMBER OF SHARES
---------------- PERCENTAGE OF
NAME OF BENEFICIAL OWNER OPTIONS (a) TOTAL SHARES OUTSTANDING
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Samsung Electronics Co., Ltd. (b) 0 17,890,000 40.04%
Richard J. Goeglein 120,000 137,000 -
Carmelo J. Santoro 111,500 111,500 -
Jack W. Peltason 69,000 69,300 -
Safi U. Qureshey (c) 695,000 2,889,910 6.37%
Bruce C. Edwards (d) 240,000 281,288 -
James T. Schraith (f) - 5,213 -
Richard P. Ottaviano (f) 164,000 165,000 -
Kirby B. Coryell (f) 81,000 81,000 -
All directors and executive officers as a group (e) 1,605,500 3,870,337 8.36%
</TABLE>
____________________
(a) Includes shares which executive officers and directors have the right to
acquire within 60 days of November 27, 1995 under stock option and warrant
agreements.
(b) These shares are beneficially owned by Samsung and its wholly-owned
subsidiary, Samsung Electronics America, Inc., c/o 105 Challenger Road,
Ridgefield Park, New Jersey 07660.
(c) Includes 97,231 shares held by Nancy Marshall as custodian for minor
children of Mr. Qureshey and 8,760 shares held by Nancy Marshall, Ishrat
Qureshey and Lubna Bokhari, co-trustees of Irrevocable Trusts established
for the benefit of Mr. Qureshey's minor children, as to which Mr.
Qureshey claims no beneficial interest.
(d) Includes 803 shares held by Mary Pat DeMayo Buskard as trustee for minor
children of Mr. Edwards to which Mr. Edwards disclaims any beneficial
interest. Mr. Edwards announced his resignation as an officer and Board
member effective December 28, 1995.
(e) None of the following directors and nominees beneficially own any shares
of the Company's Common Stock: Hoon Choo, Ian Diery, Kwang-Ho Kim, Young
Soo Kim, Won Suk Yang and Hee Dong Yoo.
(f) Mr. Schraith's employment with the Company terminated effective
September 11, 1995. Mr. Ottaviano's employment with the Company terminated
effective October 20, 1995. Mr. Coryell's employment with the Company
terminated effective September 20, 1995.
EXECUTIVE OFFICERS
The following table sets forth the name and age of each executive officer of
the Company at November 27, 1995, his positions and offices with the Company and
the period during which he has served as an executive officer of the Company:
<TABLE>
EXECUTIVE
OFFICER
NAME AGE POSITION(S) SINCE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Ian Diery 46 President and 1995
Chief Executive Officer
Bruce C. Edwards 42 Executive Vice President and 1988
Chief Financial Officer
Gerald T. Devlin 49 Senior Vice President, Americas 1995
Dennis R. Leibel 51 Senior Vice President, Legal, 1986
Administration and Secretary
Gary D. Weaver 53 Senior Vice President, Worldwide 1995
Manufacturing Operations
Mark P. de Raad 36 Vice President, Controller 1995
and Principal Accounting Officer
</TABLE>
For information on the business background of Mr. Diery see "Election of
Directors" above.
BRUCE C. EDWARDS has served as a director since July 1994 and has tendered
his resignation both as an officer and director effective December 28, 1995.
Mr. Edwards rejoined the Company in March 1988 as Senior Vice President, Finance
and Chief Financial Officer and was named Executive Vice President and Chief
Financial Officer in July 1994. Mr. Edwards was first employed with the Company
as Vice President, Finance from August 1983 and Chief Financial Officer from
November 1983 to September 1986. Mr. Edwards currently serves on the Board of
Directors of Diamond Multimedia Systems, Inc., Platinum Software Corporation and
Xircom, Inc.
GERALD T. DEVLIN rejoined the Company in September 1995 as Senior Vice
President, Americas. Mr. Devlin was Vice President of Worldwide Sales for Xerox
Corporation from July 1994 to September 1995. Mr. Devlin was first employed
with the Company as Vice President, U.S. Sales from January 1993 and Vice
President, Sales, Americas from August 1993 to July 1994. Prior to joining the
Company in January 1993, he was employed for twelve years by Apple Computer
where he served most recently as Vice President and General Manager of Sales.
DENNIS R. LEIBEL joined the Company in December 1985 as Treasurer and in
March 1988, was elected Vice President, Administration and General Counsel. In
January 1989, Mr. Leibel was elected Vice President, Legal and Treasury
Operations and Secretary and was promoted to Senior Vice President, Legal and
Treasury Operations in January 1995 and Senior Vice President, Legal,
Administration and Secretary in October 1995. Prior to joining the Company, Mr.
Leibel was employed for over seven years by Smith International, Inc., where he
served as Director of Taxes, Vice President, Tax and Financial Planning and
subsequently as Vice President, Finance. Mr. Leibel currently serves on the
Executive Committee of the Board of Directors of the World Trade Center
Association of Orange County and the Advisory Board of Directors of Court
Appointed Special Advocates of Orange County (CASA).
GARY D. WEAVER joined the Company in December 1994 as Vice President,
Americas Manufacturing and in September 1995 was elected to Senior Vice
President, Worldwide Manufacturing Operations. Immediately prior to joining the
Company, he served at Ioptex Research as Vice President Operations with
responsibility for human resources, engineering, manufacturing, quality and
distribution. Mr. Weaver has also held various other positions throughout his
career including Worldwide Vice President of Manufacturing at Cipher Data
Products, Senior Vice President, Manufacturing at Irwin Magnetics and Managing
Director for Atari Far East, where he was responsible for high volume operations
in the Company's Taipei facility.
MARK P. DE RAAD joined the Company in May 1987 as Manager, Financial
Reporting and in July 1995 was elected Vice President, Controller and Principal
Accounting Officer. In February 1989, Mr. de Raad was promoted to Assistant
Controller and to Controller in August 1990. In February 1994, Mr. de Raad was
named Vice President, Worldwide Controller and in August 1994 assumed the title
Vice President, Financial Operations. Prior to joining the Company in May 1987,
Mr. de Raad was employed by Tandem Computer, Inc. and KPMG Peat Marwick LLP.
COMPENSATION OF DIRECTORS
Effective November 2, 1995, Mr. Qureshey receives an annual salary of
$325,000 in his capacities as an employee of the Company and as Chairman of the
Board. This represents a voluntary reduction in salary until the Company
returns to profitability. For purposes of his employment contract, all other
terms, including his annual base salary of $650,000, of Mr. Qureshey's Founders
Agreement (as defined below) are deemed to be in effect and unchanged by this
voluntary salary reduction. See "Employment Contracts and Termination of
Employment and Change in Control Arrangements."
The directors of the Company serve until their successors are elected and
duly qualified. Non-employee directors receive annual retainers of $30,000 paid
at the rate of $2,500 per month and additional committee meeting fees of $2,000
per meeting for the Chairman and $1,000 per meeting per committee member. Since
November 1993, Dr. Carmelo J. Santoro, Vice Chairman of the Board, has received
an additional annual retainer of $95,000 for services in his capacity as Vice
Chairman, which retainer will terminate in December 1995. Prior to November
1993, Dr. Santoro was paid a fee for consulting services to the Company. Except
as provided above with respect to Mr. Qureshey, directors who are also employees
of the Company do not currently receive fees for service in their capacity as a
director.
The 1991 Stock Option Plan for Non-Employee Directors provides for an initial
grant of options to purchase 20,000 shares of Common Stock to each newly elected
or appointed non-employee director. In addition, on January 1 of each year,
each Participant will receive an option to purchase an additional 12,000 shares
of Common Stock. The plan was amended in 1995, subject to stockholder approval
as described in Proposal 2. If the amended plan is approved by the Company's
stockholders at the Annual Meeting of Stockholders, the aggregate number of
shares of Common Stock reserved for issuance under the plan will be increased
from 250,000 to 500,000. Options granted under the plan vest and become
exercisable at the rate of 25% per year commencing on the first anniversary of
the date of grant. The exercise price of each option is equal to 100% of the
Common Stock's fair market value on the date of grant.
The 1994 One-Time Grant Stock Option Plan for Non-Employee Directors, as
amended in 1995, provided for the grant of an option to purchase 50,000 shares
of Common Stock to each non-employee member of the Company's Board on July 1,
1994. The exercise price of such options is $14.25 per share. As a result of
completing the initial transactions with Samsung, effective July 31, 1995, all
such options vested and became exercisable.
In December 1990, the Board authorized the issuance of warrants to purchase
an aggregate of 80,000 shares of Common Stock to its then non-employee Board
members. Such warrants are exercisable at $13.875 per share and vested over a
three-year period. At July 1, 1995, 40,000 of these warrants remained
outstanding and were exercisable. On July 27, 1992, the Board of Directors
authorized the issuance of warrants to purchase 50,000 shares of Common Stock to
Dr. Santoro, the Company's then Chairman of the Board. Such warrants are
exercisable at $13.50 per share. At July 1, 1995, 12,500 of such warrants were
exercisable, an additional 12,500 became exercisable on July 22, 1995, and the
remaining 12,500 of such warrants vested and became exercisable as a result of
completing the transaction with Samsung, effective July 31, 1995.
Pursuant to the Stockholder Agreement between the Company and Samsung, those
directors appointed by Samsung who are also officers, employees, or consultants
of Samsung (the "Samsung Employee Director Designees") are entitled to receive,
in their capacities as directors of the Company, only such fees, options and
other awards and expense reimbursements, if any, as may be provided to employee
directors of the Company generally in their capacity as directors. In Samsung's
discretion, any such amounts payable to the Samsung Employee Director Designees
will be paid to Samsung rather than to the Samsung Employee Director Designees.
Those directors appointed by Samsung who are not officers, employees, or
consultants of Samsung are entitled to receive all benefits to which other non-
employee directors of the Company are entitled, and no such amounts may be paid
or transferred to Samsung.
COMMITTEES OF THE BOARD
The Board of Directors is responsible for the overall affairs of the Company.
Authority with respect to certain matters of the Company has been delegated to
standing committees of the Board of Directors, which are the Executive
Committee, Audit Committee and Compensation Committee. The Board of Directors
does not have a standing Nominating Committee.
The Executive Committee was established in January 1987 and is empowered to
act for and on behalf of the Board of Directors and its committees, but may not
undertake actions reserved in the Bylaws to the Board itself, such as filling
vacancies on the Board and declaring certain dividends to stockholders. Actions
by the Executive Committee are to be reported for review and ratification by
written consent or at a subsequent meeting of the Board of Directors. Messrs.
Schraith, Qureshey and Santoro served on the Executive Committee during fiscal
1995. Mr. Schraith served on the Executive Committee until September 1995, when
he was replaced by Mr. Y.S. Kim. No meetings were held in 1995.
The Audit Committee has the responsibility of recommending to the Board of
Directors the appointment of the Company's outside auditors, reviewing the
auditors' reports, management reports and various audit criteria, and consulting
with the auditors concerning the adequacy of internal accounting controls.
Messrs. Goeglein, Peltason, Santoro, and Yang are the current members of the
Audit Committee, which held two meetings in fiscal 1995. Delbert W. Yocam, a
former member of the Board of Directors, served on the Audit Committee until
September 1995.
The Compensation Committee is empowered to review and administer the
Company's compensation practices and policies, which include administering the
Company's incentive compensation plans, reviewing compensation levels of the
Company's officers and directors, reviewing the Company's long range plans for
management development and examining the Company's compensation structure as it
relates to industry practices. Messrs. Goeglein, Peltason, and Yang are the
current members of the Compensation Committee. Mr. Yocam served on the
Compensation Committee until September 1995. The Compensation Committee held
three meetings in fiscal 1995.
ATTENDANCE AT MEETINGS
During fiscal 1995, the Board of Directors held a total of sixteen meetings,
of which thirteen were special meetings. Each member of the Board of Directors
attended 75 percent or more, aggregately, of the meetings of the Board of
Directors during the period in which he was a director and meetings of the
committees during fiscal 1995 of which he was a member.
EXECUTIVE COMPENSATION
The following tables present information for the last three fiscal years
concerning the cash compensation and stock options and certain other benefits
provided to Mr. Qureshey and the four other most highly compensated individuals
serving as executive officers as of the end of fiscal 1995 (the "Named Executive
Officers"). The notes to these tables provide more specific information
regarding compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
Long-Term
Annual Compensation Compensation
------------------------------------ -------------------
(a) Awards Securities
Other Annual Underlying All Other
Name and Fiscal Salary Bonus Compensation Options/SARs Compensation
Principal Position Year ($) ($) ($) (#) ($)
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Safi U. Qureshey (b) 1995 656,172 0 24,448 50,000 145,107 (c)
Chief Executive Officer 1994 623,076 236,221 36,465 125,000 148,119
and Chairman of the Board 1993 543,700 514,298 93,960 60,000 184,580
James T. Schraith (d) 1995 444,262 0 520 140,000 2,677 (e)
President and 1994 314,009 130,191 - 65,000 9,173
Chief Operating Officer 1993 228,256 124,168 1,095 20,000 5,673
Bruce C. Edwards (f) 1995 310,800 0 2,063 30,000 3,577 (e)
Executive Vice President 1994 297,337 80,137 3,496 75,000 7,021
and Chief Financial Officer 1993 251,873 256,454 4,980 30,000 6,283
Richard P. Ottaviano (g) 1995 246,761 0 375 30,000 5,031 (e)
Senior Vice President, 1994 223,683 63,868 600 55,000 6,609
Administration 1993 184,373 154,620 2,442 30,000 5,919
Kirby B. Coryell (h) 1995 218,517 0 57,623 (i) 87,000 6,201 (e)
Senior Vice President, 1994 - - - - -
Worldwide Operations 1993 - - - -
</TABLE>
_________
(a) Other Annual Compensation generally includes reimbursement for medical
expenses and/or tax and estate planning expenses. Mr. Coryell's Other
Annual Compensation also includes amounts denoted in (i) below. The
amounts shown for fiscal 1995 otherwise represent reimbursement for tax
and estate planning only.
(b) Mr. Qureshey resigned as Chief Executive Officer effective November 2,
1995, but remains an employee of the Company and Chairman of the Board.
Ian Diery was named President and Chief Executive Officer on November 2,
1995. Mr. Diery's employment agreement is described under "Employment
Contracts and Termination of Employment and Change in Control
Arrangements."
(c) The Company maintains an aggregate of $24,000,000 of split dollar life
insurance policies insuring the survivor of Mr. Qureshey and his spouse.
The portion of the premium paid for term life insurance coverage in
fiscal 1995 was $39,898. The portion of the premium paid for non-term
coverage, valued in accordance with requirements of the Securities and
Exchange Commission as an interest-free loan to Mr. Qureshey, was
$139,107. Also included is the Company's 401(k) Plan matching
contribution in the amount of $6,000.
(d) Mr. Schraith's employment with the Company terminated effective September
11, 1995.
(e) The Company's matching contribution to the Company's 401(k) Plan.
(f) Mr. Edwards announced his resignation as an officer and Board member of the
Company effective as of December 28, 1995.
(g) Mr. Ottaviano's employment with the Company terminated effective October
20, 1995.
(h) Mr. Coryell's employment with the Company terminated effective September
20, 1995. Mr. Weaver has since been elected as an executive officer to
replace Mr. Coryell. Mr. Weaver's salary for fiscal 1996 has been fixed at
$225,000.
(i) The Company paid $55,935 for Mr. Coryell's relocation expenses.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (a)
- - ----------------------------------------------------------------------------------- ----------------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted (b) Employees in Base Price Expiration
Name (#) Fiscal Year ($/Share)(c) Date (e) 5% ($) 10% ($)
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Safi U. Qureshey 25,000 2.06% 12.75 11/1/04 200,460 508,005
25,000 2.06% 15.00 2/1/05 (d) 235,835 597,653
James T. Schraith 100,000 8.24% 15.25 8/1/04 959,064 2,430,457
15,000 1.24% 12.75 11/1/04 120,276 304,803
25,000 2.06% 15.00 2/1/05 (d) 235,835 597,653
Bruce C. Edwards 15,000 1.24% 12.75 11/1/04 120,276 304,803
15,000 1.24% 15.00 2/1/05 (d) 141,501 358,592
Richard P. Ottaviano 15,000 1.24% 12.75 11/1/04 120,276 304,803
15,000 1.24% 15.00 2/1/05 (d) 141,501 358,592
Kirby B. Coryell 75,000 6.18% 11.44 10/26/04 539,474 1,367,132
7,000 0.58% 12.75 11/1/04 56,129 142,242
5,000 0.41% 15.00 2/1/05 (d) 47,167 119,531
_________
(a) The potential gains shown are net of the option exercise price and do not
include the effect of any taxes associated with exercise. The amounts
shown are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance, and may not necessarily
be realized. Actual gains, if any, on stock option exercises depend on
the future performance of the Company's Common Stock, continued employment
of the optionee through the term of the option, and other factors.
(b) All option grants were new and not granted in connection with an option
repricing transaction. All options vested and became 100% exercisable upon
completion of the Samsung stock purchase on July 31, 1995. Options expire
10 years from date of grant.
(c) Effective October 26, 1995, all outstanding stock options held by employees
other than corporate officers or Board members were repriced with a new
exercise price of $9.375 per share, provided that the options are not
exercised and employment is not terminated prior to October 26, 1996.
Because the repricing does not apply to corporate officers or Board
members, there is no effect on the amounts noted above. The Company
initiated this repricing arrangement in order to retain and motivate key
employees as part of an effort to successfully implement the Company's
turnaround plan.
(d) Additional option grants to Messrs. Qureshey, Schraith, Edwards, Ottaviano
and Coryell in the respective amounts of 25,000, 25,000, 15,000, 15,000 and
5,000 were made effective as of August 1, 1995, with an exercise price
equal to the then $15.125 per share fair market value of the Company's
Common Stock. These grants were made as part of a split option grant, in
conjunction with the option grants made on February 1, 1995, and vest
ratably over four years.
(e) Subsequent to the end of the fiscal year, Messrs. Schraith, Ottaviano, and
Coryell's employment with the Company terminated and Mr. Edwards announced
his resignation effective December 28, 1995. In connection therewith, the
options will expire six months from the date of termination.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
</TABLE>
<TABLE>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value Fiscal Year-End (#) Fiscal Year-End ($)(b)
Acquired on Realized ------------------------------ ------------------------------
Name Exercise (#) ($) Exercisable Unexercisable (a) Exercisable Unexercisable (a)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Safi U. Qureshey - - 681,250 163,750 5,115,000 81,250
James T. Schraith - - 44,750 188,750 13,281 78,750
Bruce C. Edwards - - 150,000 90,000 571,875 48,750
Richard P. Ottaviano - - 77,750 78,750 60,000 48,750
Kirby Coryell - - 16,750 107,250 0 326,438
_________
(a) All options in this column became 100% exercisable upon completion of the
Samsung stock purchase on July 31, 1995.
(b) Effective October 26, 1995, all outstanding stock options held by employees
other than corporate officers or Board members were repriced with a new
exercise price of $9.375 per share, provided that the options are not
exercised and employment is not terminated prior to October 26, 1996.
Because the repricing does not apply to corporate officers or Board
members, there is no effect on the amounts noted above. The Company
initiated this repricing arrangement in order to retain and motivate key
employees as part of an effort to successfully implement the Company's
turnaround plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
On November 2, 1995, the Company entered into an employment agreement with
Ian Diery, President and Chief Executive Officer. Under the agreement, Mr.
Diery's annual salary is $700,000. In addition, Mr. Diery is eligible to
participate in the Company's profit sharing plan, 401(k) plan, management
incentive plan and quarterly bonus plan. Under this agreement, Mr. Diery
receives annually an automobile allowance of $12,000, a medical allowance of
$20,000, and a financial planning allowance of $10,000. Mr. Diery also received
a relocation allowance of up to $500,000 and an income tax gross up on such
allowance, for moving expenses and to reimburse him for the amount of any loss
incurred upon disposal of his prior residence.
Mr. Diery received a grant of 300,000 stock options having an exercise price
equal to $9.375 per share, the closing price of the Common Stock on November 2,
1995. These options vest at the rate of 25% per year, commencing November 2,
1996. Mr. Diery also received an additional grant of 700,000 options
exercisable at $9.375 per share, vesting at the rate of 12.5 percent per year,
with accelerated vesting based upon the market price of the Common Stock. If
the daily closing price of the Common Stock averages $21, $30, and $40 over any
three month period within the option term, respectively, one-third of these
options not otherwise vested will vest at the end of each such three month
period.
On July 27, 1993, the Company entered into a five-year revolving term
employment agreement with Mr. Qureshey ("Agreement" or "Founder's Agreement"),
which provides in certain circumstances for a possible consulting term and other
post-termination benefits. All post-termination benefits are conditioned upon
Mr. Qureshey's not undertaking competing employment and his not soliciting away
Company employees. In addition, Mr. Qureshey agreed that he will vote his
shares along with the other stockholders in the election of directors and will
not join or participate against the Board in any proxy solicitation, and will
offer the Company a right of first refusal on any 100,000 or more share blocks
proposed to be sold by him in any private sale. If Mr. Qureshey should accept
non-competing but substantial employment with any other company or firm during
any period of active employment, consulting, or post-termination benefits under
the Founder's Agreement, the Company may elect that Mr. Qureshey cease to be an
employee or consultant and be entitled to receive an aggregate lump sum equal to
50% of the salary and/or bonus, if any, which he is then receiving and which he
otherwise would be entitled to receive for the remaining balance of the
employment or post-termination benefit or consulting period, as described below;
however, all other benefits would cease and Mr. Qureshey would continue to be
bound by the restrictions concerning competing employment, non-solicitation of
employees, the voting of shares and the right of first refusal. At any time
following one year from a date of employment termination, Mr. Qureshey may elect
to terminate the foregoing restrictions upon 90 days' written notice, in which
event all Company obligations and benefits payable under the Founder's Agreement
would cease, all stock option acceleration would be rescinded and any
outstanding loans to Mr. Qureshey would have to be repaid to the Company within
90 days. Nevertheless, Mr. Qureshey would continue to be bound by the
provisions of the Founder's Agreement pertaining to the Company's confidential
and proprietary information.
If Mr. Qureshey's employment is terminated for "cause," the Company will be
obligated to pay him only such severance compensation as shall have vested and
as the Board otherwise deems appropriate, or none at all, and the Company's
obligations under the Founder's Agreement will be null and void. If Mr.
Qureshey becomes disabled, upon the expiration of six consecutive months of
disability, Mr. Qureshey's employment may be terminated by the Company. In such
event or in the event of Mr. Qureshey's death, in addition to amounts paid from
insurance policies, Mr. Qureshey or his estate will be entitled to receive his
base salary and bonus for at least one year, the restriction period on all
restricted stock granted to him under Company plans shall lapse and all stock
options or other such rights which otherwise would have vested within two years
of such event will accelerate and become fully vested and remain exercisable in
accordance with their respective terms.
During employment, Mr. Qureshey will receive his salary, bonus and all other
benefits, including a $25,000 financial planning allowance and a gross-up for
income tax on such allowance, consistent with past practices. If Mr. Qureshey's
active employment is terminated by him for "good reason" or by the Company
without "cause," Mr. Qureshey shall continue to receive his base salary for a
benefit period of five years following termination. In either event, (a) Mr.
Qureshey shall be entitled to receive his annual bonus for the year in which
termination occurs, pro rated to the date of termination, as well as bonuses for
the two fiscal years following termination, such bonus amounts being determined
by taking the average of the bonuses paid to Mr. Qureshey in the preceding two
years; (b) all stock options shall accelerate and become exercisable and all
restrictions on restricted stock awards shall lapse; (c) the benefits allowance
for death or disability shall continue for a period of five years from the date
of termination; and (d) all of his benefits payable under the Company's tax-
qualified employee benefit plans or other programs pertaining to deferred
compensation, retirement, profit sharing, 401(k), or employee stock ownership
(if any) will be paid. In addition, if Mr. Qureshey enters into loan agreements
for the purpose of exercising options or other rights to acquire securities, the
Company will guarantee such loans (up to $3,000,000) and pay the interest on
them for a period ending 13 months after the date of the event causing tax
liability to be incurred by reason of such exercise.
In the event of Mr. Qureshey's disability or of his termination by the
Company without "cause" or termination of employment by Mr. Qureshey for "good
reason," Mr. Qureshey will also be entitled to receive additional benefits
during the first five-year post-termination benefit period including an office,
health and welfare benefits, continued use of a Company automobile followed by
transfer of title of such automobile to Mr. Qureshey at the end of the five-year
period, and up to $25,000 per year (grossed up for income taxes) for estate, tax
and financial planning services.
Following such five-year post-termination benefits period, provided Mr.
Qureshey has not and does not undertake substantial or competing employment, the
Company indefinitely will provide continued health and welfare benefits, with
Mr. Qureshey paying or reimbursing the Company the average cost of such
coverages, and Mr. Qureshey will have the title Vice Chairman. For a period of
up to five years following the first five-year post-termination benefits period,
Mr. Qureshey may elect to become a consultant and receive 60% of his former base
salary and be entitled to receive the additional benefits described in the
foregoing paragraph. If prior to any termination Mr. Qureshey undertakes an
"early retirement" from active employment and otherwise is not receiving the
post-termination benefits enumerated above, he may at his election become a
consultant to the Company and become subject to the restrictions under the
Founder's Agreement and also become entitled to receive 80% of his then base
salary for a period of five years, as well as the additional benefits listed
above. Bonus amounts will not be required during any consulting period.
Mr. Qureshey resigned as President and Chief Executive Officer effective
November 2, 1995, but remains an employee and Chairman of the Board. Effective
November 2, 1995, Mr. Qureshey agreed to a voluntary reduction in salary to
$325,000 per year until the Company returns to profitability, and agreed not to
currently enforce the terms of the existing agreement with respect to
termination for "good reason." However, all other terms, including his annual
base salary of $650,000, of the Founder's Agreement are deemed to be in effect
and all rights are reserved thereunder by Mr. Qureshey.
Mr. Qureshey's benefits under the Founder's Agreement are in addition to and
not in lieu of the benefits payable to him under his Severance Compensation
Agreement (see below). Following a change in control of the Company, Mr.
Qureshey is generally entitled to all of the benefits specified in the Severance
Compensation Agreement, whether or not his active employment is terminated,
provided, however, that Samsung's stock purchase will not constitute a change in
control for purposes of Mr. Qureshey's Severance Compensation Agreement unless
Samsung's interest in the Company becomes in excess of 49.9%. Mr. Qureshey will
not otherwise participate in the officer involuntary termination policy
described below.
At the Annual Meeting of Stockholders held in May 1987, the stockholders
authorized and approved an indemnification program for corporate officers and
directors under which the Company and each corporate officer and director
entered into an Indemnification Agreement, substantially in the form approved by
the stockholders.
The Company has entered into Severance Compensation Agreements with each of
its executive officers. Under the agreements, following a "change in control"
of the Company, which included the Samsung transaction for then existing
officers, if either the Company terminates the officer's employment without
cause or the officer terminates his employment for good reason, each as defined
in the agreements, then (a) the Company will pay the officer severance
compensation equal to two years' salary and bonuses (except with respect to Mr.
Qureshey, such amount will be increased by 50% in the event the officer's
employment is terminated in accordance with any action taken or recommended by
the Management Committee (as defined in the Samsung Stockholder Agreement)), (b)
all stock options held by the officer, to the extent that they would become
exercisable within two years of the change in control, will immediately become
exercisable for a period of six months following termination, and (c) the
officer will receive continued welfare benefits for a period of two years.
Under the agreements, the Company will indemnify the officer with respect to
payment of excise taxes on excess "parachute payments" imposed under Section
4999 of the Internal Revenue Code. Such an agreement was entered into with Mr.
Diery on November 2, 1995, provided that a change in control will be deemed to
occur with respect to the Samsung transaction only if Samsung's percentage
ownership of the Company should exceed 49.9 percent. Similarly, all agreements
entered into after the original Samsung investment have a 49.9% trigger.
Similar agreements have also been entered into with thirteen vice presidents,
except that the vice presidents' severance benefits include only one year of
salary (with a similar 50% increase in the event employment is terminated in
accordance with any action taken or recommended by the Management Committee),
bonus and welfare benefits continuation, and only options otherwise vesting
within one year of the change in control will accelerate.
The Company has a severance policy for its executive officers which, in the
event of an involuntary termination other than in connection with a "change in
control," as defined in the Severance Policy, requires the Company to pay its
President severance equal to two years salary and its other executive officers
severance equal to six months salary plus an additional month of salary for each
year of employment with the Company, up to a maximum of 12 months. Welfare
benefits are also continued during this period.
Mr. Schraith's employment with the Company terminated on September 11, 1995.
Pursuant to a Severance Compensation Agreement with the Company, as described
above, Mr. Schraith was paid a lump sum payment of $1,472,500.
Scott A. Smith's employment as Vice President and General Manager, Desktop
Products was terminated on September 11, 1995. Pursuant to a Severance
Compensation Agreement with the Company, Mr. Smith was paid a lump sum payment
of $477,500.
James D. Wittry's employment as Senior Vice President, Americas, was
terminated on September 11, 1995. Pursuant to a Severance Compensation
Agreement with the Company, Mr. Wittry was paid a lump sum payment of $461,600.
Mr. Ottaviano's employment with the Company terminated on October 20, 1995.
Pursuant to a Severance Compensation Agreement with the Company, Mr. Ottaviano
was paid a lump sum payment of $720,100.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Goeglein, Mr. Peltason and Delbert W. Yocam served on the Compensation
Committee during fiscal 1995. Mr. Yocam resigned as a member of the Board of
Directors on September 21, 1995 and was replaced on the Compensation Committee
by Mr. Yang. Mr. Goeglein now serves as Chairman of the Compensation Committee.
None of these persons is or has been an officer of the Company or any of its
subsidiaries. In addition to serving on the Company's Board of Directors, Mr.
Goeglein, Dr. Santoro and Mr. Edwards serve on the Board of Directors of
Platinum Software Corporation ("Platinum"), which designs, manufactures and
markets accounting software systems. At Platinum, Dr. Santoro is also an
executive officer and Mr. Goeglein serves on the Compensation Committee. In
such capacities, each of Dr. Santoro and Mr. Goeglein has influence over the
fees, equity participation and other compensation paid to the others by
Platinum. Mr. Goeglein, as a member of the Company's Board and Compensation
Committee, has direct influence over the equity participation awards and
compensation paid to Mr. Edwards in his capacity as an executive officer of the
Company. As continuing Board members, Dr. Santoro and Mr. Goeglein will
continue to have influence over the fees, equity participation and compensation
paid to the others by the Company. Prior to either Dr. Santoro's, Mr.
Goeglein's or Mr. Edwards' joining the Platinum Board of Directors, the Company
purchased certain accounting software systems from Platinum. In fiscal 1995,
amounts paid to Platinum by the Company were less than $2,000 and related
primarily to service and maintenance of previously purchased products. The
Company believes that the terms and conditions of its purchase relationship with
Platinum are as favorable to the Company as those that could have been obtained
from any other third-party vendor of similar products and services.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1995, the Company loaned Mr. Qureshey $1,156,453 to exercise options
to purchase 150,000 shares of Company Common Stock granted under the Chief
Executives' Plan, evidenced by a promissory note secured by a stock certificate.
The loan was issued interest free and is payable in full on or before April 30,
1996.
In September 1993, the Company loaned Vice President and General Manager,
Desktop Products, Scott A. Smith $100,000 for the purchase of a primary
residence, evidenced by a promissory note secured by a deed of trust. The loan
was issued interest free and is payable in full in September 1996. At November
27, 1995, the entire amount remained outstanding.
See "Compensation Committee Interlocks and Insider Participation" above.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Company's compensation policies applicable to its executive officers are
administered by the Compensation Committee (the "Committee") of the Board of
Directors. The Committee is made up entirely of non-employee directors. The
Committee retains the services of an independent compensation consultant to
assist the Committee with formulating and evaluating the Company's compensation
policies and programs. These programs and policies are designed to enhance
stockholder value by aligning the financial interests of the executive officers
of the Company with those of its stockholders.
There are four primary components of executive compensation: Base Salary,
the Employee Quarterly Bonus Plan, the Annual Management Incentive Plan, and
Stock Option Grants.
Base Salary. Base salaries for fiscal 1995 reported herein were determined
by the Committee in October 1994. The Committee reviews salaries recommended by
the Chief Executive Officer for executive officers other than the Chief
Executive Officer. In conducting its review, the Committee takes into
consideration survey data on (1) comparable organizations supplied by its
consultant, (2) the overall performance of the Company, and (3) the Chief
Executive Officer's evaluation of individual executive officer performance.
Final decisions on base salary adjustments for executives other than the Chief
Executive Officer are made in conjunction with the Chief Executive Officer. The
Committee independently determines the base salary for the Chief Executive
Officer by: (1) reviewing data supplied by its consultant on comparable
organizations, (2) examining the Company's performance against its preset goals,
(3) examining the Company's performance within the industry, and (4) evaluating
the overall performance of the Chief Executive Officer. Based upon the data and
performance, Mr. Qureshey's base salary was not changed from the $650,000 per
year level that was fixed effective October 1, 1993. Mr. Diery's base salary
was fixed at $700,000 per year, effective November 2, 1995, and any subsequent
adjustment of his base salary will be subject to the performance criteria noted
above.
Employee Quarterly Bonus Plan. This is a nonqualified bonus plan under which
all employees of the Company, including officers, are eligible to receive, on a
quarterly basis, an equal percentage of their base compensation as a cash bonus.
All employees, including officers, receive the same percentage. The bonus,
which is generally based upon pre-tax income for the quarter against preset
income objectives, is approved by the Committee, and is limited to a maximum of
15% of quarterly base compensation. For fiscal 1995, there were no employee
bonuses paid.
Annual Management Incentive Plan. The Annual Management Incentive Plan is
designed to provide incentive compensation to key officers and employees who
contribute substantially to the success of the Company. The plan is designed to
create a strong link between preset performance objectives and enhanced
stockholder value by providing targets that exceed industry averages. The
performance objectives of the plan for fiscal 1995 were revenue growth and
profitability. Performance targets are set above industry norms, requiring
above average performance against the industry for significant awards under this
program. The incentive funding formula provides an opportunity for incentive
compensation up to 100% of base salary plus a share of profits as set in advance
by the Committee if the maximum performance targets are exceeded. The maximum
award allowable under the plan cannot exceed $3,000,000 for the Chief Executive
Officer and $1,500,000 for any other Participant in any plan year. The
Committee may reduce an individual's bonus otherwise payable under this plan in
its sole discretion. The Company's performance during fiscal 1995 did not
warrant the payment of any awards under the plan.
Stock Option Grants. The Committee periodically grants options generally
under its stockholder-approved option plans with an exercise price equal to the
fair market value of the Common Stock on the date of grant. The grants are
generally nonqualified stock options with a ten year term which vest over four
years in equal installments. The awards are intended to retain and motivate key
executives and to provide a direct link with the interests of the stockholders
of the Company. The Committee, in making its determination as to award levels,
takes into consideration: (1) information provided by its consultant on
competitive practices, (2) prior award levels, (3) total awards received to date
by individual executives, (4) the total stock option award to be made to all
executives and the executive's percentage participation in that award, (5) the
executive's direct ownership of the Company's shares, (6) the number of options
vested and nonvested for each executive, and (7) the total number of options
outstanding as a percentage of total shares of Common Stock outstanding. Grants
for the executives were made by the Committee in August 1994, November 1994 and
February 1995 with an exercise price equal to the fair market value of the
Common Stock on each date of grant of $15.25, $12.75, and $15.00, respectively.
Mr. Qureshey, the Company's Chief Executive Officer during 1995, was awarded
option grants covering a total of 50,000 shares, representing 4.12% of the total
options granted to employees during the fiscal year.
Compliance with Internal Revenue Code Section 162(m). Internal Revenue Code
Section 162(m), enacted in 1993, precludes a public corporation from taking a
deduction in 1994 or subsequent years for compensation in excess of $1 million
for its chief executive officer or any of its four other highest-paid executive
officers serving at the end of the taxable year. Certain performance based
compensation that has been approved by stockholders, however, is specifically
exempt from the deduction limit. The Company believes that the current
structure of the performance-based portion of the compensation of its executive
officers complies with the new statute. Further interpretations of and changes
in the tax laws and other factors beyond the Committee's control may affect the
deductibility of compensation. In addition, the Committee reserves the right to
award compensation to the Company's officers that is not considered performance
based under Section 162(m) when the Committee determines that such compensation
is appropriate.
Change in Control Arrangements. In addition, the Committee reviews and
administers policies and programs with respect to employment agreements and
change in control arrangements with executives. The Committee believes that
change in control arrangements with executives serve the important purpose of
assuring continuing loyalty and concentration despite the anticipated
distractions inherent in change of control transactions.
Compensation Committee:
Richard J. Goeglein, Chairman
Jack W. Peltason
Won Suk Yang
STOCK PERFORMANCE GRAPH
The following stock performance graph shows the cumulative total return
(assuming dividend reinvestment) on $100 invested June 30, 1990, in shares of
the Company's Common Stock, the S&P 500 Index selected by Standard & Poors, and
the S&P Computer Systems Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
PERFORMANCE GRAPH MEASUREMENT POINTS
S&P 500 COMPUTER
MEASUREMENT DATE AST RESEARCH, INC. S&P 500 INDEX SYSTEMS INDEX
- - ---------------- ------------------ ------------- ----------------
JUNE 30, 1990 $100 $100 $100
JUNE 29, 1991 170 104 84
JUNE 27, 1992 108 113 80
JULY 3, 1993 126 125 53
JULY 2, 1994 119 125 55
JULY 1, 1995 130 149 92
PROPOSAL 2
APPROVAL OF ADDITIONAL SHARES
TO BE AVAILABLE UNDER THE AST RESEARCH, INC.
1991 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Board of Directors of the Company adopted, on July 27, 1995, an amendment
to the AST Research, Inc. 1991 Stock Option Plan for Non-Employee Directors (the
"Non-Employee Director Option Plan" or "Plan") and directed that it be submitted
to the stockholders for approval at the Annual Meeting. The proposed amendment,
which is described below, would increase the maximum number of shares of Common
Stock available for issuance under the Non-Employee Director Option Plan.
Currently the maximum number of shares of Common Stock which may be issued
pursuant to the Non-Employee Director Option Plan is 250,000. The proposed
amendment would increase the maximum number of shares available for issuance
under the Non-Employee Director Option Plan by 250,000 to a total of 500,000.
The Company is requesting the increase in the number of shares authorized for
issuance under the Non-Employee Director Option Plan in order to enable the
Company to continue to attract and retain well-qualified persons for service as
directors of the Company and to provide incentives to such directors through the
grant of options to purchase shares of the Company's Common Stock. It is
estimated that the current number of shares of Common Stock authorized for
issuance under the Plan will be exhausted in January 1997.
The Non-Employee Director Option Plan provides that each member of the
Company's Board of Directors who is not an employee of the Company
("Participants") automatically will be eligible to receive options to purchase
stock under the Non-Employee Director Option Plan. However, the current
Stockholder Agreement with Samsung effectively excludes Samsung designated
directors who are not employees of the Company but are either an officer,
employee or a consultant of Samsung (currently five of ten members of the Board
of the Company).
In the event that there is a change in the Company's capital structure by
reason of a merger, consolidation, reorganization, recapitalization or
otherwise, the number and kind of shares subject to the Non-Employee Director
Option Plan and the rights under outstanding options, both as to the number of
shares and the exercise price, will be adjusted appropriately. However, if the
Company is not the surviving corporation in any merger, consolidation,
acquisition of stock or property, separation or reorganization, each outstanding
option will terminate, unless the surviving corporation assumes the outstanding
options or replaces them with options of comparable value. In the event that
the surviving corporation does not assume or replace outstanding options under
the Non-Employee Director Option Plan, each Participant will have the right to
exercise all of his or her outstanding options whether or not previously vested
for up to the full number of covered shares.
The principal features of the Non-Employee Director Option Plan are
summarized below.
Option Grants. Immediately upon election and qualification as a non-employee
director of the Company, each new director who has not theretofore served as a
director of the Company will be granted an option covering 20,000 shares of
Common Stock. On each January 1 during the term of the Plan, each duly elected
and qualified non-employee member of the Board of Directors then serving on the
Board is also granted an option covering an additional 12,000 shares of Common
Stock. All such option grants are subject to the current limitation that not
more than 250,000 shares be issued under the Non-Employee Director Option Plan,
subject to increase as provided above. Options vest and become exercisable at
the rate of 25% per year, commencing on the first anniversary of the date of the
grant.
Exercise Price. Each option granted under the Non-Employee Director Option
Plan has an exercise price equal to 100% of the fair market value of Common
Stock on the date of grant of the option. The exercise price, payable in full
upon the exercise of the option, may be paid (i) in cash or by check; (ii)
subject to any legal restrictions and obligations regarding the purchase of
shares for promissory notes or evidences of indebtedness, by delivery of the
Participant's promissory note in a form satisfactory to the Company and (at the
election of the Company) secured by a pledge of the shares purchased or other
security; (iii) by the surrender of shares of Common Stock owned by the person
exercising the option and having an aggregate fair market value on the date of
exercise equal to the exercise price; or (iv) in any combination of the
foregoing, so long as the total thereof equals the exercise price.
Registration Rights. Options may provide for the right of the director to
require the Company to register the shares issuable upon exercise of the option
and the right to include such shares in other registrations of the Company.
Termination of Status as Director. In the event that a Participant ceases to
be a director of the Company for any reason, including death or disability, such
Participant or his heirs and personal representatives, as the case may be, will
have the right to exercise the options at any time within 90 days after such
termination to the extent that, at the date of such termination, the
Participant's right to exercise such options had vested and had not previously
been exercised. A Participant's right to exercise the then unvested portion of
his options will terminate as of the date of termination of the Participant's
status as a director.
Nontransferability of Options. During the lifetime of a Participant, his
options are exercisable only by him and are not assignable or transferable. In
the event of the Participant's death, no option is transferable by the
Participant otherwise than by will or by the laws of descent and distribution.
Permissive Resales. The Non-Employee Director Option Plan also provides for
a resale to the Company in certain circumstances. In the event of certain
specified changes in the composition of the Board of Directors of the Company or
if any person or group makes a tender offer or exchange offer or enters into a
merger or other acquisition agreement (collectively, the "Offer") to acquire
beneficial ownership, directly or indirectly, of securities of the Company
representing 15% or more of the combined voting power of the then outstanding
securities of the Company, and such person or group does not substantially
concurrently offer to purchase for cash each of the then outstanding options for
a price at least equal to the Repurchase Price (as defined below), then the
option holder will have the right to require the Company to repurchase at the
Repurchase Price the then outstanding options (other than options which are
unvested) for a period ending 180 days following the date on which such person
or group actually acquires any securities of the Company pursuant to such Offer.
The Repurchase Price equals the sum of all (i) money and (ii) the fair market
value of any property actually paid or transferred for a share of the Common
Stock of the Company by the person or group pursuant to such Offer. As part of
the agreement with Samsung, the directors waived their rights to require resale
to the Company unless and until Samsung and/or its affiliates acquire beneficial
ownership of more than 49.9% of the voting stock of the Company.
Amendment of the Non-Employee Director Option Plan. The Non-Employee
Director Option Plan provides that it may be amended by the Company's Board of
Directors; provided, however, that the Board may condition amendment on approval
of stockholders if necessary or desirable.
Administration of the Non-Employee Director Option Plan. The Non-Employee
Director Option Plan is administered by the Board of Directors of the Company or
by a committee of two or more persons appointed by the Board of Directors. The
administrative function of the Board of Directors or such committee, as the case
may be, is essentially ministerial in view of the Non-Employee Director Option
Plan's specific provisions, including those related to eligibility for
participation in the Plan and the number of shares of Common Stock subject to
options to be granted to each Participant.
The Company believes the following is a brief summary of the tax effects
under the Internal Revenue Code of 1986, as amended (the "Code"), which may
accrue to Participants and to the Company.
There are generally no federal income tax consequences to either the Company
or the Participant upon the grant of an option under the Non-Employee Director
Option Plan. Upon the exercise of an option, the Participant will recognize
ordinary income in an amount equal to the difference between the fair market
value of the shares acquired on the date of exercise and the option price paid
for such shares. The Company is entitled to a tax deduction in an amount equal
to the ordinary income recognized by a Participant as a result of the exercise
of an option. The Participant's basis in the shares acquired pursuant to an
option will be increased by the amount of ordinary income recognized. Any
subsequent gain or loss recognized upon the sale of such shares will be treated
as capital gain or loss.
NEW PLAN BENEFITS
1991 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
</TABLE>
<TABLE>
Shares Subject to Options
Name and position Granted Each Year (a)
- - ---------------------------------------------------------------
<S> <C>
Richard J. Goeglein, Director 12,000
Carmelo J. Santoro, Director 12,000
Jack W. Peltason, Director 12,000
Non-Executive Director Group 36,000
</TABLE>
- - -----------
(a) The dollar value of options to be granted in January 1996
is not determinable.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy at the Annual Meeting shall be
required to approve this proposal. The Board of Directors believes that the
amendment to the Non-Employee Director Option Plan is in the best interests of
the Company because it will enhance the ability of the Company to attract,
motivate and retain well-qualified directors. THE BOARD OF DIRECTORS RECOMMENDS
THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT OF THE NON-EMPLOYEE
DIRECTOR OPTION PLAN. Proxies solicited by management will be voted FOR
amendment of the Non-Employee Director Option Plan unless a vote against the
proposal or abstention is specifically indicated.
PROPOSAL 3
SELECTION OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP, independent auditors,
as auditors of the Company for the fiscal year ending December 28, 1996, subject
to ratification by the stockholders. It is intended that, in the absence of
contrary specifications, the shares represented by the proxies will be voted FOR
the following resolution ratifying the appointment of Ernst & Young LLP.
"RESOLVED, that the stockholders of AST Research, Inc. hereby ratify
and approve the appointment of Ernst & Young LLP as the independent
auditors of such Company for the year ending December 28, 1996."
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the subject matter shall be required to adopt the foregoing
resolution. A representative of Ernst & Young LLP is expected to be present at
the Annual Meeting, will be given an opportunity to make a statement on behalf
of his firm if such representative so desires, and will be available to respond
to any appropriate questions of any stockholder. Ernst & Young LLP was the
Company's auditors for the fiscal year ended July 1, 1995, and have previously
been appointed auditors for the six-month period ending December 30, 1995.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE
YEAR ENDING DECEMBER 28, 1996.
ANNUAL REPORT ON FORM 10-K AND QUARTERLY REPORT ON FORM 10-Q
The Annual Report on Form 10-K of the Company, including financial statements
and schedules thereto for the fiscal year ended July 1, 1995, and the Form 10-Q
of the Company, including financial statements for the quarter ended September
30, 1995, are being forwarded to each stockholder with this Proxy Statement.
OTHER MATTERS
The Board of Directors has no knowledge of any other matters which shall come
before the Annual Meeting. If any other matters shall properly come before the
meeting, the persons named in the proxies will have discretionary authority to
vote the shares thereby represented in accordance with their best judgment.
SECTION 16(A) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership with the Securities and Exchange Commission ("SEC") and the NASDAQ
Stock Market. Directors, executive officers and greater than ten-percent
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms received by the Company
and on written representations from certain reporting persons that no Forms 5
were required for those persons, the Company believes that, during the period
from July 3, 1994 to July 1, 1995, all filing requirements applicable to its
directors, executive officers and greater than ten-percent beneficial owners
were met.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the Company's next
Annual Meeting of Stockholders should be received by the Secretary of the
Company prior to March 31, 1997 for inclusion in the Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on or about May 22, 1997.
Dennis R. Leibel
Secretary
Dated: December 11, 1995
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WILL BE PROVIDED TO STOCKHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE CORPORATE SECRETARY, AST RESEARCH, INC.,
16215 ALTON PARKWAY, IRVINE, CALIFORNIA 92718.
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PROXY
AST RESEARCH, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
Ian Diery and Safi U. Qureshey and each or both of them, with full power of
substitution, are hereby appointed Proxies to vote the stock of the undersigned
in AST Research, Inc. at the Annual Meeting of Stockholders on January 25, 1996,
and at any adjournments, to be held at The Sutton Place Hotel, 4500 MacArthur
Blvd., Newport Beach, California at 9:00 a.m., Pacific Standard Time.
Management recommends that you vote FOR the election of the ten director
nominees (Proposal 1), FOR the amendment to the 1991 Stock Option Plan for Non-
Employee Directors (Proposal 2), and FOR the approval of Ernst & Young LLP as
the auditors for fiscal year 1996 (Proposal 3).
1. PROPOSAL 1. ELECTION OF DIRECTORS
_____ FOR all nominees _____ WITHHOLD
listed below AUTHORITY to
except as indi- vote for all
cated to the nominees listed
contrary below below
Safi U. Qureshey, Ian Diery, Richard J. Goeglein, Jack W. Peltason, Carmelo J.
Santoro, Hoon Choo, Kwang-Ho Kim, Young Soo Kim, Won Suk Yang, and Hee Dong Yoo.
INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space
provided below.
________________________________________________________________________________
2. PROPOSAL 2 to approve the amendment to increase the authorized number of
shares reserved for issuance under the AST Research, Inc. 1991 Stock Option
Plan for Non-Employee Directors by 250,000 shares.
_____ FOR _____ AGAINST _____ ABSTAIN
3. PROPOSAL 3 to ratify appointment of Ernst & Young LLP as auditors for fiscal
1996.
_____ FOR _____ AGAINST _____ ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon any other
business as may properly come before the meeting or any adjournments thereof,
including matters of which the Board of Directors did not know a reasonable
time before the date of the Proxy Statement are to be presented.
THIS PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE TEN DIRECTOR NOMINEES, FOR PROPOSAL 2, AND
FOR PROPOSAL 3.
Please sign exactly as name appears hereon.
__________________________________________
__________________________________________
Date: _____________________________________
[When shares are held by joint tenants,
both should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full corporate
name by President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.]
PLEASE DATE, SIGN AND RETURN THIS CARD IN THE ENCLOSED ENVELOPE.
AMENDMENT TO
AST RESEARCH, INC.
1991 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
WHEREAS, the purpose of this Amendment is to increase by 250,000 shares the
aggregate number of shares of Common Stock authorized for issuance under the AST
Research, Inc. 1991 Stock Option Plan for Non-Employee Directors (the "Plan"),
for an aggregate of 500,000 shares authorized for issuance under the Plan,
NOW, THEREFORE, Section 6 of the Plan is hereby amended, subject to
approval by the stockholders, to read as follows:
"6. Stock. The stock subject to Options granted under the Plan
shall be shares of the Corporation's authorized but unissued or
reacquired Common Stock. The aggregate number of shares which may be
issued under Options exercised under the Plan shall not exceed 500,000
shares. The number of shares subject to Options outstanding under the
Plan at any time may not exceed the number of shares remaining
available for issuance under the Plan. In the event that any
outstanding Option under the Plan for any reason expires or is
terminated, the shares allocable to the unexercised portion of such
Option may again be subjected to an Option under the Plan. The
limitations established by this Section 6 shall be subject to
adjustment upon the occurrence of the events specified and in the
manner provided in Section 9 hereof."
The Plan shall remain in full force and effect, as hereby amended.
